Company Quick10K Filing
Quick10K
CVB Financial
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$21.38 140 $2,990
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-K 2013-12-31 Annual: 2013-12-31
8-K 2019-05-30 Regulation FD, Exhibits
8-K 2019-05-22 Shareholder Vote
8-K 2019-04-24 Earnings, Exhibits
8-K 2019-03-04 Regulation FD, Exhibits
8-K 2019-02-20 Officers
8-K 2019-01-23
8-K 2019-01-23
8-K 2018-11-01 Other Events, Exhibits
8-K 2018-10-31 Regulation FD, Exhibits
8-K 2018-10-24 Earnings, Exhibits
8-K 2018-09-12 Officers, Exhibits
8-K 2018-08-10 M&A, Officers, Other Events, Exhibits
8-K 2018-07-30 Regulation FD, Exhibits
8-K 2018-07-26 Regulation FD, Exhibits
8-K 2018-07-18 Earnings, Other Events, Exhibits
8-K 2018-06-21 Shareholder Vote, Other Events, Exhibits
8-K 2018-06-12 Other Events
8-K 2018-05-30 Regulation FD, Other Events, Exhibits
8-K 2018-05-23 Officers, Shareholder Vote, Exhibits
8-K 2018-04-18 Earnings, Other Events, Exhibits
8-K 2018-03-05 Regulation FD, Other Events, Exhibits
8-K 2018-02-26 Enter Agreement, Other Events, Exhibits
8-K 2018-01-24 Earnings, Exhibits
NOVT Novanta 2,880
AKCA Akcea Therapeutics 2,130
ECOL US Ecology 1,260
ASMB Assembly Biosciences 414
IIIN Insteel Industries 387
PTN Palatin Technologies 284
AUTO Autoweb 44
AUMN Golden Minerals 25
KOSS Koss 15
APPB Applied Biosciences 0
CVBF 2019-03-31
Part I - Financial Information (Unaudited)
Item 1. Condensed Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II - Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
EX-31.1 d697023dex311.htm
EX-31.2 d697023dex312.htm
EX-32.1 d697023dex321.htm
EX-32.2 d697023dex322.htm

CVB Financial Earnings 2019-03-31

CVBF 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 d697023d10q.htm 10-Q 10-Q
Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

FORM 10-Q

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934    

For the quarterly period ended March 31, 2019

or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____ to _____

Commission File Number: 000-10140

CVB FINANCIAL CORP.

(Exact name of registrant as specified in its charter)

 

California   95-3629339
(State or other jurisdiction of   (I.R.S. Employer
Incorporation or organization)   Identification No.)
701 North Haven Ave., Suite 350  
Ontario, California   91764
(Address of principal executive offices)   (Zip Code)

(909) 980-4030

(Registrant’s telephone number,

including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒    No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒    No ☐

Indicate by check mark whether the registrant is a large accelerated filer, accelerated filer, non-accelerated filer or smaller reporting company, or emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

 

  Large accelerated filer        Accelerated filer   
  Non-accelerated filer        Smaller reporting company       
  Emerging growth company              

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act  ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No ☒

Securities registered pursuant to Section 12(b) of the Act:

Title of each class    Trading Symbol(s)    Name of each exchange on which registered
Common Stock, No Par Value    CVBF    NASDAQ

Number of shares of common stock of the registrant: 140,012,038 outstanding as of April 30, 2019.


Table of Contents

TABLE OF CONTENTS

 

PART I –    FINANCIAL INFORMATION (UNAUDITED)      3  

ITEM 1.

   CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)      5  
   NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)      10  

ITEM 2.

   MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS      39  
   CRITICAL ACCOUNTING POLICIES      39  
   OVERVIEW      39  
   ANALYSIS OF THE RESULTS OF OPERATIONS      41  
   ANALYSIS OF FINANCIAL CONDITION      51  
   ASSET/LIABILITY AND MARKET RISK MANAGEMENT      68  

ITEM 3.

   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK      70  

ITEM 4.

   CONTROLS AND PROCEDURES      70  
PART II –    OTHER INFORMATION      71  

ITEM 1.

   LEGAL PROCEEDINGS      71  

ITEM 1A.

   RISK FACTORS      72  

ITEM 2.

   UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS      72  

ITEM 3.

   DEFAULTS UPON SENIOR SECURITIES      72  

ITEM 4.

   MINE SAFETY DISCLOSURES      72  

ITEM 5.

   OTHER INFORMATION      72  

ITEM 6.

   EXHIBITS      72  
SIGNATURES         73  

 

2


Table of Contents

PART I – FINANCIAL INFORMATION (UNAUDITED)

GENERAL

Cautionary Note Regarding Forward-Looking Statements

Certain matters set forth herein (including the exhibits hereto) constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including forward-looking statements relating to the Company’s current business plans and expectations and our future financial position and operating results. Words such as “will likely result”, “aims”, “anticipates”, “believes”, “could”, “estimates”, “expects”, “hopes”, “intends”, “may”, “plans”, “projects”, “seeks”, “should”, “will”, “strategy”, “possibility”, and variations of these words and similar expressions help to identify these forward-looking statements, which involve risks and uncertainties. These forward-looking statements are subject to risks and uncertainties that could cause actual results, performance and/or achievements to differ materially from those projected. These risks and uncertainties include, but are not limited to:

 

   

local, regional, national and international economic and market conditions and political events and the impact they may have on us, our customers and our assets and liabilities;

   

our ability to attract deposits and other sources of funding or liquidity;

   

supply and demand for commercial or residential real estate and periodic deterioration in real estate prices and/or values in California or other states where we lend;

   

a sharp or prolonged slowdown or decline in real estate construction, sales or leasing activities;

   

changes in the financial performance and/or condition of our borrowers, depositors, key vendors or counterparties;

   

changes in our levels of delinquent loans, nonperforming assets, allowance for loan losses and charge-offs;

   

the costs or effects of mergers, acquisitions or dispositions we may make, including the 2018 merger of Community Bank with and into Citizens Business Bank, whether we are able to obtain any required governmental approvals in connection with any such mergers, acquisitions or dispositions, and/or our ability to realize the contemplated financial or business benefits or cost savings associated with any such mergers, acquisitions or dispositions;

   

the effect of changes in laws, regulations and applicable judicial decisions (including laws, regulations and judicial decisions concerning financial reforms, taxes, bank capital levels, allowance for loan losses, consumer, commercial or secured lending, securities and securities trading and hedging, bank operations, compliance, fair lending, the Community Reinvestment Act, employment, executive compensation, insurance, cybersecurity, vendor management and information security technology) with which we and our subsidiaries must comply or believe we should comply or which may otherwise impact us;

   

the effects of additional legal and regulatory requirements to which we have or will become subject as a result of our total assets exceeding $10 billion, which first occurred in the third quarter of 2018 due to the closing of our merger transaction with Community Bank;

   

changes in estimates of future reserve requirements and minimum capital requirements based upon the periodic review thereof under relevant regulatory and accounting standards, including changes in the Basel Committee framework establishing capital standards for bank credit, operations and market risks;

   

the accuracy of the assumptions and estimates and the absence of technical error in implementation or calibration of models used to estimate the fair value of financial instruments, the sensitivity of our assets and liabilities to changes in market interest rates, or our current allowance for loan losses;

   

inflation, changes in market interest rates, securities market and monetary fluctuations;

   

changes in government-established interest rates, reference rates (including the anticipated phase-out of LIBOR) or monetary policies;

   

changes in the amount, cost and availability of deposit insurance;

   

disruptions in the infrastructure that supports our business and the communities where we are located, which are concentrated in California, involving or related to physical site access, and/or communication facilities; cyber incidents or theft or loss of Company or customer data or money; political developments, uncertainties or instability, catastrophic events, acts of war or terrorism, or natural disasters, such as earthquakes, drought, the effects of pandemic diseases, extreme weather events, that affect electrical, environmental, computer servers, and communications or other services or facilities we use, or that affect our employees or third parties with whom we conduct business;

   

our timely development and acceptance of new banking products and services and the perceived overall value of these products and services by customers and potential customers;

   

the Company’s relationships with and reliance upon outside vendors with respect to certain of the Company’s key internal and external systems, applications and controls;

   

changes in commercial or consumer spending, borrowing and savings preferences or behaviors;

 

3


Table of Contents
   

technological changes and the expanding use of technology in banking and financial services (including the adoption of mobile banking, funds transfer applications, electronic marketplaces for loans, blockchain technology and other banking products, systems or services);

   

our ability to retain and increase market share, retain and grow customers and control expenses;

   

changes in the competitive environment among banks and other financial services and technology providers;

   

competition and innovation with respect to financial products and services by banks, financial institutions and non-traditional providers including retail businesses and technology companies;

   

volatility in the credit and equity markets and its effect on the general economy or local or regional business conditions or on the Company’s customers;

   

fluctuations in the price of the Company’s common stock or other securities, and the resulting impact on the Company’s ability to raise capital or make acquisitions;

   

the effect of changes in accounting policies and practices, as may be adopted from time-to-time by the regulatory agencies, as well as by the Public Company Accounting Oversight Board, the Financial Accounting Standards Board and other accounting standard setters;

   

changes in our organization, management, compensation and benefit plans, and our ability to retain or expand our workforce, management team and/or our board of directors;

   

the costs and effects of legal, compliance and regulatory actions, changes and developments, including the initiation and resolution of legal proceedings (including any securities, bank operations, consumer or employee class action litigation and any litigation which we inherited from our 2018 merger with Community Bank);

   

regulatory or other governmental inquiries or investigations, and/or the results of regulatory examinations or reviews;

   

our ongoing relations with our various federal and state regulators, including the SEC, Federal Reserve Board, FDIC and California DBO;

   

our success at managing the risks involved in the foregoing items; and

   

all other factors set forth in the Company’s public reports including its Annual Report on Form 10-K for the year ended December 31, 2018, and particularly the discussion of risk factors within that document.

The Company does not undertake, and specifically disclaims any obligation, to update any forward-looking statements to reflect occurrences or unanticipated events or circumstances after the date of such statements, except as required by law. Any statements about future operating results, such as those concerning accretion and dilution to the Company’s earnings or shareholders, are for illustrative purposes only, are not forecasts, and actual results may differ.

