e10vq
FORM 10-Q
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2009
or
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o |
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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: 0-10140
CVB FINANCIAL CORP.
(Exact name of registrant as specified in its charter)
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California
(State or other jurisdiction of incorporation
or organization)
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95-3629339
(I.R.S. Employer Identification No.) |
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|
701 North Haven Ave, Suite 350, Ontario, California
(Address of Principal Executive Offices)
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91764
(Zip Code) |
(Registrants telephone number, including area code) (909) 980-4030
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 þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such files).
Yes o No o
Indicate by check mark whether the registrant is a large accelerated filer, accelerated filer,
non-accelerated filer or smaller reporting company. See definition of large accelerated filer,
accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer þ | Accelerated filer o | Non-accelerated filer o (Do not check if a smaller reporting company) | Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act).
Yes o No þ
Number of shares of common stock of the registrant: 106,231,511 outstanding as of November 03,
2009.
CVB FINANCIAL CORP.
2009 QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS
2
PART I FINANCIAL INFORMATION (UNAUDITED)
ITEM 1. FINANCIAL STATEMENTS
CVB FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(unaudited)
Dollar amounts in thousands
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|
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|
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|
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|
September 30, |
|
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December 31, |
|
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|
2009 |
|
|
2008 |
|
ASSETS |
|
|
|
|
|
|
|
|
Cash and due from banks |
|
$ |
222,158 |
|
|
$ |
95,297 |
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|
|
|
|
|
|
|
|
|
Investment securities available-for-sale |
|
|
2,285,456 |
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|
2,493,476 |
|
Investment securities held-to-maturity |
|
|
4,237 |
|
|
|
6,867 |
|
Federal Funds Sold and |
|
|
|
|
|
|
|
|
Interest-bearing balances due from depository institutions |
|
|
150,285 |
|
|
|
285 |
|
Investment in stock of Federal Home Loan Bank (FHLB) |
|
|
93,240 |
|
|
|
93,240 |
|
Loans and lease finance receivables |
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|
3,600,087 |
|
|
|
3,736,838 |
|
Allowance for credit losses |
|
|
(87,316 |
) |
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|
(53,960 |
) |
|
|
|
|
|
|
|
Net Loans and lease finance receivables |
|
|
3,512,771 |
|
|
|
3,682,878 |
|
|
|
|
|
|
|
|
Total earning assets |
|
|
6,045,989 |
|
|
|
6,276,746 |
|
Premises and equipment, net |
|
|
42,285 |
|
|
|
44,420 |
|
Bank owned life insurance |
|
|
108,744 |
|
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|
106,366 |
|
Accrued interest receivable |
|
|
27,430 |
|
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|
28,519 |
|
Intangibles |
|
|
8,763 |
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|
11,020 |
|
Goodwill |
|
|
55,097 |
|
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|
55,097 |
|
Other assets |
|
|
35,799 |
|
|
|
32,186 |
|
|
|
|
|
|
|
|
TOTAL ASSETS |
|
$ |
6,546,265 |
|
|
$ |
6,649,651 |
|
|
|
|
|
|
|
|
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LIABILITIES AND STOCKHOLDERS EQUITY |
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Liabilities: |
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Deposits: |
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|
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Noninterest-bearing |
|
$ |
1,416,558 |
|
|
$ |
1,334,248 |
|
Interest-bearing |
|
|
2,623,213 |
|
|
|
2,173,908 |
|
|
|
|
|
|
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Total deposits |
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|
4,039,771 |
|
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|
3,508,156 |
|
Demand Note to U.S. Treasury |
|
|
3,441 |
|
|
|
5,373 |
|
Repurchase agreements |
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|
710,326 |
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|
607,813 |
|
Borrowings |
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|
955,000 |
|
|
|
1,737,660 |
|
Accrued interest payable |
|
|
8,420 |
|
|
|
9,741 |
|
Deferred compensation |
|
|
9,136 |
|
|
|
8,985 |
|
Junior subordinated debentures |
|
|
115,055 |
|
|
|
115,055 |
|
Other liabilities |
|
|
53,606 |
|
|
|
41,976 |
|
|
|
|
|
|
|
|
TOTAL LIABILITIES |
|
|
5,894,755 |
|
|
|
6,034,759 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
COMMITMENTS AND CONTINGENCIES |
|
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|
|
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|
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|
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|
Stockholders Equity: |
|
|
|
|
|
|
|
|
Preferred stock, authorized, 20,000,000 shares
without par; none issued or outstanding |
|
|
|
|
|
|
121,508 |
|
Common stock, authorized, 122,070,312 shares
without par; issued and outstanding
106,231,511 (2009) and 83,270,263 (2008) |
|
|
492,014 |
|
|
|
364,469 |
|
Retained earnings |
|
|
112,596 |
|
|
|
100,184 |
|
Accumulated other comprehensive income, net of tax |
|
|
46,900 |
|
|
|
28,731 |
|
|
|
|
|
|
|
|
Total stockholders equity |
|
|
651,510 |
|
|
|
614,892 |
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY |
|
$ |
6,546,265 |
|
|
$ |
6,649,651 |
|
|
|
|
|
|
|
|
See accompanying notes to the consolidated financial statements.
3
CVB FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(unaudited)
Dollar amounts in thousands, except per share
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For the Three Months |
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|
For the Nine Months |
|
|
|
Ended September 30, |
|
|
Ended September 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Interest income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans, including fees |
|
$ |
50,561 |
|
|
$ |
52,954 |
|
|
$ |
149,858 |
|
|
$ |
159,211 |
|
Investment securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable |
|
|
18,278 |
|
|
|
22,142 |
|
|
|
59,848 |
|
|
|
65,448 |
|
Tax-preferred |
|
|
6,749 |
|
|
|
7,036 |
|
|
|
20,560 |
|
|
|
21,336 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment income |
|
|
25,027 |
|
|
|
29,178 |
|
|
|
80,408 |
|
|
|
86,784 |
|
Dividends from FHLB stock |
|
|
195 |
|
|
|
1,367 |
|
|
|
195 |
|
|
|
3,666 |
|
Federal funds sold and Interest bearing deposits
with other institutions |
|
|
136 |
|
|
|
8 |
|
|
|
195 |
|
|
|
34 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income |
|
|
75,919 |
|
|
|
83,507 |
|
|
|
230,656 |
|
|
|
249,695 |
|
Interest expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits |
|
|
5,934 |
|
|
|
7,417 |
|
|
|
18,963 |
|
|
|
28,233 |
|
Borrowings |
|
|
14,265 |
|
|
|
25,365 |
|
|
|
44,367 |
|
|
|
74,552 |
|
Junior subordinated debentures |
|
|
914 |
|
|
|
1,713 |
|
|
|
3,133 |
|
|
|
5,286 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense |
|
|
21,113 |
|
|
|
34,495 |
|
|
|
66,463 |
|
|
|
108,071 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income before provision for credit losses |
|
|
54,806 |
|
|
|
49,012 |
|
|
|
164,193 |
|
|
|
141,624 |
|
Provision for credit losses |
|
|
13,000 |
|
|
|
4,000 |
|
|
|
55,000 |
|
|
|
8,700 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income after
provision for credit losses |
|
|
41,806 |
|
|
|
45,012 |
|
|
|
109,193 |
|
|
|
132,924 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other operating income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment loss on investment securities |
|
|
(1,850 |
) |
|
|
|
|
|
|
(1,850 |
) |
|
|
|
|
Less: Noncredit-related impairment loss
recorded in other comprehensive income |
|
|
1,618 |
|
|
|
|
|
|
|
1,618 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net impairment loss on investment securities
recognized in earnings |
|
|
(232 |
) |
|
|
|
|
|
|
(232 |
) |
|
|
|
|
Service charges on deposit accounts |
|
|
3,720 |
|
|
|
3,829 |
|
|
|
11,080 |
|
|
|
11,381 |
|
Trust and Investment Services |
|
|
1,682 |
|
|
|
2,019 |
|
|
|
4,948 |
|
|
|
5,906 |
|
Bankcard services |
|
|
605 |
|
|
|
580 |
|
|
|
1,725 |
|
|
|
1,779 |
|
BOLI income |
|
|
685 |
|
|
|
932 |
|
|
|
2,081 |
|
|
|
3,151 |
|
Other |
|
|
1,744 |
|
|
|
1,013 |
|
|
|
3,120 |
|
|
|
2,999 |
|
Gain on sale of securities |
|
|
6,898 |
|
|
|
|
|
|
|
28,446 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other operating income |
|
|
15,102 |
|
|
|
8,373 |
|
|
|
51,168 |
|
|
|
25,216 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and employee benefits |
|
|
15,618 |
|
|
|
15,943 |
|
|
|
46,814 |
|
|
|
46,987 |
|
Occupancy and Equipment |
|
|
4,330 |
|
|
|
4,811 |
|
|
|
13,199 |
|
|
|
14,430 |
|
Professional services |
|
|
1,646 |
|
|
|
1,600 |
|
|
|
4,998 |
|
|
|
5,015 |
|
Amortization of intangibles |
|
|
734 |
|
|
|
898 |
|
|
|
2,257 |
|
|
|
2,694 |
|
Other |
|
|
7,517 |
|
|
|
5,805 |
|
|
|
26,953 |
|
|
|
18,708 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other operating expenses |
|
|
29,845 |
|
|
|
29,057 |
|
|
|
94,221 |
|
|
|
87,834 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before income taxes |
|
|
27,063 |
|
|
|
24,328 |
|
|
|
66,140 |
|
|
|
70,306 |
|
Income taxes |
|
|
7,741 |
|
|
|
6,868 |
|
|
|
17,789 |
|
|
|
19,510 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings |
|
$ |
19,322 |
|
|
$ |
17,460 |
|
|
$ |
48,351 |
|
|
$ |
50,796 |
|
Preferred stock dividend and other reductions |
|
|
8,838 |
|
|
|
23 |
|
|
|
12,879 |
|
|
|
67 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings allocated to common shareholders |
|
$ |
10,484 |
|
|
$ |
17,437 |
|
|
$ |
35,472 |
|
|
$ |
50,729 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
$ |
41,749 |
|
|
$ |
6,949 |
|
|
$ |
66,520 |
|
|
$ |
30,437 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per common share |
|
$ |
0.10 |
|
|
$ |
0.21 |
|
|
$ |
0.40 |
|
|
$ |
0.61 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per common share |
|
$ |
0.10 |
|
|
$ |
0.21 |
|
|
$ |
0.40 |
|
|
$ |
0.61 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends per common share |
|
$ |
0.085 |
|
|
$ |
0.085 |
|
|
$ |
0.255 |
|
|
$ |
0.255 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to the consolidated financial statements.