 

4


Table of Contents

ITEM 1.     CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

CVB FINANCIAL CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except share amounts)

(Unaudited)

 

           March 31,      
2019
    December 31,  
2018

Assets

    

Cash and due from banks

     $ 168,877       $ 144,008  

Interest-earning balances due from Federal Reserve

     3,337       19,940  
  

 

 

 

 

 

 

 

Total cash and cash equivalents

     172,214       163,948  
  

 

 

 

 

 

 

 

Interest-earning balances due from depository institutions

     7,420       7,670  

Investment securities available-for-sale, at fair value (with amortized cost of $1,677,732 at March 31, 2019, and $1,757,666 at December 31, 2018)

     1,673,501       1,734,085  

Investment securities held-to-maturity (with fair value of $720,651 at March 31, 2019, and $721,537 at December 31, 2018)

     733,464       744,440  
  

 

 

 

 

 

 

 

Total investment securities

     2,406,965       2,478,525  
  

 

 

 

 

 

 

 

Investment in stock of Federal Home Loan Bank (FHLB)

     17,688       17,688  

Loans and lease finance receivables

     7,606,863       7,764,611  

Allowance for loan losses

     (65,201     (63,613
  

 

 

 

 

 

 

 

Net loans and lease finance receivables

     7,541,662       7,700,998  
  

 

 

 

 

 

 

 

Premises and equipment, net

     55,833       58,193  

Bank owned life insurance (BOLI)

     222,010       220,758  

Accrued interest receivable

     30,557       30,649  

Intangibles

     50,927       53,784  

Goodwill

     666,539       666,539  

Other real estate owned (OREO)

     2,275       420  

Income taxes

     35,833       62,174  

Other assets

     95,034       67,807  
  

 

 

 

 

 

 

 

Total assets

     $ 11,304,957       $ 11,529,153  
  

 

 

 

 

 

 

 

Liabilities and Stockholders’ Equity

    

Liabilities:

    

Deposits:

    

Noninterest-bearing

     $ 5,098,822       $ 5,204,787  

Interest-bearing

     3,555,298       3,622,703  
  

 

 

 

 

 

 

 

Total deposits

     8,654,120       8,827,490  

Customer repurchase agreements

     462,774       442,255  

Other borrowings

     153,000       280,000  

Deferred compensation

     20,860       20,033  

Junior subordinated debentures

     25,774       25,774  

Other liabilities

     97,502       82,411  
  

 

 

 

 

 

 

 

Total liabilities

     9,414,030       9,677,963  
  

 

 

 

 

 

 

 

Commitments and Contingencies

    

Stockholders’ Equity

    

Common stock, authorized, 225,000,000 shares without par; issued and outstanding 140,009,185 at March 31, 2019, and 140,000,017 at December 31, 2018

     1,294,093       1,293,669  

Retained earnings

     602,279       575,805  

Accumulated other comprehensive loss, net of tax

     (5,445     (18,284
  

 

 

 

 

 

 

 

Total stockholders’ equity

     1,890,927       1,851,190  
  

 

 

 

 

 

 

 

Total liabilities and stockholders’ equity

     $ 11,304,957       $ 11,529,153  
  

 

 

 

 

 

 

 

See accompanying notes to the unaudited condensed consolidated financial statements.

 

5


Table of Contents

CVB FINANCIAL CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS AND COMPREHENSIVE INCOME

(Dollars in thousands, except per share amounts)

(Unaudited)

 

         For the Three Months Ended    
March 31,
     2019   2018

Interest income:

    

Loans and leases, including fees

     $ 99,687       $ 55,196  

Investment securities:

    

Investment securities available-for-sale

     10,645       11,868  

Investment securities held-to-maturity

     4,525       4,765  
  

 

 

 

 

 

 

 

Total investment income

     15,170       16,633  
  

 

 

 

 

 

 

 

Dividends from FHLB stock

     332       332  

Interest-earning deposits with other institutions

     94       536  
  

 

 

 

 

 

 

 

Total interest income

     115,283       72,697  
  

 

 

 

 

 

 

 

Interest expense:

    

Deposits

     3,871       1,525  

Borrowings and customer repurchase agreements

     1,610       453  

Junior subordinated debentures

     266       198  
  

 

 

 

 

 

 

 

Total interest expense

     5,747       2,176  
  

 

 

 

 

 

 

 

Net interest income before provision for (recapture of) loan losses

     109,536       70,521  

Provision for (recapture of) loan losses

     1,500       (1,000
  

 

 

 

 

 

 

 

Net interest income after provision for (recapture of) loan losses

     108,036       71,521  
  

 

 

 

 

 

 

 

Noninterest income:

    

Service charges on deposit accounts

     5,141       4,045  

Trust and investment services

     2,182       2,157  

Bankcard services

     950       804  

BOLI income

     1,336       979  

Gain on OREO, net

     105       3,540  

Gain on sale of building, net

     4,545       -  

Other

     2,044       1,391  
  

 

 

 

 

 

 

 

Total noninterest income

     16,303       12,916  
  

 

 

 

 

 

 

 

Noninterest expense:

    

Salaries and employee benefits

     29,302       22,314  

Occupancy and equipment

     5,615       4,192  

Professional services

     1,925       1,530  

Software licenses and maintenance

     2,422       1,760  

Marketing and promotion

     1,394       1,356  

Amortization of intangible assets

     2,857       331  

Acquisition related expenses

     3,149       803  

Other

     4,940       3,660  
  

 

 

 

 

 

 

 

Total noninterest expense

     51,604       35,946  
  

 

 

 

 

 

 

 

Earnings before income taxes

     72,735       48,491  
  

 

 

 

 

 

 

 

Income taxes

     21,093       13,578  
  

 

 

 

 

 

 

 

Net earnings

     $ 51,642       $ 34,913  
  

 

 

 

 

 

 

 

Other comprehensive income (loss):

    

Unrealized gain (loss) on securities arising during the period, before tax

     $ 18,227       $ (32,170

Less: Income tax (expense) benefit related to items of other comprehensive income

     (5,388     9,511  
  

 

 

 

 

 

 

 

Other comprehensive income (loss), net of tax

     12,839       (22,659
  

 

 

 

 

 

 

 

Comprehensive income

     $ 64,481       $ 12,254  
  

 

 

 

 

 

 

 

Basic earnings per common share

     $ 0.37       $ 0.32  

Diluted earnings per common share

     $ 0.37       $ 0.32  

See accompanying notes to the unaudited condensed consolidated financial statements.

 

6


Table of Contents

CVB FINANCIAL CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

Three months ended March 31, 2019 and 2018

(Dollars and shares in thousands)

(Unaudited)

 

                                                                                                        
    Common
Shares
Outstanding
  Common
Stock
  Retained
Earnings
  Accumulated
Other
Comprehensive
Income (Loss)
  Total

Balance, January 1, 2018

    110,185       $ 573,453       $ 494,361       $ 1,452       $ 1,069,266  

Cumulative adjustment upon adoption of ASU 2018-02

    -       -       (356     356       -  

Repurchase of common stock

    (34     (792     -       -       (792

Exercise of stock options

    87       828       -       -       828  

Shares issued pursuant to stock-based compensation plan

    21       736       -       -       736  

Cash dividends declared on common stock ($0.14 per share)

    -       -       (15,434     -       (15,434

Net earnings

    -       -       34,913       -       34,913  

Other comprehensive loss

    -       -       -       (22,659     (22,659
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, March 31, 2018

    110,259       $ 574,225       $ 513,484       $ (20,851     $ 1,066,858  
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, January 1, 2019

    140,000       $ 1,293,669       $ 575,805       $ (18,284     $ 1,851,190  

Repurchase of common stock

    (33     (735     -       -       (735

Exercise of stock options

    9       140       -       -       140  

Shares issued pursuant to stock-based compensation plan

    33       1,019       -       -       1,019  

Cash dividends declared on common stock ($0.18 per share)

    -       -       (25,168     -       (25,168

Net earnings

    -       -       51,642       -       51,642  

Other comprehensive income

    -       -       -       12,839       12,839  
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, March 31, 2019

    140,009       $ 1,294,093       $ 602,279       $ (5,445     $ 1,890,927  
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes to the unaudited condensed consolidated financial statements.

 

7


Table of Contents

CVB FINANCIAL CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

(Unaudited)

 

                                         
        For the Three Months Ended    
March  31,
    2019   2018

Cash Flows from Operating Activities

   

Interest and dividends received

    $ 109,857       $ 75,103  

Service charges and other fees received

    10,247       8,414  

Interest paid

    (5,336     (2,172

Net cash paid to vendors, employees and others

    (60,281     (35,932

Income taxes

    -       622  

Payments to FDIC, loss share agreement

    -       (39
 

 

 

 

 

 

 

 

Net cash provided by operating activities

    54,487       45,996  
 

 

 

 

 

 

 

 

Cash Flows from Investing Activities

   

Net change in interest-earning balances from depository institutions

    250       7,852  

Proceeds from repayment of investment securities available-for-sale

    77,303       95,018  

Proceeds from maturity of investment securities available-for-sale

    565       9,945  

Proceeds from repayment and maturity of investment securities held-to-maturity

    29,598       30,273  

Purchases of investment securities held-to-maturity

    (19,844     -  

Net increase in equity investments

    (2,314     (5,577

Net decrease in loan and lease finance receivables

    163,588       39,424  

Proceeds from BOLI death benefit

    175       882  

Proceeds from sale of building, net

    5,487       -  

Purchase of premises and equipment

    (1,490     (716

Proceeds from sales of other real estate owned

    523       8,067  
 

 

 

 

 

 

 

 

Net cash provided by investing activities

    253,841       185,168  
 

 

 

 

 

 

 

 

Cash Flows from Financing Activities

   

Net (decrease) increase in other deposits

    (156,745     175,839  

Net decrease in time deposits

    (16,625     (13,257

Net decrease in other borrowings

    (127,000     -  

Net increase (decrease) in customer repurchase agreements

    20,519       (66,496

Cash dividends on common stock

    (19,616     (15,425

Repurchase of common stock

    (735     (792

Proceeds from exercise of stock options

    140       828  
 

 

 

 

 

 

 

 

Net cash (used in) provided by financing activities

    (300,062     80,697  
 

 

 

 

 

 

 

 

Net increase in cash and cash equivalents

    8,266       311,861  

Cash and cash equivalents, beginning of period

    163,948       144,377  
 

 

 

 

 

 

 

 

Cash and cash equivalents, end of period

    $ 172,214       $ 456,238  
 

 

 

 

 

 

 

 

 

See accompanying notes to the unaudited condensed consolidated financial statements.