4
CVB FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
AND COMPREHENSIVE INCOME
(Unaudited)
Amounts and shares in thousands
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
Common |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
Shares |
|
|
Preferred |
|
|
Common |
|
|
Retained |
|
|
Comprehensive |
|
|
Comprehensive |
|
|
|
|
|
|
Outstanding |
|
|
Stock |
|
|
Stock |
|
|
Earnings |
|
|
Income |
|
|
Income |
|
|
Total |
|
Balance January 1, 2009 |
|
|
83,270 |
|
|
$ |
121,508 |
|
|
$ |
364,469 |
|
|
$ |
100,184 |
|
|
$ |
28,731 |
|
|
|
|
|
|
$ |
614,892 |
|
Repurchase of Preferred Stock |
|
|
|
|
|
|
(130,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(130,000 |
) |
Amortization of preferred stock discount |
|
|
|
|
|
|
8,492 |
|
|
|
|
|
|
|
(8,492 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of Common Stock |
|
|
22,655 |
|
|
|
|
|
|
|
126,066 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
126,066 |
|
Proceeds from exercise of stock options |
|
|
307 |
|
|
|
|
|
|
|
280 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
280 |
|
Tax benefit from exercise of stock options |
|
|
|
|
|
|
|
|
|
|
62 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
62 |
|
Stock-based Compensation Expense |
|
|
|
|
|
|
|
|
|
|
1,137 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,137 |
|
Cash dividends declared |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common ($0.255 per share) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(23,174 |
) |
|
|
|
|
|
|
|
|
|
|
(23,174 |
) |
Preferred |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,273 |
) |
|
|
|
|
|
|
|
|
|
|
(4,273 |
) |
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0 |
|
Net earnings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
48,351 |
|
|
|
|
|
|
$ |
48,351 |
|
|
|
48,351 |
|
Other comprehensive gain: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0 |
|
Unrealized gain on securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0 |
|
available-for-sale, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,107 |
|
|
|
19,107 |
|
|
|
19,107 |
|
Non-credit-related impairment loss on
investment securities recorded in the
current year, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(938 |
) |
|
|
(938 |
) |
|
|
(938 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
66,520 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance September 30, 2009 |
|
|
106,232 |
|
|
$ |
|
|
|
$ |
492,014 |
|
|
$ |
112,596 |
|
|
$ |
46,900 |
|
|
|
|
|
|
$ |
651,510 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
Common |
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
Shares |
|
|
Common |
|
|
Retained |
|
|
Comprehensive |
|
|
Comprehensive |
|
|
|
|
|
|
Outstanding |
|
|
Stock |
|
|
Earnings |
|
|
Loss |
|
|
Income |
|
|
Total |
|
Balance January 1, 2008 |
|
|
83,165 |
|
|
$ |
354,249 |
|
|
$ |
66,569 |
|
|
$ |
4,130 |
|
|
|
|
|
|
$ |
424,948 |
|
Issuance of common stock |
|
|
176 |
|
|
|
606 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
606 |
|
Repurchase of common stock |
|
|
(71 |
) |
|
|
(650 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(650 |
) |
Tax benefit from exercise of stock options |
|
|
|
|
|
|
172 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
172 |
|
Stock-based Compensation Expense |
|
|
|
|
|
|
1,117 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,117 |
|
Adoption of EITF 06-4 Split Dollar Life
Insurance |
|
|
|
|
|
|
|
|
|
|
(571 |
) |
|
|
|
|
|
|
|
|
|
|
(571 |
) |
Cash dividends ($0.255 per share) |
|
|
|
|
|
|
|
|
|
|
(21,239 |
) |
|
|
|
|
|
|
|
|
|
|
(21,239 |
) |
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings |
|
|
|
|
|
|
|
|
|
|
50,796 |
|
|
|
|
|
|
$ |
50,796 |
|
|
|
50,796 |
|
Other comprehensive loss: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized loss on securities
available-for-sale, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(20,359 |
) |
|
|
(20,359 |
) |
|
|
(20,359 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
30,437 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance September 30, 2008 |
|
|
83,270 |
|
|
$ |
355,494 |
|
|
$ |
95,555 |
|
|
$ |
(16,229 |
) |
|
|
|
|
|
$ |
434,820 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At September 30, |
|
|
|
2009 |
|
|
2008 |
|
Disclosure of reclassification amount |
|
|
|
|
|
|
|
|
Unrealized gain/(loss) on securities arising during the period |
|
$ |
59,540 |
|
|
$ |
(35,101 |
) |
Tax (benefit)/expense |
|
|
(25,007 |
) |
|
|
14,742 |
|
Less: |
|
|
|
|
|
|
|
|
Reclassification adjustment for net gain on securities included
in net income |
|
|
(28,214 |
) |
|
|
|
|
Add: |
|
|
|
|
|
|
|
|
Tax expense on reclassification adjustments |
|
|
11,850 |
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized gain/(loss) on securities |
|
$ |
18,169 |
|
|
$ |
(20,359 |
) |
|
|
|
|
|
|
|
See accompanying notes to the consolidated financial statements.