 

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CVB FINANCIAL CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

(Dollars in thousands)

(Unaudited)

 

                                         
        For the Three Months Ended    
March  31,
    2019   2018

Reconciliation of Net Earnings to Net Cash Provided by Operating Activities

   

   Net earnings

    $ 51,642       $ 34,913  

   Adjustments to reconcile net earnings to net cash provided by operating activities:

   

  Gain on sale of building, net

    (4,545     -  

  Gain on sale of other real estate owned

    (105     (3,540

  Increase in BOLI

    (1,427     (1,098

  Net amortization of premiums and discounts on investment securities

    2,498       3,839  

  Accretion of discount for acquired loans, net

    (7,200     (1,012

  Provision for (recapture of) loan losses

    1,500       (1,000

  Payments to FDIC, loss share agreement

    -       (39

  Stock-based compensation

    1,019       736  

  Depreciation and amortization, net

    5,669       257  

  Change in other assets and liabilities

    5,436       12,940  
 

 

 

 

 

 

 

 

     Total adjustments

    2,845       11,083  
 

 

 

 

 

 

 

 

    Net cash provided by operating activities

    $ 54,487       $ 45,996  
 

 

 

 

 

 

 

 

Supplemental Disclosure of Non-cash Investing Activities

   

   Transfer of loans to other real estate owned

    $ 2,275       $ -  

   Issuance of common stock for acquisition

    $ -       $ -  

See accompanying notes to the unaudited condensed consolidated financial statements.

 

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CVB FINANCIAL CORP. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

1.

BUSINESS

The condensed consolidated financial statements include CVB Financial Corp. (referred to herein on an unconsolidated basis as “CVB” and on a consolidated basis as “we,” “our” or the “Company”) and its wholly owned subsidiary, Citizens Business Bank (the “Bank” or “CBB”), after elimination of all intercompany transactions and balances. The Company has one inactive subsidiary, Chino Valley Bancorp. The Company is also the common stockholder of CVB Statutory Trust III. CVB Statutory Trust III was created in January 2006 to issue trust preferred securities in order to raise capital for the Company. In accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 810, Consolidation, this trust does not meet the criteria for consolidation.

The Company’s primary operations are related to traditional banking activities. This includes the acceptance of deposits and the lending and investing of money through the operations of the Bank. The Bank also provides trust and investment-related services to customers through CitizensTrust. The Bank’s customers consist primarily of small to mid-sized businesses and individuals located in the Inland Empire, Los Angeles County, Orange County, San Diego County, Ventura County, Santa Barbara County, and the Central Valley area of California. The Bank operates 62 banking centers and three trust office locations. The Company is headquartered in the city of Ontario, California.

On August 10, 2018, we completed the acquisition of Community Bank (“CB”), headquartered in Pasadena, California with 16 banking centers located throughout the greater Los Angeles and Orange County areas and total assets of approximately $4.09 billion. Our condensed consolidated financial statements for 2018 include CB operations, post-merger. See Note 4 – Business Combinations, included herein.

 

2.

BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements and notes thereto have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”) for Form 10-Q and conform to practices within the banking industry and include all of the information and disclosures required by accounting principles generally accepted in the United States of America (“GAAP”) for interim financial reporting. The accompanying unaudited condensed consolidated financial statements reflect all adjustments (consisting only of normal recurring adjustments), which are necessary for a fair presentation of financial results for the interim periods presented. The results of operations for the three months ended March 31, 2019 are not necessarily indicative of the results for the full year. Certain information and note disclosures normally included in annual financial statements prepared in accordance with GAAP have been condensed or omitted. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements, accounting policies and financial notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2018, filed with the SEC. A summary of the significant accounting policies consistently applied in the preparation of the accompanying unaudited condensed consolidated financial statements follows.

Reclassification – Certain amounts in the prior periods’ unaudited condensed consolidated financial statements and related footnote disclosures have been reclassified to conform to the current presentation with no impact on previously reported net income or stockholders’ equity. The operating segments previously reported have been aggregated into one segment to conform to the current period’s presentation format. These reclassifications do not affect previously reported net earnings.

 

3.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Except as discussed below, our accounting policies are described in Note 3 — Summary of Significant Accounting Policies, of our audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2018 as filed with the SEC (“Form 10-K”).

Use of Estimates in the Preparation of Financial Statements — The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. A material estimate that is particularly susceptible to significant change in the near term relates to the determination of the allowance for loan losses. Other significant estimates, which may be subject to change, include fair value determinations and disclosures, impairment of investments, goodwill, loans, as well as valuation of deferred tax assets.

 

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Adoption of New Accounting Standards — In August 2017, the FASB issued ASU No. 2017-12, “Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities.” ASU 2017-12 changes the recognition and presentation requirements of hedge accounting and makes certain targeted improvements to simplify the application of the hedge accounting guidance in current GAAP. The amendments in this ASU better align an entity’s financial reporting and risk management activities for hedging relationships through changes to both the designation and measurement guidance for qualifying hedging relationships through changes to both the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results. To meet that objective, the amendments expand and refine hedge accounting for both non-financial and financial risk components and align the recognition and presentation of the effects of the hedging instrument and the hedged item in the financial statements. ASU No. 2017-12 is effective for interim and annual reporting periods beginning after December 15, 2018; early adoption is permitted. The Company currently does not designate any derivative financial instruments as qualifying hedging relationships, and therefore, does not utilize hedge accounting. The Company adopted this ASU and it did not have a material impact on the Company’s consolidated financial statements.

In June 2018, the FASB issued ASU No. 2018-07, “Compensation – Stock Compensation (Topic 718): Improvements to Nonemployees Share-Based Accounting.” The intention of ASU 2018-07 is to expand the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. These share-based payments will now be measured at grant-date fair value of the equity instrument issued. Upon adoption, only liability-classified awards that have not been settled and equity-classified awards for which a measurement date has not been established should be remeasured through a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year of adoption. ASU 2018-07 is effective for fiscal years beginning after December 15, 2018 and is applied retrospectively. The Company adopted this ASU and it did not have a material impact on the Company’s consolidated financial statements.

In February 2016, FASB issued ASU No. 2016-02, “Leases (Topic 842)”. ASU 2016-02 establishes a right-of-use (“ROU”) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. In July 2018, the FASB issued ASU 2018-10, “Codification Improvements to Topic 842, Leases”, which clarifies and corrects errors in ASC 842. The effective date and transition requirements of ASU 2018-10 are the same as the effective date and transition requirements of 2016-02.

In July 2018, the FASB issued ASU No. 2018-11, “Leases (Topic 842): Targeted Improvements”, which creates a new optional transition method for implementing the new standard on leases, ASU No. 2016-02, and provides lessors with a practical expedient for separating lease and non-lease components. Specifically, under the amendments in ASU 2018-11: (1) the transition option allows entities to not apply the new leases standard in the comparative periods presented when transitioning to the new accounting standard for leases, and (2) lessors may elect not to separate lease and non-lease components when certain conditions are met. The amendments have the same effective date as ASU 2016-02.

Practical Expedients—The Company elected several practical expedients made available by the FASB. The Company elected not to restate comparative financial statements upon adoption of the new accounting standard. In addition, the Company elected the package of practical expedients whereby the Company did not reassess (i) whether existing contracts are, or contain, leases. and (ii) lease classification for existing leases. Lastly, the Company elected not to separate lease and non-lease components in determining the consideration in the lease agreement.

The Company’s leasing portfolio consists of real estate leases, which are used primarily for the banking operations of the Company. All leases in the current portfolio have been classified as operating leases, although this may change in the future. ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the obligation to make lease payments arising from the lease. The adoption of this ASU during the first quarter of 2019 did not have a material impact on the Company’s consolidated financial statements. At adoption, the Company recognized a lease liability and a corresponding ROU asset of approximately $20 million on the consolidated balance sheet related to its future lease payments as a lessee under operating leases. See Note 13—Leases for more information.

Operating lease ROU assets and lease liabilities are included in other assets and other liabilities, respectively, on the consolidated balance sheet. The Company uses its incremental borrowing rate, factoring in the lease term, to determine the lease liability, which is measured at the present value of future lease payments. The ROU asset, at adoption of this ASU, was recorded at the amount of the lease liability plus any prepaid rent and initial direct costs, less any lease incentives and accrued rent. The lease terms include periods covered by options to extend or terminate the lease depending on whether the Company is reasonably certain to exercise such options.

 

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Recent Accounting Pronouncements — In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” This ASU significantly changes how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. The standard will replace the current “incurred loss” approach with an “expected loss” model. The new model, referred to as the Current Expected Credit Loss (“CECL”) model, will apply to: (1) financial assets subject to credit losses and measured at amortized cost, and (2) certain off-balance sheet credit exposures. This includes, but is not limited to, loans, leases, held-to-maturity securities, loan commitments, and financial guarantees. The CECL model does not apply to AFS debt securities. For AFS debt securities with unrealized losses, entities will measure credit impairment in a manner similar to what they do today, except that the losses will be recognized as allowances rather than reductions in the amortized cost of the securities. As a result, entities will recognize improvements to estimated credit losses immediately in earnings rather than as interest income over time, as they do today. ASU No. 2016-13 is effective for interim and annual reporting periods beginning after December 15, 2019. Entities will apply the standard’s provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective (i.e., modified retrospective approach). The Company is currently evaluating the impact of adoption of this ASU on its consolidated financial statements. A cross-functional team, consisting of finance, credit management, and information technology is currently developing the allowance methodology, models and assumptions that will be used under the new life of loan methodology. In determining the appropriate methodology, the Company has reviewed portfolio segmentation, data quality and availability. The Company will continue to review and update assumptions and models, as appropriate.

In January 2017, the FASB issued ASU No. 2017-04, “Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment.” ASU 2017-04 eliminates the second step in the goodwill impairment test which requires an entity to determine the implied fair value of the reporting unit’s goodwill. Instead, an entity should recognize an impairment loss if the carrying value of the net assets assigned to the reporting unit exceeds the fair value of the reporting unit, with the impairment loss not to exceed the amount of goodwill allocated to the reporting unit. The standard will be effective for the Company beginning January 1, 2020, with early adoption permitted for goodwill impairment tests performed after January 1, 2017. The Company does not expect this ASU to have a material impact on the Company’s consolidated financial statements.

In August 2018, the FASB issued ASU No. 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement.” This ASU eliminates, adds and modifies certain disclosure requirements for fair value measurements. Among the changes, entities will no longer be required to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, but will be required to disclose the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements. ASU No. 2018-13 is effective for interim and annual reporting periods beginning after December 15, 2019; early adoption is permitted. Entities may early adopt any eliminated or modified disclosure requirements and delay adoption of the additional disclosure requirements until their effective date. The Company does not expect this ASU to have a material impact on the Company’s consolidated financial statements.

 

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4.

BUSINESS COMBINATIONS

Community Bank Acquisition

On August 10, 2018, the Company completed the acquisition of CB, headquartered in Pasadena, California. The Company acquired all of the assets and assumed all of the liabilities of CB for $180.7 million in cash and $722.8 million in stock. As a result, CB was merged with the Bank, the principal subsidiary of CVB. The primary reason for the acquisition was to further strengthen the Company’s presence in Southern California. At close, CB had 16 banking centers located throughout the greater Los Angeles and Orange County areas. The systems integration of CB and CBB was completed in November 2018. During the first quarter of 2019, six of the former CB banking centers were consolidated into CBB banking centers that were in close proximity,

The assets acquired and liabilities assumed have been accounted for under the acquisition method of accounting. The assets and liabilities, both tangible and intangible, were recorded at their estimated fair values as of the August 10, 2018 acquisition date. These fair values are estimates and are subject to adjustment for up to one year after the acquisition date or when additional information relative to the closing date fair values becomes available and such information is considered final, whichever is earlier. As the initial estimate of fair value of impaired loans was incomplete as of March 31, 2019, the fair value reflected in the financial statements has been determined provisionally. The application of the acquisition method of accounting resulted in the recognition of goodwill of $550.0 million and a core deposit intangible (“CDI”) of $52.2 million, or 2.26% of core deposits. Goodwill represents the excess purchase price over the fair value of the net assets acquired. Goodwill is not deductible for income tax purposes.

The table below summarizes the amounts recognized for the estimated fair value of assets acquired and the liabilities assumed as of the acquisition date.

 

                                             
     August 10, 2018
     (Dollars in thousands)

Merger Consideration

     

  Cash paid

     $ 180,719     

  CVBF common stock issued

     722,767     
  

 

 

 

  

  Total merger consideration

        $ 903,486  

Identifiable net assets acquired, at fair value

     

  Assets Acquired

     

  Cash and cash equivalents

     47,802     

  Investment securities

     716,996     

  FHLB stock

     17,250     

  Loans

     2,734,081     

  Accrued interest receivable

     7,916     

  Premises and equipment

     14,632     

  BOLI

     70,904     

  Core deposit intangible

     52,200     

  Other assets

     54,479     
  

 

 

 

  

  Total assets acquired

        3,716,260  

  Liabilities assumed

     

  Deposits

     2,869,986     

  FHLB advances

     297,571     

  Other borrowings

     166,000     

  Other liabilities

     29,192     
  

 

 

 

  

  Total liabilities assumed

        3,362,749  
     

 

 

 

  Total fair value of identifiable net assets, at fair value

        353,511  
     

 

 

 

Goodwill

        $ 549,975  
     

 

 

 

 

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At the date of acquisition, the gross contractual loan amounts receivable, inclusive of all principal and interest, was approximately $3 billion. The Company’s best estimate of the contractual principal cash flows for loans not expected to be collected at the date of acquisition was approximately $4.5 million.

We have included the financial results of the business combination in the condensed consolidated statement of earnings and comprehensive income beginning on the acquisition date.

For the three months ended March 31, 2019 and 2018, the Company incurred merger related expenses associated with the CB acquisition of $3.1 million and $803,000, respectively.

For illustrative purposes only, the following table presents certain unaudited pro forma information for the three months ended March 31, 2018. This unaudited estimated pro forma financial information was calculated as if CB had been acquired as of the beginning of the year prior to the date of acquisition. This unaudited pro forma information combines the historical results of CB with the Company’s consolidated historical results and includes certain adjustments reflecting the estimated impact of certain fair value adjustments for the respective periods. The pro forma information is not indicative of what would have occurred had the acquisition occurred as of the beginning of the year prior to the acquisition. The unaudited pro forma information does not consider any changes to the provision for credit losses resulting from recording loan assets at fair value, cost savings, or business synergies. As a result, actual amounts would have differed from the unaudited pro forma information presented.

 

     Unaudited Pro Forma
  Three Months Ended March 31,  
     2018
     (Dollars in thousands,
     except per share amounts)

Total revenues (net interest income plus noninterest income)

     $ 122,973  

Net income

     $ 45,991  

Earnings per share - basic

     $ 0.33  

Earnings per share - diluted

     $ 0.33  

 

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Table of Contents
5.

INVESTMENT SECURITIES

The amortized cost and estimated fair value of investment securities are summarized below. The majority of securities held are available-for-sale securities with fair value based on quoted prices for similar assets in active markets or quoted prices for identical assets in markets that are not active. Estimated fair values were obtained from an independent pricing service based upon market quotes.

 

    March 31, 2019
       Amortized   
Cost
  Gross
   Unrealized   
Holding
Gain
 

 

Gross

   Unrealized   
Holding
Loss

     Fair Value        Total Percent  
    (Dollars in thousands)

Investment securities available-for-sale:

         

Residential mortgage-backed securities

    $ 1,424,937       $ 6,107     $ (8,540)       $ 1,422,504       85.00%  

CMO/REMIC - residential

    206,956       470       (2,301)       205,125       12.26%  

Municipal bonds

    45,052       421       (388)       45,085       2.69%  

Other securities

    787       -             787       0.05%  
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total available-for-sale securities

    $ 1,677,732       $ 6,998     $ (11,229)       $ 1,673,501       100.00%  
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investment securities held-to-maturity:

         

Government agency/GSE

  $ 133,557       $ 564     $ (2,077)       $ 132,044       18.21%  

Residential mortgage-backed securities

    169,367       737       (999)       169,105       23.09%  

CMO

    213,145       -       (9,998)       203,147       29.06%  

Municipal bonds

    217,395       1,819       (2,859)       216,355       29.64%  
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total held-to-maturity securities

  $ 733,464       $ 3,120     $ (15,933)       $ 720,651       100.00%  
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    December 31, 2018
       Amortized   
Cost
  Gross
   Unrealized   
Holding
Gain
 

 

Gross

   Unrealized   
Holding
Loss

     Fair Value        Total Percent  
    (Dollars in thousands)

Investment securities available-for-sale:

         

Residential mortgage-backed securities

    $ 1,494,106       $ 1,348     $ (20,946)       $ 1,474,508       85.03%  

CMO/REMIC - residential

    217,223       353       (3,525)       214,051       12.34%  

Municipal bonds

    45,621       332       (1,143)       44,810       2.59%  

Other securities

    716       -             716       0.04%  
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total available-for-sale securities

    $ 1,757,666       $ 2,033     $ (25,614)       $ 1,734,085       100.00%  
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investment securities held-to-maturity:

         

Government agency/GSE

    $ 138,274       $ 572       $ (2,622)       $ 136,224       18.57%  

Residential mortgage-backed securities

    153,874       -       (3,140)       150,734       20.67%  

CMO

    215,336       -       (12,081)       203,255       28.93%  

Municipal bonds

    236,956       556       (6,188)       231,324       31.83%  
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total held-to-maturity securities

    $ 744,440       $ 1,128       $ (24,031)       $ 721,537       100.00%  
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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The following table provides information about the amount of interest income earned on investment securities which is fully taxable and which is exempt from regular federal income tax.

 

        For the Three Months Ended    
    March 31,
             2019                     2018         
   

 

(Dollars in thousands)

Investment securities available-for-sale:

   

Taxable

    $ 10,309       $ 11,445  

Tax-advantaged

    336       423  
 

 

 

 

 

 

 

 

Total interest income from available-for-sale securities

    10,645       11,868  
 

 

 

 

 

 

 

 

Investment securities held-to-maturity:

   

Taxable

    2,910       2,878  

Tax-advantaged

    1,615       1,887  
 

 

 

 

 

 

 

 

Total interest income from held-to-maturity securities

    4,525       4,765  
 

 

 

 

 

 

 

 

Total interest income from investment securities

    $ 15,170       $ 16,633  
 

 

 

 

 

 

 

 

Approximately 89% of the total investment securities portfolio at March 31, 2019 represents securities issued by the U.S. government or U.S. government-sponsored enterprises, with the implied guarantee of payment of principal and interest.

The tables below show the Company’s investment securities’ gross unrealized losses and fair value by investment category and length of time that individual securities have been in a continuous unrealized loss position at March 31, 2019 and December 31, 2018. Management has reviewed individual securities to determine whether a decline in fair value below the amortized cost basis is other-than-temporary. The unrealized losses on these securities were primarily attributed to changes in interest rates. The issuers of these securities have not, to our knowledge, evidenced any cause for default on these securities. These securities have fluctuated in value since their purchase dates as market rates have fluctuated. However, we have the ability and the intention to hold these securities until their fair values recover to cost or maturity. As such, management does not deem these securities to be other-than-temporarily-Impaired (“OTTI”).