5
CVB FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Dollar amounts in thousands
|
|
|
|
|
|
|
|
|
|
|
For the Nine Months |
|
|
|
Ended September 30, |
|
|
|
2009 |
|
|
2008 |
|
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
|
|
|
|
Interest and dividends received |
|
$ |
230,996 |
|
|
$ |
247,921 |
|
Service charges and other fees received |
|
|
22,407 |
|
|
|
25,195 |
|
Interest paid |
|
|
(67,785 |
) |
|
|
(103,215 |
) |
Cash paid to vendors and employees |
|
|
(81,618 |
) |
|
|
(84,264 |
) |
Income taxes paid |
|
|
(34,586 |
) |
|
|
(19,346 |
) |
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
69,414 |
|
|
|
66,291 |
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
Proceeds from sales of investment securities |
|
|
459,092 |
|
|
|
|
|
Proceeds from repayment of investment securities |
|
|
296,052 |
|
|
|
262,540 |
|
Proceeds from maturity of investment securities |
|
|
153,562 |
|
|
|
25,244 |
|
Purchases of investment securities |
|
|
(790,231 |
) |
|
|
(328,089 |
) |
Purchases of FHLB stock |
|
|
|
|
|
|
(12,371 |
) |
Net decrease/(increase) in loans and lease finance receivables |
|
|
111,125 |
|
|
|
(98,568 |
) |
Proceeds from sales of premises and equipment |
|
|
234 |
|
|
|
110 |
|
Proceeds from sales of other real estate owned |
|
|
12,823 |
|
|
|
|
|
Purchase of premises and equipment |
|
|
(3,297 |
) |
|
|
(2,966 |
) |
Other, net |
|
|
(410 |
) |
|
|
(293 |
) |
|
|
|
|
|
|
|
Net cash provided by/(used in) investing activities |
|
|
238,950 |
|
|
|
(154,393 |
) |
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
Net increase/(decrease) in transaction deposits |
|
|
338,369 |
|
|
|
(93,208 |
) |
Net increase/(decrease) in time deposits |
|
|
193,246 |
|
|
|
(75,600 |
) |
Advances from Federal Home Loan Bank |
|
|
|
|
|
|
450,000 |
|
Repayment of advances from Federal Home Loan Bank |
|
|
(600,000 |
) |
|
|
(100,000 |
) |
Net decrease in other borrowings |
|
|
(184,592 |
) |
|
|
(93,708 |
) |
Net increase in repurchase agreements |
|
|
102,513 |
|
|
|
24,664 |
|
Cash dividends on preferred stock |
|
|
(4,273 |
) |
|
|
|
|
Cash dividends on common stock |
|
|
(23,174 |
) |
|
|
(21,239 |
) |
Repurchase of preferred stock |
|
|
(130,000 |
) |
|
|
|
|
Issuance of common stock |
|
|
126,066 |
|
|
|
(650 |
) |
Proceeds from exercise of stock options |
|
|
280 |
|
|
|
606 |
|
Tax benefit related to exercise of stock options |
|
|
62 |
|
|
|
172 |
|
|
|
|
|
|
|
|
Net cash (used in)/provided by financing activities |
|
|
(181,503 |
) |
|
|
91,037 |
|
|
|
|
|
|
|
|
NET INCREASE IN CASH AND CASH EQUIVALENTS |
|
|
126,861 |
|
|
|
2,935 |
|
CASH AND CASH EQUIVALENTS, beginning of period |
|
|
95,297 |
|
|
|
89,486 |
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS, end of period |
|
$ |
222,158 |
|
|
$ |
92,421 |
|
|
|
|
|
|
|
|
See accompanying notes to the consolidated financial statements.
6
CVB FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(unaudited)
Dollar amounts in thousands
|
|
|
|
|
|
|
|
|
|
|
For the Nine Months |
|
|
|
Ended September 30, |
|
|
|
2009 |
|
|
2008 |
|
RECONCILIATION OF NET EARNINGS TO NET CASH PROVIDED
BY |
|
|
|
|
|
|
|
|
OPERATING ACTIVITIES: |
|
|
|
|
|
|
|
|
Net earnings |
|
$ |
48,351 |
|
|
$ |
50,796 |
|
Adjustments to reconcile net earnings to net cash
provided by operating activities: |
|
|
|
|
|
|
|
|
Gain on sale of investment securities |
|
|
(28,446 |
) |
|
|
|
|
Loss on sale of premises and equipment |
|
|
53 |
|
|
|
169 |
|
Gain on sale of other real estate owned |
|
|
(512 |
) |
|
|
|
|
Credit-related impairment loss on investment
securities held-to-maturity |
|
|
232 |
|
|
|
|
|
Increase from bank owned life insurance |
|
|
(2,081 |
) |
|
|
(3,151 |
) |
Net amortization of premiums on investment securities |
|
|
1,715 |
|
|
|
1,205 |
|
Provisions for credit losses |
|
|
55,000 |
|
|
|
8,700 |
|
Stock-based compensation |
|
|
1,137 |
|
|
|
1,117 |
|
Depreciation and amortization |
|
|
7,401 |
|
|
|
8,290 |
|
Change in accrued interest receivable |
|
|
1,089 |
|
|
|
934 |
|
Change in accrued interest payable |
|
|
(1,320 |
) |
|
|
4,856 |
|
Change in other assets and liabilities |
|
|
(13,205 |
) |
|
|
(6,625 |
) |
|
|
|
|
|
|
|
Total adjustments |
|
|
21,063 |
|
|
|
15,495 |
|
|
|
|
|
|
|
|
NET CASH PROVIDED BY OPERATING ACTIVITIES |
|
$ |
69,414 |
|
|
$ |
66,291 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING
ACTIVITIES |
|
|
|
|
|
|
|
|
Transfer from loans to Other Real Estate Owned |
|
$ |
7,644 |
|
|
$ |
1,927 |
|
See accompanying notes to the consolidated financial statements.
7
CVB FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
For the nine months ended September 30, 2009 and 2008
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying condensed consolidated unaudited financial statements and notes thereto have
been prepared in accordance with the rules and regulations of the Securities and Exchange
Commission 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 for interim financial reporting. The results of operations for the nine months
ended September 30, 2009 are not necessarily indicative of the results for the full year. These
financial statements should be read in conjunction with the financial statements, accounting
policies and financial notes thereto included in the Companys Annual Report on Form 10-K for the
fiscal year ended December 31, 2008 filed with the Securities and Exchange Commission. In the
opinion of management, the accompanying condensed consolidated unaudited 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. A summary of the
significant accounting policies consistently applied in the preparation of the accompanying
consolidated financial statements follows.
Principles of Consolidation The consolidated financial statements include the
accounts of CVB Financial Corp. (the Company) and its wholly owned subsidiary: Citizens Business
Bank (the Bank) after elimination of all intercompany transactions and balances. The Company
also has three inactive subsidiaries: CVB Ventures, Inc.; Chino Valley Bancorp; and Orange National
Bancorp. The Company is also the common stockholder of CVB Statutory Trust I, CVB Statutory Trust
II, CVB Statutory Trust III and FCB Trust II. CVB Statutory Trusts I and II were created in
December 2003 and CVB Statutory Trust III was created in January 2006 to issue trust preferred
securities in order to raise capital for the Company. The Company acquired FCB Trust II through
the acquisition of First Coastal Bancshares (FCB). These trusts do not meet the criteria for
consolidation.
Nature of Operations The Companys primary operations are related to traditional banking
activities, including the acceptance of deposits and the lending and investing of money through the
operations of the Bank. The Bank also provides automobile and equipment leasing to customers
through its Citizens Financial Services Division and trust services to customers through its
CitizensTrust Division. The Banks customers consist primarily of small to mid-sized businesses and
individuals located in San Bernardino County, Riverside County, Orange County, Los Angeles County,
Madera County, Fresno County, Tulare County, Kern County and San Joaquin County. The Bank operates
41 Business Financial Centers and 5 Commercial Banking Centers with its headquarters located in the
city of Ontario.
The Companys operating business units have been combined into two main segments: (i) Business
Financial and Commercial Banking Centers and (ii) Treasury. Business Financial and Commercial
Banking Centers (branches) are comprised of loans, deposits, and products and services the Bank
offers to the majority of its customers. The other segment is Treasury, which manages the
investment portfolio of the Company. The Companys remaining centralized functions and eliminations
of inter-segment amounts have been aggregated and included in Other.
The internal reporting of the Company considers all business units. Funds are allocated to
each business unit based on its need to fund assets (use of funds) or its need to invest funds
(source of funds). Net income is determined based on the actual net income of the business unit
plus the allocated income
or expense based on the sources and uses of funds for each business unit. Non-interest income
and non-interest expense are those items directly attributable to a business unit.
8
FASB Accounting Standards Codification The FASB has issued FASB Statement No. 168,
The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting
Principles. Statement 168 establishes the FASB Accounting Standards Codification as the single
source of authoritative U.S. generally accepted accounting principles (GAAP) recognized by the FASB
to be applied by nongovernmental entities. Rules and interpretive releases of the Securities and
Exchange Commission (SEC) under authority of federal securities laws are also sources of
authoritative GAAP for SEC registrants. The Codification supersedes all existing non-SEC accounting
and reporting standards. All other nongrandfathered, non-SEC accounting literature not included in
the Codification will become nonauthoritative.
Following the Codification, the Board will not issue new standards in the form of Statements,
FASB Staff Positions or Emerging Issues Task Force Abstracts. Instead, it will issue Accounting
Standards Updates, which will serve to update the Codification, provide background information
about the guidance and provide the basis for conclusions on the changes to the Codification.