 

    March 31, 2019
        Less Than 12 Months           12 Months or Longer           Total    
    Fair Value   Gross
Unrealized
Holding Losses
  Fair Value  

 

Gross
Unrealized
Holding Losses

  Fair Value   Gross
Unrealized
Holding
Losses
   

 

(Dollars in thousands)

Investment securities available-for-sale:

           

Residential mortgage-backed securities

    $ -       $       $ 703,134       $ (8,540)       $ 703,134       $ (8,540)  

CMO/REMIC - residential

    66             160,926       (2,301)       160,992       (2,301)  

Municipal bonds

    -             16,689       (388)       16,689       (388)  
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total available-for-sale securities

    $ 66       $       $ 880,749       $ (11,229)       $ 880,815       $ (11,229)  
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investment securities held-to-maturity:

           

Government agency/GSE

    $ 26,291       $ (122)       $ 60,153       $ (1,955)       $ 86,444       $ (2,077)  

Residential mortgage-backed securities

    -             86,568       (999)       86,568       (999)  

CMO

    -             203,148       (9,998)       203,148       (9,998)  

Municipal bonds

    -             64,790       (2,859)       64,790       (2,859)  
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total held-to-maturity securities

    $ 26,291       $ (122)       $ 414,659       $ (15,811)       $     440,950       $     (15,933)  
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

16


Table of Contents
        
December 31, 2018
        Less Than 12 Months           12 Months or Longer           Total    
    Fair Value   Gross
Unrealized
Holding Losses
  Fair Value  

 

Gross
Unrealized
Holding Losses

  Fair Value   Gross
Unrealized
Holding
Losses
   

 

(Dollars in thousands)

Investment securities available-for-sale:

           

Residential mortgage-backed securities

    $ 692,311       $ (4,864)       $ 593,367       $ (16,082)       $ 1,285,678       $ (20,946)  

CMO/REMIC - residential

    36,582       (365)       135,062       (3,160)       171,644       (3,525)  

Municipal bonds

    9,568       (188)       14,181       (955)       23,749       (1,143)  
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total available-for-sale securities

    $ 738,461       $ (5,417)       $ 742,610       $ (20,197)       $ 1,481,071       $ (25,614)  
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investment securities held-to-maturity:

           

Government agency/GSE

    $ 7,479       $ (15)       $ 54,944       $ (2,607)       $ 62,423       $ (2,622)  

Residential mortgage-backed securities

    59,871       (484)       90,863       (2,656)       150,734       (3,140)  

CMO

    -             203,254       (12,081)       203,254       (12,081)  

Municipal bonds

    70,989       (778)       77,723       (5,410)       148,712       (6,188)  
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total held-to-maturity securities

    $ 138,339       $ (1,277)       $ 426,784       $ (22,754)       $ 565,123       $     (24,031)  
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At March 31, 2019 and December 31, 2018, investment securities having a carrying value of approximately $1.53 billion and $1.66 billion, respectively, were pledged to secure public deposits, short and long-term borrowings, and for other purposes as required or permitted by law.

The amortized cost and fair value of debt securities at March 31, 2019, by contractual maturity, are shown in the table below. Although mortgage-backed and CMO/REMIC securities have contractual maturities through 2057, expected maturities will differ from contractual maturities because borrowers may have the right to prepay such obligations without penalty. Mortgage-backed and CMO/REMIC securities are included in maturity categories based upon estimated average lives which incorporate estimated prepayment speeds.

 

    March 31, 2019
    Available-for-sale   Held-to-maturity
      Amortized  
Cost
    Fair Value    

 

  Amortized  
Cost

    Fair Value  
   

 

(Dollars in thousands)

Due in one year or less

    $ 11,947       $ 12,113       $ 500       $ 506  

Due after one year through five years

    1,481,462       1,479,161       264,136       254,886  

Due after five years through ten years

    157,640       155,816       232,213       231,964  

Due after ten years

    26,683       26,411       236,615       233,295  
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total investment securities

    $ 1,677,732       $ 1,673,501       $ 733,464       $ 720,651  
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The investment in FHLB stock is periodically evaluated for impairment based on, among other things, the capital adequacy of the FHLB and its overall financial condition. No impairment losses have been recorded through March 31, 2019.

 

6.

ACQUIRED SJB ASSETS AND FDIC LOSS SHARING ASSET

FDIC Assisted Acquisition

On October 16, 2009, the Bank acquired San Joaquin Bank (“SJB”) and entered into loss sharing agreements with the Federal Deposit Insurance Corporation (“FDIC”) that are more fully discussed in Note 3 – Summary of Significant Accounting Policies, included in our Annual Report on Form 10-K for the year ended December 31, 2018. The acquisition has been accounted for under the purchase method of accounting. The assets and liabilities were recorded at their estimated fair values as of the October 16, 2009 acquisition date. The acquired loans were accounted for as Purchase Credit Impaired (“PCI”) loans.

At March 31, 2019, the remaining discount associated with the PCI loans was zero. The loss sharing agreement for commercial loans expired October 16, 2014. The loss sharing agreement with the FDIC for single-family residential loans, which would have expired on October 16, 2019, was terminated by the Bank on July 20, 2018.

 

17


Table of Contents

The following table provides a summary of PCI loans and lease finance receivables by type and by internal risk ratings (credit quality indicators) for the periods indicated.

 

                                                     
    March 31, 2019   December 31, 2018
    (Dollars in thousands)

Commercial and industrial

    $ 616       $ 519  

SBA

    1,235       1,258  

Real estate:

   

Commercial real estate

    13,183       14,407  

Construction

    -       -  

SFR mortgage

    141       145  

Dairy & livestock and agribusiness

    -       700  

Municipal lease finance receivables

    -       -  

Consumer and other loans

    181       185  
 

 

 

 

 

 

 

 

Gross PCI loans

    15,356       17,214  

Less: Purchase accounting discount

    -       -  
 

 

 

 

 

 

 

 

Gross PCI loans, net of discount

    15,356       17,214  

Less: Allowance for PCI loan losses

    (180     (204
 

 

 

 

 

 

 

 

Net PCI loans

    $ 15,176       $ 17,010  
 

 

 

 

 

 

 

 

Credit Quality Indicators

The following table summarizes gross PCI loans by internal risk ratings for the periods indicated.

 

                                                     
    March 31, 2019   December 31, 2018
    (Dollars in thousands)

Pass

    $ 13,993       $ 15,816  

Special mention

    1,152       1,174  

Substandard

    211       224  

Doubtful & loss

    -       -  
 

 

 

 

 

 

 

 

Total gross PCI loans

    $ 15,356       $ 17,214  
 

 

 

 

 

 

 

 

 

18


Table of Contents
7.

LOANS AND LEASE FINANCE RECEIVABLES AND ALLOWANCE FOR LOAN LOSSES

The following table provides a summary of the Company’s total loans and lease finance receivables, excluding PCI loans, by type.

 

                                                     
    March 31, 2019   December 31, 2018
    (Dollars in thousands)

Commercial and industrial

    $ 957,126       $ 1,002,209  

SBA

    337,957       350,043  

Real estate:

   

Commercial real estate

    5,388,866       5,394,229  

Construction

    121,912       122,782  

SFR mortgage

    285,787       296,504  

Dairy & livestock and agribusiness

    322,321       393,843  

Municipal lease finance receivables

    61,249       64,186  

Consumer and other loans

    120,768       128,429  
 

 

 

 

 

 

 

 

Gross loans, excluding PCI loans

    7,595,986       7,752,225  

Less: Deferred loan fees, net

    (4,479     (4,828
 

 

 

 

 

 

 

 

Gross loans, excluding PCI loans, net of deferred loan fees

    7,591,507       7,747,397  

Less: Allowance for loan losses

    (65,021     (63,409
 

 

 

 

 

 

 

 

Net loans, excluding PCI loans

    7,526,486       7,683,988  
 

 

 

 

 

 

 

 

PCI Loans

    15,356       17,214  

Discount on PCI loans

    -       -  

Less: Allowance for loan losses

    (180     (204
 

 

 

 

 

 

 

 

PCI loans, net

    15,176       17,010  
 

 

 

 

 

 

 

 

Total loans and lease finance receivables

    $ 7,541,662       $ 7,700,998  
 

 

 

 

 

 

 

 

As of March 31, 2019, 76.31% of the Company’s total gross loan portfolio (excluding PCI loans) consisted of real estate loans, 70.94% of which consisted of commercial real estate loans. Substantially all of the Company’s real estate loans and construction loans are secured by real properties located in California. As of March 31, 2019, $231.1 million, or 4.29% of the total commercial real estate loans included loans secured by farmland, compared to $229.8 million, or 4.26%, at December 31, 2018. The loans secured by farmland included $124.2 million for loans secured by dairy & livestock land and $106.9 million for loans secured by agricultural land at March 31, 2019, compared to $126.9 million for loans secured by dairy & livestock land and $102.9 million for loans secured by agricultural land at December 31, 2018. As of March 31, 2019, dairy & livestock and agribusiness loans of $322.3 million were comprised of $264.8 million for dairy & livestock loans and $57.6 million for agribusiness loans, compared to $340.5 million for dairy & livestock loans and $53.3 million for agribusiness loans at December 31, 2018.

At March 31, 2019, the Company held approximately $3.79 billion of total fixed rate loans, including PCI loans.

At March 31, 2019 and December 31, 2018, loans totaling $6.18 billion and $5.71 billion, respectively, were pledged to secure the borrowings and available lines of credit from the FHLB and the Federal Reserve Bank.

There were no outstanding loans held-for-sale as of March 31, 2019 and December 31, 2018.

Credit Quality Indicators

An important element of our approach to credit risk management is our loan risk rating system. The originating officer assigns each loan an initial risk rating, which is reviewed and confirmed or changed, as appropriate, by credit management. Approvals are made based upon the amount of inherent credit risk specific to the transaction and are reviewed for appropriateness by senior line and credit management personnel. Credits are monitored by line and credit management personnel for deterioration or improvement in a borrower’s financial condition, which would impact the ability of the borrower to perform under the contract. Risk ratings are adjusted as necessary.

 

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Table of Contents

Loans are risk rated into the following categories (Credit Quality Indicators): Pass, Special Mention, Substandard, Doubtful and Loss. Each of these groups is assessed for the proper amount to be used in determining the adequacy of our allowance for losses. These categories can be described as follows:

Pass — These loans, including loans on the Bank’s internal watch list, range from minimal credit risk to lower than average, but still acceptable, credit risk. Watch list loans usually require more than normal management attention. Loans on the watch list may involve borrowers with adverse financial trends, higher debt/equity ratios, or weaker liquidity positions, but not to the degree of being considered a defined weakness or problem loan where risk of loss may be apparent.

Special Mention — Loans assigned to this category have potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in the deterioration of the repayment prospects for the asset or the Company’s credit position at some future date. Special mention assets are not adversely classified and do not expose the Company to sufficient risk to warrant adverse classification.

Substandard — Loans classified as substandard are inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any. Assets so classified must have a well-defined weakness, or weaknesses, that jeopardize the liquidation of the debt. Substandard loans are characterized by the distinct possibility that the Company will sustain some loss if deficiencies are not corrected.

Doubtful — Loans classified as doubtful have all the weaknesses inherent in those classified substandard with the added characteristic that the weaknesses make collection or the liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable.

Loss — Loans classified as loss are considered uncollectible and of such little value that their continuance as bankable assets is not warranted. This classification does not mean that the loan has absolutely no recovery or salvage value, but rather that it is not practical or desirable to defer writing off this asset with insignificant value even though partial recovery may be affected in the future.