GAAP is not intended to be changed as a result of the FASBs Codification project, but it will
change the way the guidance is organized and presented. As a result, these changes will have a
significant impact on how companies reference GAAP in their financial statements and in their
accounting policies for financial statements issued for interim and annual periods ending after
September 15, 2009.
Cash and due from banks Cash on hand, cash items in the process of collection, and amounts
due from correspondent banks and the Federal Reserve Bank are included in Cash and due from banks.
Investment Securities The Company classifies as held-to-maturity those debt
securities that the Company has the positive intent and ability to hold to maturity. Securities
classified as trading are those securities that are bought and held principally for the purpose of
selling them in the near term. All other debt and equity securities are classified as
available-for-sale. Securities held-to-maturity are accounted for at cost and adjusted for
amortization of premiums and accretion of discounts. Trading securities are accounted for at fair
value with the unrealized gains and losses being included in current earnings. Available-for-sale
securities are accounted for at fair value, with the net unrealized gains and losses, net of income
tax effects, presented as a separate component of stockholders equity. Realized gains and losses
on sales of securities are recognized in earnings at the time of sale and are determined on a
specific-identification basis. Purchase premiums and discounts are recognized in interest income
using the effective-yield method over the terms of the securities. For mortgage-backed securities
(MBS), the amortization or accretion is based on estimated average lives of the securities. The
lives of these securities can fluctuate based on the amount of prepayments received on the
underlying collateral of the securities. The Companys investment in Federal Home Loan Bank
(FHLB) stock is carried at cost.
At each reporting date, securities are assessed to determine whether there is an
other-than-temporary impairment. Other-than-temporary impairment on investment securities is
recognized in earnings when there are credit losses on a debt security for which management does
not intend to sell and for which it is more-likely-than-not that the Company will not have to sell
prior to recovery of the noncredit impairment. In those situations, the portion of the total
impairment that is attributable to the credit loss would be recognized in earnings, and the
remaining difference between the debt securitys amortized cost and its fair value would be
included in other comprehensive income.
Loans and Lease Finance Receivables Loans and lease finance receivables are reported at the
principal amount outstanding, less deferred net loan origination fees. Interest on loans and lease
finance receivables is credited to income based on the principal amount outstanding. Interest
income is not recognized on loans and lease finance receivables when collection of interest is
deemed by management
to be doubtful. In the ordinary course of business, the Company enters into commitments to
extend credit to its customers. These commitments are not reflected in the accompanying
consolidated financial statements. As of September 30, 2009, the Company had entered into
commitments with certain
9
customers amounting to $559.5 million compared to $642.7 million at
December 31, 2008. Letters of credit at September 30, 2009 and December 31, 2008, were $69.8
million and $63.1 million, respectively.
The Bank receives collateral to support loans, lease finance receivables, and commitments to
extend credit for which collateral is deemed necessary. The most significant categories of
collateral are real estate, principally commercial and industrial income-producing properties, real
estate mortgages, and assets utilized in agribusiness.
Nonrefundable fees and direct costs associated with the origination or purchase of loans are
deferred and netted against outstanding loan balances. The deferred net loan fees and costs are
recognized in interest income over the loan term using the effective-yield method.
Provision and Allowance for Credit Losses The determination of the balance in the allowance
for credit losses is based on an analysis of the loan and lease finance receivables portfolio using
a systematic methodology and reflects an amount that, in managements judgment, is adequate to
provide for probable credit losses inherent in the portfolio, after giving consideration to the
character of the loan portfolio, current economic conditions, past credit loss experience, and such
other factors that would deserve current recognition in estimating inherent credit losses. The
estimate is reviewed quarterly by the Board of Directors and management and periodically by various
regulatory entities and, as adjustments become necessary, they are reported in earnings in the
periods in which they become known. The provision for credit losses is charged to expense. During
the first nine months of 2009, we recorded a provision for credit losses of $55.0 million. The
allowance for credit losses was $87.3 million as of September 30, 2009.
In addition to the allowance for credit losses, the Company also has a reserve for undisbursed
commitments for loans and letters of credit. This reserve is carried in the liabilities section of
the balance sheet in other liabilities. Provisions to this reserve are included in other expense.
For the first nine months of 2009, the Company recorded an increase of $1.8 million in the reserve
for undisbursed commitments. As of September 30, 2009, the balance in this reserve was $6.0
million.
A loan for which collection of principal and interest according to its original terms is not
probable is considered to be impaired. The Companys policy is to record a specific valuation
allowance, which is included in the allowance for credit losses, or charge off that portion of an
impaired loan that exceeds its fair value. Fair value is usually based on the value of underlying
collateral.
At September 30, 2009, the Company had impaired loans of $61.1 million. Of this amount, $15.7
million consisted of non-accrual residential construction and land loans, $19.6 million in
non-accrual commercial construction loans, $8.1 million of non-accrual single family mortgage
loans, $13.5 million of non-accrual commercial real estate loans, $1.1 million of non-accrual
commercial and industrial loans, $100,000 of non-accrual consumer loans and $3.0 million of loans
whose terms were modified in a troubled debt restructure. The impaired loans of $61.1 million, net
of $16.2 million in charge-offs, are supported by collateral with a fair value less selling costs,
net of prior liens. For the collateral-deficient loans, the amount of specific reserve was $2.0
million at September 30, 2009. At December 31, 2008, the Bank had classified as impaired, loans
with a balance of $20.2 million.
Premises and Equipment Premises and equipment are stated at cost, less accumulated
depreciation, which is provided for in amounts sufficient to relate the cost of depreciable assets
to operations over their estimated service lives using the straight-line method. Properties under
capital lease and leasehold improvements are amortized over the shorter of estimated economic lives
of 15 years or the initial terms of the leases. Estimated lives are 3 to 5 years for computer and
equipment, 5 to 7 years for furniture,
fixtures and equipment, and 15 to 40 years for buildings and improvements. Long-lived assets
are reviewed periodically for impairment when events or changes in circumstances indicate that the
carrying amount may not be recoverable. The existence of impairment is based on undiscounted cash
flows. To
10
the extent impairment exists, the impairment is calculated as the difference in fair
value of assets and their carrying value. The impairment loss, if any, would be recorded in
noninterest expense.
Other Real Estate Owned Other real estate owned (OREO) represents real estate acquired
through foreclosure in satisfaction of commercial and real estate loans and is stated at fair
value, minus estimated costs to sell (fair value at time of foreclosure). Loan balances in excess
of fair value of the real estate acquired at the date of acquisition are charged against the
allowance for credit losses. Any subsequent operating expenses or income, reduction in estimated
values, and gains or losses on disposition of such properties are charged to current operations.
OREO is recorded in other assets on the consolidated balance sheets.
Business Combinations and Intangible Assets The Company has engaged in the acquisition of
financial institutions and the assumption of deposits and purchase of assets from other financial
institutions in its market area. The Company has paid premiums on certain transactions, and such
premiums are recorded as intangible assets, in the form of goodwill or other intangible assets.
Goodwill is not being amortized whereas identifiable intangible assets with finite lives are
amortized over their useful lives. On an annual basis, the Company tests goodwill and intangible
assets for impairment. The Company completed its annual impairment test as of July 1, 2009;
there was no impairment of goodwill.
At September 30, 2009 goodwill was $55.1 million. As of September 30, 2009, intangible assets
that continue to be subject to amortization include core deposit premiums of $8.8 million (net of
$18.3 million of accumulated amortization). Amortization expense for such intangible assets was
$2.3 million for the nine months ended September 30, 2009. Estimated amortization expense, for the
remainder of 2009 is expected to be $733,000. Estimated amortization expense, for the succeeding
five fiscal years is $2.9 million for year one, $2.8 million for year two, $1.6 million for year
three, $627,000 for year four and $26,000 for year five. The weighted average remaining life of
intangible assets is approximately 2.4 years.
Bank Owned Life Insurance The Bank invests in Bank-Owned Life Insurance (BOLI). BOLI
involves the purchasing of life insurance by the Bank on a select group of employees. The Bank is
the owner and beneficiary of these policies. BOLI is recorded as an asset at cash surrender value.
Increases in the cash value of these policies, as well as insurance proceeds received, are recorded
in other non-interest income and are not subject to income tax.
Income Taxes Income taxes are accounted for under the asset and liability method. Deferred
tax assets and liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets and liabilities and
their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable income in the years
in which those temporary differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is recognized in income in the period
that includes the enactment date. Future realization of deferred tax assets ultimately depends on
the existence of sufficient taxable income of the appropriate character (for example, ordinary
income or capital gain) within the carryback or carryforward periods available under the tax law.
Based on historical and future expected taxable earnings and available strategies, the Company
considers the future realization of these deferred tax assets more likely than not.
The tax effects from an uncertain tax position are recognized in the financial statements only
if, based on its merits, the position is more likely than not to be sustained on audit by the
taxing authorities. Interest and penalties related to uncertain tax positions are recorded as part
of other operating expense.
Earnings per Common Share The Company calculates earnings per common share (EPS) using the
two-class method. The two-class method requires the Company to present EPS as if all of the
earnings for the period are distributed to common shareholders and any participating securities,
regardless of whether any actual dividends or distributions are made. All outstanding unvested
share-based payment
11
awards that contain rights to non-forfeitable dividends are considered
participating securities. The Company grants restricted shares under the 2008 Equity Incentive Plan
that qualify as participating securities. Restricted shares issued under this plan are entitled to
dividends at the same rate as common stock.
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 tax-effected shares
issuable upon the assumed exercise of outstanding common stock options. Share and per share amounts
have been retroactively restated to give effect to all stock dividends and splits. The number of
shares outstanding at September 30, 2009 was 106,231,511. The tables below presents the
reconciliation of earnings per share for the periods indicated.