The following table summarizes loans by type, excluding PCI loans, according to our internal risk ratings for the periods presented.

 

                                                                                              
    March 31, 2019
    Pass   Special
Mention
  Substandard (1)   Doubtful &
Loss
  Total
    (Dollars in thousands)

Commercial and industrial

    $ 913,059       $ 32,685       $ 11,382       $ -       $ 957,126  

SBA

    322,393       7,704       7,860       -       337,957  

Real estate:

         

Commercial real estate

         

Owner occupied

    1,986,030       96,262       16,849       -       2,099,141  

Non-owner occupied

    3,279,696       9,290       739       -       3,289,725  

Construction

         

Speculative

    120,801       -       -       -       120,801  

Non-speculative

    1,111       -       -       -       1,111  

SFR mortgage

    278,962       3,287       3,538       -       285,787  

Dairy & livestock and agribusiness

    261,438       50,451       10,432       -       322,321  

Municipal lease finance receivables

    60,745       504       -       -       61,249  

Consumer and other loans

    118,596       1,215       957       -       120,768  
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total gross loans, excluding PCI loans

    $ 7,342,831       $ 201,398       $ 51,757       $ -       $ 7,595,986  
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  (1)

Includes $19.9 million of classified loans acquired from CB in the third quarter of 2018.

 

20


Table of Contents
                                                                                              
    December 31, 2018
    Pass   Special
Mention
  Substandard (1)   Doubtful &
Loss
  Total
    (Dollars in thousands)

Commercial and industrial

    $ 961,909       $ 29,358     $ 10,942     $ -       $ 1,002,209  

SBA

    336,033       7,375       6,635       -       350,043  

Real estate:

         

Commercial real estate

         

Owner occupied

    2,008,169       95,841       13,980       -       2,117,990  

Non-owner occupied

    3,260,822       9,938       5,479       -       3,276,239  

Construction

         

Speculative

    118,233       -       -       -       118,233  

Non-speculative

    4,549       -       -       -       4,549  

SFR mortgage

    289,607       3,310       3,587       -       296,504  

Dairy & livestock and agribusiness

    350,044       34,586       9,213       -       393,843  

Municipal lease finance receivables

    63,650       536       -       -       64,186  

Consumer and other loans

    126,085       1,263       1,081       -       128,429  
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total gross loans, excluding PCI loans

    $ 7,519,101       $ 182,207     $ 50,917     $ -       $ 7,752,225  
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  (1)

Includes $19.0 million of classified loans acquired from CB in the third quarter of 2018.

Allowance for Loan Losses (“ALLL”)

The Bank’s Audit and Director Loan Committees provide Board oversight of the ALLL process and approve the ALLL methodology on a quarterly basis.

Our methodology for assessing the appropriateness of the allowance is conducted on a regular basis and considers the Bank’s overall loan portfolio. Refer to Note 3 – Summary of Significant Accounting Policies of the 2018 Annual Report on Form 10-K for the year ended December 31, 2018 for a more detailed discussion concerning the allowance for loan losses.

Management believes that the ALLL was appropriate at March 31, 2019 and December 31, 2018. No assurance can be given that economic conditions which adversely affect the Company’s service areas or other circumstances will not be reflected in increased provisions for loan losses in the future.

The following tables present the balance and activity related to the allowance for loan losses for held-for-investment loans by type for the periods presented.

 

                                                                                              
    For the Three Months Ended March 31, 2019
     Ending Balance 
December  31,
2018
  Charge-offs   Recoveries   Provision for
(Recapture of)
Loan Losses
   Ending Balance 
March 31, 2019
    (Dollars in thousands)

Commercial and industrial

    $ 7,520       $ -           $ 110       $ (31     $ 7,599  

SBA

    1,062       (20     5       232       1,279  

Real estate:

      -           -          

Commercial real estate

    44,934       -           -           1,144       46,078  

Construction

    981       -           3       (120     864  

SFR mortgage

    2,196       -           68       (76     2,188  

Dairy & livestock and agribusiness

    5,215       (78     -           562       5,699  

Municipal lease finance receivables

    775       -           -           (37     738  

Consumer and other loans

    726       (1     1       (150     576  

PCI loans

    204       -           -           (24     180  
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  Total allowance for loan losses

    $ 63,613       $ (99     $ 187       $ 1,500       $ 65,201  
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

21


Table of Contents
                                                                                              
    For the Three Months Ended March 31, 2018
     Ending Balance 
December 31,
2017
  Charge-offs   Recoveries   (Recapture of)
Provision for
Loan Losses
   Ending Balance 
March 31, 2018
    (Dollars in thousands)

Commercial and industrial

    $ 7,280       $ -           $ 10       $ 209       $ 7,499  

SBA

    869       -           5       10       884  

Real estate:

      -           -          

Commercial real estate

    41,722       -           -           141       41,863  

Construction

    984       -           1,334       (1,331     987  

SFR mortgage

    2,112       -           -           90       2,202  

Dairy & livestock and agribusiness

    4,647       -           -           19       4,666  

Municipal lease finance receivables

    851       -           -           (17     834  

Consumer and other loans

    753       (7     8       (66     688  

PCI loans

    367       -           -           (55     312  
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total allowance for loan losses

    $ 59,585       $ (7     $ 1,357       $ (1,000     $ 59,935  
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The following tables present the recorded investment in loans held-for-investment and the related allowance for loan losses by loan type, based on the Company’s methodology for determining the allowance for loan losses for the periods presented. Acquired loans are also supported by a credit discount established through the determination of fair value for the acquired loan portfolio.

 

    March 31, 2019
    Recorded Investment in Loans   Allowance for Loan Losses
    Individually
 Evaluated for 
Impairment
  Collectively
 Evaluated for 
Impairment
  Acquired with
Deterioriated
 Credit Quality 
  Individually
  Evaluated for  
Impairment
  Collectively
  Evaluated for  
Impairment
  Acquired with
Deterioriated
 Credit Quality   
            (Dollars in thousands)        

Commercial and industrial

    $ 8,512       $ 948,614       $ -       $ 117       $ 7,482       $ -  

SBA

    4,661       333,296       -       317       962       -  

Real estate:

           

  Commercial real estate

    1,589       5,387,277       -       -       46,078       -  

  Construction

    -       121,912       -       -       864       -  

  SFR mortgage

    5,051       280,736       -       -       2,188       -  

Dairy & livestock and agribusiness

    -       322,321       -       -       5,699       -  

Municipal lease finance receivables

    -       61,249       -       -       738       -  

Consumer and other loans

    477       120,291       -       1       575       -  

PCI loans

    -       -       15,356       -       -       180  
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  Total

    $ 20,290       $ 7,575,696       $ 15,356       $ 435       $ 64,586       $ 180  
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    March 31, 2018
    Recorded Investment in Loans   Allowance for Loan Losses
    Individually
 Evaluated for 
Impairment
  Collectively
 Evaluated for 
Impairment
  Acquired with
Deterioriated
 Credit Quality 
  Individually
  Evaluated for  
Impairment
  Collectively
  Evaluated for  
Impairment
  Acquired with
Deterioriated
 Credit Quality   
            (Dollars in thousands)        

Commercial and industrial

    $ 432       $ 513,797       $ -       $ -       $ 7,499       $ -  

SBA

    1,201       122,231       -       -       884       -  

Real estate:

           

  Commercial real estate

    7,992       3,403,224       -       -       41,863       -  

  Construction

    -       79,898       -       -       987       -  

  SFR mortgage

    3,576       234,042       -       -       2,202       -  

Dairy & livestock and agribusiness

    818       275,561       -       -       4,666       -  

Municipal lease finance receivables

    -       67,892       -       -       834       -  

Consumer and other loans

    438       63,721       -       -       688       -  

PCI loans

    -       -       25,861       -       -       312  
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  Total

    $ 14,457       $ 4,760,366       $ 25,861       $ -       $ 59,623       $ 312  
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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Table of Contents

Past Due and Nonperforming Loans

We seek to manage asset quality and control credit risk through diversification of the loan portfolio and the application of policies designed to promote sound underwriting and loan monitoring practices. The Bank’s Credit Management Division is in charge of monitoring asset quality, establishing credit policies and procedures and enforcing the consistent application of these policies and procedures across the Bank. Reviews of nonperforming, past due loans and larger credits, designed to identify potential charges to the allowance for loan losses, and to determine the adequacy of the allowance, are conducted on an ongoing basis. These reviews consider such factors as the financial strength of borrowers and any guarantors, the value of the applicable collateral, loan loss experience, estimated loan losses, growth in the loan portfolio, prevailing economic conditions and other factors. Refer to Note 3 – Summary of Significant Accounting Policies, included in our Annual Report on Form 10-K for the year ended December 31, 2018, for additional discussion concerning the Bank’s policy for past due and nonperforming loans.

A loan is reported as a TDR when the Bank grants a concession(s) to a borrower experiencing financial difficulties that the Bank would not otherwise consider. Examples of such concessions include a reduction in the interest rate, deferral of principal or accrued interest, extending the payment due dates or loan maturity date(s), or providing a lower interest rate than would be normally available for new debt of similar risk. As a result of one or more of these concessions, restructured loans are classified as impaired. Impairment reserves on non-collateral dependent restructured loans are measured by comparing the present value of expected future cash flows on the restructured loans discounted at the interest rate of the original loan agreement to the carrying value of the loan. These impairment reserves are recognized as a specific component to be provided for in the allowance for loan losses.

When we identify a loan as impaired, we measure the loan for potential impairment using discounted cash flows, unless the loan is determined to be collateral dependent. In these cases, we use the current fair value of collateral, less selling costs. Generally, the determination of fair value is established through obtaining external appraisals of the collateral.

The following tables present the recorded investment in, and the aging of, past due and nonaccrual loans, excluding PCI loans, by type of loans for the periods presented.

 

     March 31, 2019
     30-59 Days
Past Due
   60-89 Days
Past Due
    Total Past Due 
and Accruing
   Nonaccrual
(1) (3)
   Current    Total Loans
  and Financing  
Receivables
     (Dollars in thousands)

Commercial and industrial

     $ 339        $ 30        $ 369        $ 8,388        $ 948,369        $ 957,126  

SBA

     601        -        601        4,098        333,258        337,957  

Real estate:

                 

 Commercial real estate

                 

  Owner occupied

     -        -        -        519        2,098,622        2,099,141  

  Non-owner occupied

     124        -        124        615        3,288,986        3,289,725  

 Construction

                 

  Speculative (2)

     -        -        -        -        120,801        120,801  

  Non-speculative

     -        -        -        -        1,111        1,111  

 SFR mortgage

     -        -        -        2,894        282,893        285,787  

Dairy & livestock and agribusiness

     -        -        -        -        322,321        322,321  

Municipal lease finance receivables

     -        -        -        -        61,249        61,249  

Consumer and other loans

     98        3        101        477        120,190        120,768  
  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

 Total gross loans, excluding PCI loans

     $         1,162        $         33        $ 1,195        $       16,991        $     7,577,800        $ 7,595,986  
  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

 

  (1)

As of March 31, 2019, $1.4 million of nonaccruing loans were current, $2.1 million were 30-59 days past due, zero were 60-89 days past due and $13.5 million were 90+ days past due.

  (2)

Speculative construction loans are generally for properties where there is no identified buyer or renter.

  (3)

Includes $13.7 million of nonaccrual loans acquired from CB in the third quarter of 2018.

 

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Table of Contents
     December 31, 2018
     30-59 Days
Past Due
   60-89 Days
Past Due
    Total Past Due 
and Accruing
   Nonaccrual
(1) (3)
   Current    Total Loans
  and Financing  
Receivables
     (Dollars in thousands)

Commercial and industrial

     $ 820        $ 89        $ 909        $ 7,490        $ 993,810        $ 1,002,209  

SBA

     1,172        135        1,307        2,892        345,844        350,043  

Real estate:

                 

 Commercial real estate

                 

  Owner occupied

     2,439        350        2,789        589        2,114,612        2,117,990  

  Non-owner occupied

     -        -        -        5,479        3,270,760        3,276,239  

 Construction

                 

  Speculative (2)

     -        -        -        -        118,233        118,233  

  Non-speculative

     -        -        -        -        4,549        4,549  

 SFR mortgage

     -        285        285        2,937        293,282        296,504  

Dairy & livestock and agribusiness

     -        -        -        78        393,765        393,843  

Municipal lease finance receivables

     -        -        -        -        64,186        64,186  

Consumer and other loans

     -        -        -        486        127,943        128,429  
  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  Total gross loans, excluding PCI loans

     $         4,431        $         859        $ 5,290        $       19,951        $     7,726,984      $ 7,752,225  
  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

 

  (1)

As of December 31, 2018, $2.3 million of nonaccruing loans were current, $33,000 were 30-59 days past due, $57,000 were 60-89 days past due and $17.6 million were 90+ days past due.    

  (2)

Speculative construction loans are generally for properties where there is no identified buyer or renter.    

  (3)

Includes $12.3 million of nonaccrual loans acquired from CB in the third quarter of 2018.

Impaired Loans

At March 31, 2019, the Company had impaired loans, excluding PCI loans, of $20.3 million. Impaired loans included $8.4 million of nonaccrual commercial and industrial loans, $2.9 million of nonaccrual single-family residential (“SFR”) mortgage loans, $4.1 million of nonaccrual Small Business Administration (“SBA”) loans, $1.1 million of nonaccrual commercial real estate loans, and $477,000 of nonaccrual consumer and other loans. These impaired loans included $3.6 million of loans whose terms were modified in a troubled debt restructuring, of which $277,000 were classified as nonaccrual. The remaining balance of $3.3 million consisted of 12 loans performing according to the restructured terms. The impaired loans had a specific allowance of $435,000 at March 31, 2019. At December 31, 2018, the Company had classified as impaired, loans, excluding PCI loans, with a balance of $23.5 million with a related allowance of $561,000.

 

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Table of Contents

The following tables present information for held-for-investment loans, excluding PCI loans, individually evaluated for impairment by type of loans, as and for the periods presented.

 

                                                                                    
     As of and For the Three Months Ended
March 31, 2019
     Recorded
Investment
   Unpaid
Principal
Balance
   Related
Allowance
   Average
Recorded
Investment
   Interest
Income
Recognized
     (Dollars in thousands)

With no related allowance recorded:

              

Commercial and industrial

     $ 8,208        $ 12,317        $ -            $ 8,230        $ 2  

SBA

     3,400        5,779        -            3,511        11  

Real estate:

              

Commercial real estate

              

Owner occupied

     519        618        -            521        -  

Non-owner occupied

     1,070        1,231        -            1,084        7  

Construction

              

Speculative

     -            -            -            -            -  

Non-speculative

     -            -            -            -            -  

SFR mortgage

     5,051        5,865        -            5,082        21  

Dairy & livestock and agribusiness

     -            -            -            -        -  

Municipal lease finance receivables

     -            -            -            -        -  

Consumer and other loans

     476        625        -            482        -  
  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

Total

     18,724        26,435        -            18,910        41  
  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

With a related allowance recorded:

              

Commercial and industrial

     304        309        117        323        -      

SBA

     1,261        1,236        317        1,261        -      

Real estate:

              

Commercial real estate

              

Owner occupied

     -            -            -            -            -      

Non-owner occupied

     -            -            -            -            -      

Construction

              

Speculative

     -            -            -            -            -      

Non-speculative

     -            -            -            -            -      

SFR mortgage

     -            -            -            -            -      

Dairy & livestock and agribusiness

     -            -            -            -            -      

Municipal lease finance receivables

     -            -            -            -            -      

Consumer and other loans

     1        1        1        1        -      
  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

Total

     1,566        1,546        435        1,585        -      
  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

 Total impaired loans

     $ 20,290        $ 27,981        $ 435        $ 20,495        $ 41  
  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

 

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Table of Contents
                                                                                    
     As of and For the Three Months Ended
March 31, 2018
     Recorded
Investment
   Unpaid
Principal
Balance
   Related
Allowance
   Average
Recorded
Investment
   Interest
Income
Recognized
     (Dollars in thousands)

With no related allowance recorded:

              

Commercial and industrial

     $ 432        $ 986        $ -            $ 461        $ 2  

SBA

     1,201        1,327        -            1,220        12  

Real estate:

              

Commercial real estate

              

Owner occupied

     4,332        4,755        -            4,348        -      

Non-owner occupied

     3,660        5,033        -            3,715        22  

Construction

              

Speculative

     -            -            -            -            -      

Non-speculative

     -            -            -            -            -      

SFR mortgage

     3,576        4,236        -            3,599        25  

Dairy & livestock and agribusiness

     818        1,091        -            826        -      

Municipal lease finance receivables

     -            -            -            -            -      

Consumer and other loans

     438        640        -            519        -      
  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

Total

     14,457        18,068        -            14,688        61  
  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

With a related allowance recorded:

              

Commercial and industrial

     -            -            -            -            -      

SBA

     -            -            -            -            -      

Real estate:

              

Commercial real estate

              

Owner occupied

     -            -            -            -            -      

Non-owner occupied

     -            -            -            -            -      

Construction

              

Speculative

     -            -            -            -            -      

Non-speculative

     -            -            -            -            -      

SFR mortgage

     -            -            -            -            -      

Dairy & livestock and agribusiness

     -            -            -            -            -      

Municipal lease finance receivables

     -            -            -            -            -      

Consumer and other loans

     -            -            -            -            -      
  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

Total

     -            -            -            -            -      
  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

Total impaired loans

     $ 14,457        $ 18,068        $ -            $ 14,688        $ 61  
  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

 

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Table of Contents
                                                        
     As of December 31, 2018
     Recorded
Investment
   Unpaid
Principal
Balance
   Related
Allowance
     (Dollars in thousands)

With no related allowance recorded:

        

Commercial and industrial

     $ 7,436        $ 11,457        $ -      

SBA

     3,467        5,746        -      

Real estate:

        

Commercial real estate

        

Owner occupied

     589        705        -      

Non-owner occupied

     2,808        4,324        -      

Construction

        

Speculative

     -            -            -      

Non-speculative

     -            -            -      

SFR mortgage

     5,349        6,270        -      

Dairy & livestock and agribusiness

     -            -            -      

Municipal lease finance receivables

     -            -            -      

Consumer and other loans

     418        526        -      
  

 

 

 

  

 

 

 

  

 

 

 

Total

     20,067        29,028        -      
  

 

 

 

  

 

 

 

  

 

 

 

With a related allowance recorded:

        

Commercial and industrial

     189        191        3  

SBA

     -            -            -      

Real estate:

        

Commercial real estate

        

Owner occupied

     -            -            -      

Non-owner occupied

     3,143        3,144        478  

Construction

        

Speculative

     -            -            -      

Non-speculative

     -            -            -      

SFR mortgage

     -            -            -      

Dairy & livestock and agribusiness

     78        78        12  

Municipal lease finance receivables

     -            -            -      

Consumer and other loans

     68        100        68  
  

 

 

 

  

 

 

 

  

 

 

 

Total

     3,478        3,513        561  
  

 

 

 

  

 

 

 

  

 

 

 

 Total impaired loans

     $ 23,545        $ 32,541        $ 561  
  

 

 

 

  

 

 

 

  

 

 

 

The Company recognizes the charge-off of the impairment allowance on impaired loans in the period in which a loss is identified for collateral dependent loans. Therefore, the majority of the nonaccrual loans as of March 31, 2019, December 31, 2018 and March 31, 2018 have already been written down to the estimated net realizable value. An allowance is recorded on impaired loans for the following: nonaccrual loans where a charge-off is not yet processed, nonaccrual SFR mortgage loans where there is a potential modification in process, or on smaller balance non-collateral dependent loans.

Reserve for Unfunded Loan Commitments

The allowance for off-balance sheet credit exposure relates to commitments to extend credit, letters of credit and undisbursed funds on lines of credit. The Company evaluates credit risk associated with the off-balance sheet loan commitments at the same time it evaluates credit risk associated with the loan and lease portfolio. There was no provision or recapture of provision for unfunded loan commitments for the three months ended March 31, 2019 and 2018. As of March 31, 2019 and December 31, 2018, the balance in this reserve was $9.0 million and was included in other liabilities.

 

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Table of Contents

Troubled Debt Restructurings (“TDRs”)

Loans that are reported as TDRs are considered impaired and charge-off amounts are 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, included in our Annual Report on Form 10-K for the year ended December 31, 2018 for a more detailed discussion regarding TDRs.

As of March 31, 2019, there were $3.6 million of loans classified as a TDR, of which $3.3 million were performing and $277,000 were nonperforming. TDRs on accrual status are comprised of loans that were accruing interest at the time of restructuring or have demonstrated repayment performance in compliance with the restructured terms for a sustained period and for which the Company anticipates full repayment of both principal and interest. At March 31, 2019, performing TDRs were comprised of eight SFR mortgage loans of $2.2 million, one SBA loan of $563,000, one commercial real estate loan of $455,000, and two commercial and industrial loans of $124,000.

The majority of TDRs have no specific allowance allocated as any impairment amount is normally charged off at the time a probable loss is determined. We have allocated zero and $490,000 of specific allowance to TDRs as of March 31, 2019 and December 31, 2018, respectively.

The following table provides a summary of the activity related to TDRs for the periods presented.

 

                                     
     For the Three Months Ended
     March 31,
     2019    2018
     (Dollars in thousands)

Performing TDRs:

     

Beginning balance

   $ 3,594        $ 4,809  

New modifications

     -        -  

Payoffs/payments, net and other

     (295      (524

TDRs returned to accrual status

     -        -  

TDRs placed on nonaccrual status

     -        -  
  

 

 

 

  

 

 

 

Ending balance

     $ 3,299        $ 4,285  
  

 

 

 

  

 

 

 

Nonperforming TDRs:

     

Beginning balance

     $ 3,509        $ 4,200  

New modifications

     -        -  

Charge-offs

     (78      -  

Transfer to OREO

     (2,275      -  

Payoffs/payments, net and other

     (879      (291

TDRs returned to accrual status

     -        -  

TDRs placed on nonaccrual status

     -        -  
  

 

 

 

  

 

 

 

Ending balance

     $ 277        $ 3,909  
  

 

 

 

  

 

 

 

Total TDRs

     $ 3,576        $ 8,194  
  

 

 

 

  

 

 

 

There were no loans that were modified as TDRs during the three months ended March 31, 2019 and 2018.

As of March 31, 2019 and 2018, there were no loans that were previously modified as a TDR within the previous 12 months that subsequently defaulted during the three months ended March 31, 2019 and 2018, respectively.

 

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Table of Contents
8.

EARNINGS PER SHARE RECONCILIATION

Basic earnings per common share are computed by dividing income allocated to common stockholders by the weighted-average number of common shares outstanding during each period. The computation of diluted earnings per common share considers the number of shares issuable upon the assumed exercise of outstanding common stock options. Antidilutive common shares are not included in the calculation of diluted earnings per common share. For the three months ended March 31, 2019 and 2018, shares deemed to be antidilutive, and thus excluded from the computation of earnings per common share, were 396,000 and 16,000, respectively.

The table below shows earnings per common share and diluted earnings per common share, and reconciles the numerator and denominator of both earnings per common share calculations.

 

                                                 
     For the Three Months
Ended March 31,
     2019    2018
     (In thousands, except per share amounts)

Earnings per common share:

     

Net earnings

     $ 51,642        $ 34,913  

  Less: Net earnings allocated to restricted stock

     141        108  
  

 

 

 

  

 

 

 

Net earnings allocated to common shareholders

     $ 51,501        $ 34,805  
  

 

 

 

  

 

 

 

Weighted average shares outstanding

     139,615        109,859  

Basic earnings per common share

     $ 0.37        $ 0.32  
  

 

 

 

  

 

 

 

Diluted earnings per common share:

     

Net income allocated to common shareholders

     51,501        34,805  
  

 

 

 

  

 

 

 

  Weighted average shares outstanding

     139,615        109,859  

  Incremental shares from assumed exercise of outstanding options

     216        364  
  

 

 

 

  

 

 

 

Diluted weighted average shares outstanding

     139,831        110,223  

Diluted earnings per common share

     $ 0.37        $ 0.32  
  

 

 

 

  

 

 

 

 

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Table of Contents
9.

FAIR VALUE INFORMATION

Fair Value Hierarchy

Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.

The following disclosure provides the fair value information for financial assets and liabilities as of March 31, 2019. The fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value into three broad levels (Level 1, Level 2 and Level 3).

 

  ·  

Level 1 – Quoted prices in active markets for identical assets or liabilities in active markets that are accessible at the measurement date.

 

  ·  

Level 2 – Observable inputs other than Level 1, including quoted prices for similar assets and liabilities in active markets, quoted prices in less active markets, or other observable inputs or model derived valuations that can be corroborated by observable market data, either directly or indirectly, for substantially the full term of the financial instrument. 

 

  ·  

Level 3 – Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable. These valuation methodologies generally include pricing models, discounted cash flow models, or a determination of fair value that requires significant management judgment or estimation.

There were no transfers in and out of Level 1 and Level 2 during the three months ended March 31, 2019 and 2018.

 

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Table of Contents

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The tables below present the balances of assets and liabilities measured at fair value on a recurring basis for the periods presented.

 

      Carrying Value at  
March 31, 2019
  Quoted Prices in
  Active Markets for  
Identical Assets

(Level 1)
    Significant Other
  Observable Inputs  
(Level 2)
  Significant
Unobservable Inputs
(Level 3)
 
    (Dollars in thousands)

Description of assets

       

Investment securities - AFS:

       

Residential mortgage-backed securities

    $ 1,422,504       $       $ 1,422,504       $  

CMO/REMIC - residential

    205,125             205,125        

Municipal bonds

    45,085             45,085        

Other securities

    787             787        
 

 

 

 

 

 

 

   

 

 

 

 

 

 

 

  Total investment securities - AFS

    1,673,501             1,673,501        

Interest rate swaps

    4,418             4,418        
 

 

 

 

 

 

 

   

 

 

 

 

 

 

 

Total assets

    $ 1,677,919       $       $ 1,677,919       $  
 

 

 

 

 

 

 

   

 

 

 

 

 

 

 

Description of liability

       

Interest rate swaps

    $ 4,418       $       $ 4,418       $  
 

 

 

 

 

 

 

   

 

 

 

 

 

 

 

Total liabilities

    $ 4,418       $       $ 4,418       $  
 

 

 

 

 

 

 

   

 

 

 

 

 

 

 
    Carrying Value at
December 31, 2018
  Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
    Significant Other
Observable Inputs
(Level 2)
  Significant
Unobservable Inputs
(Level 3)
 
    (Dollars in thousands)

Description of assets

       

Investment securities - AFS:

       

Residential mortgage-backed securities

    $ 1,474,508       $       $ 1,474,508       $  

CMO/REMIC - residential

    214,051             214,051        

Municipal bonds

    44,810             44,810        

Other securities

    716             716        
 

 

 

 

 

 

 

   

 

 

 

 

 

 

 

  Total investment securities - AFS

    1,734,085             1,734,085        

Interest rate swaps

    1,938             1,938        
 

 

 

 

 

 

 

   

 

 

 

 

 

 

 

Total assets

    $ 1,736,023       $       $ 1,736,023       $  
 

 

 

 

 

 

 

   

 

 

 

 

 

 

 

Description of liability

       

Interest rate swaps

    $ 1,938       $       $ 1,938       $  
 

 

 

 

 

 

 

   

 

 

 

 

 

 

 

Total liabilities

    $ 1,938       $       $ 1,938       $  
 

 

 

 

 

 

 

   

 

 

 

 

 

 

 

 

31


Table of Contents

Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis

We may be required to measure certain assets at fair value on a non-recurring basis in accordance with GAAP. These adjustments to fair value usually result from application of lower of cost or fair value accounting or impairment write-downs of individual assets.

For assets measured at fair value on a non-recurring basis that were held on the balance sheet at March 31, 2019 and December 31, 2018, respectively, the following tables provide the level of valuation assumptions used to determine each adjustment and the carrying value of the related assets that had losses during the period.

 

    Carrying Value at
March 31, 2019
    Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
    Significant Other
Observable Inputs
(Level 2)
    Significant
Unobservable Inputs
(Level 3)
    Total Losses
For the Three
Months Ended
March 31, 2019
 
    (Dollars in thousands)  

Description of assets

         

Impaired loans, excluding PCI loans:

         

Commercial and industrial

    $ 116        $       $       $ 116        $ 114   

SBA

    1,377                    1,377        338   

Real estate:

                                       

Commercial real estate

                             

Construction

                             

SFR mortgage

                             

Dairy & livestock and agribusiness

                             

Consumer and other loans

                             

Other real estate owned

                             

Asset held-for-sale

                             
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

  Total assets

    $ 1,493        $       $       $ 1,493        $ 452   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    Carrying Value at
December 31, 2018
    Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
    Significant Other
Observable Inputs
(Level 2)
    Significant
Unobservable Inputs
(Level 3)
    Total Losses For
the Year Ended
December 31, 2018
 
    (Dollars in thousands)  

Description of assets

         

Impaired loans, excluding PCI loans:

               

Commercial and industrial

    $ 189        $       $       $ 189        $  

SBA

                             

Real estate:

                                       

Commercial real estate

    3,143                    3,143        478   

Construction

                             

SFR mortgage

                             

Dairy & livestock and agribusiness

    78                    78        12   

Consumer and other loans

    68                    68        68   

Other real estate owned

                             

Asset held-for-sale

                             
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

  Total assets

    $ 3,478        $       $       $ 3,478        $ 561   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

32


Table of Contents

Fair Value of Financial Instruments

The following disclosure presents estimated fair value of our financial instruments. The estimated fair value amounts have been determined by the Company using available market information and appropriate valuation methodologies. However, considerable judgment is required to develop the estimates of fair value. Accordingly, the estimates presented below are not necessarily indicative of the amounts the Company may realize in a current market exchange as of March 31, 2019 and December 31, 2018, respectively. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.

 

                                                                                                        
    March 31, 2019
        Estimated Fair Value
    Carrying
Amount
  Level 1   Level 2   Level 3   Total
    (Dollars in thousands)

Assets

         

Total cash and cash equivalents

    $ 172,214     $ 172,214       $ -       $ -       $ 172,214  

Interest-earning balances due from depository
institutions

    7,420       -       7,228       -       7,228  

Investment securities available-for-sale

    1,673,501       -       1,673,501       -       1,673,501  

Investment securities held-to-maturity

    733,464       -       720,651       -       720,651  

Total loans, net of allowance for loan losses

    7,541,662       -       -       7,506,350       7,506,350  

Swaps

    4,418       -