Earnings Per Share Reconciliation
(Dollars and shares in thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the nine months ended |
|
|
For the three months ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
|
|
Earnings per common share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings |
|
$ |
48,351 |
|
|
$ |
50,796 |
|
|
$ |
19,322 |
|
|
$ |
17,460 |
|
Less: Dividends on preferred stock and discount amortization |
|
|
12,765 |
|
|
|
|
|
|
|
8,804 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings available to common shareholders |
|
$ |
35,586 |
|
|
$ |
50,796 |
|
|
$ |
10,518 |
|
|
$ |
17,460 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Net earnings allocated to restricted stock |
|
|
114 |
|
|
|
67 |
|
|
|
34 |
|
|
|
23 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings allocated to common shareholders (numerator) |
|
$ |
35,472 |
|
|
$ |
50,729 |
|
|
$ |
10,484 |
|
|
$ |
17,437 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Shares Outstanding (denominator) |
|
|
88,601 |
|
|
|
83,106 |
|
|
|
99,242 |
|
|
|
83,148 |
|
Earnings per common share (1) |
|
$ |
0.40 |
|
|
$ |
0.61 |
|
|
$ |
0.10 |
|
|
$ |
0.21 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per common share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income allocated to common shareholders (numerator) |
|
$ |
35,472 |
|
|
$ |
50,729 |
|
|
$ |
10,484 |
|
|
$ |
17,437 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Shares Outstanding |
|
|
88,601 |
|
|
|
83,106 |
|
|
|
99,242 |
|
|
|
83,148 |
|
Incremental shares from assumed exercise of outstanding options |
|
|
97 |
|
|
|
223 |
|
|
|
90 |
|
|
|
225 |
|
|
|
|
|
|
|
|
|
|
Diluted Weighted Average Shares Outstanding (denominator) |
|
|
88,698 |
|
|
|
83,329 |
|
|
|
99,332 |
|
|
|
83,373 |
|
Diluted earnings per common share (1) |
|
$ |
0.40 |
|
|
$ |
0.61 |
|
|
$ |
0.10 |
|
|
$ |
0.21 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Substantially all of the decrease in earnings and diluted earnings
per common share for each period presented is due to the preferred stock
dividend and discount amortization |
Stock-Based Compensation At September 30, 2009, the Company has three stock-based
employee compensation plans, which are described more fully in Note 15 in the Companys Annual
Report on Form 10-K.
There were 922,500 options and 250,000 restricted stock awards granted in September 2009. The
options and stock awards will vest, in equal installments, over a five-year period. The options
and restricted stock awards were issued at the stock price on the date of grant at $8.61. The fair
value of each stock option granted was estimated on the date of grant using the following
weighted-average assumptions:
|
|
|
|
|
|
|
2009 |
Dividend Yield |
|
|
3.95 |
% |
Volatility |
|
|
47.3 |
% |
Risk-free interest rate |
|
|
2.5 |
% |
Expected life |
|
|
7.2 |
years |
Fair Value |
|
$ |
2.89 |
|
The expected volatility is solely based on the daily historical stock price volatility
over the expected option life. The expected life of options granted is derived from the output of
the option valuation model and represents the period of time an optionee will hold an option before
exercising it. The risk-free rate
12
for periods within the contractual life of the option is based
on the U.S. Treasury five-year constant maturity yield curve in effect at the time of the grant.
Option activity under the Companys stock compensation plans as of September 30, 2009 and
changes for the nine months ended September 30, 2009 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of |
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
Stock |
|
|
Weighted |
|
|
Average |
|
|
Aggregate |
|
|
|
Options |
|
|
Average |
|
|
Remaining |
|
|
Intrinsic |
|
|
|
Outstanding |
|
|
Exercise |
|
|
Contractual |
|
|
Value |
|
Options |
|
(000) |
|
|
Price |
|
|
Term (in Years) |
|
|
($000) |
|
Outstanding at January 1, 2009 |
|
|
2,249 |
|
|
$ |
10.64 |
|
|
|
|
|
|
|
|
|
Granted |
|
|
931 |
|
|
$ |
8.59 |
|
|
|
|
|
|
|
|
|
Exercised |
|
|
(56 |
) |
|
$ |
4.97 |
|
|
|
|
|
|
|
|
|
Forfeited or expired |
|
|
(8 |
) |
|
$ |
11.76 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at September 30, 2009 |
|
|
3,116 |
|
|
$ |
10.13 |
|
|
|
6.60 |
|
|
$ |
862 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested or expected to vest at September 30, 2009 |
|
|
2,921 |
|
|
$ |
10.16 |
|
|
|
6.40 |
|
|
$ |
861 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at September 30, 2009 |
|
|
1,598 |
|
|
$ |
10.56 |
|
|
|
4.14 |
|
|
$ |
855 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2009, there was $4.2 million of total unrecognized compensation costs
related to non-vested options granted under the plans. The cost is expected to be recognized over
a weighted-average period of approximately 3.9 years. The expense recognized for stock options was
$270,000 and $913,000 for the three and nine months ended September 30, 2009.
A summary of the activity of the Companys non-vested restricted shares as of September 30,
2009 and changes during the nine months ended September 30, 2009, is presented below:
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
Average |
|
Nonvested Restricted Shares |
|
Shares (000) |
|
|
Fair Value |
|
Nonvested at January 1, |
|
|
105 |
|
|
$ |
10.55 |
|
Granted |
|
|
250 |
|
|
$ |
8.61 |
|
Vested |
|
|
(25 |
) |
|
$ |
10.98 |
|
Forfeited |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
Nonvested at September 30, |
|
|
330 |
|
|
$ |
9.04 |
|
|
|
|
|
|
|
|
As of September 30, 2009, there was $2.5 million of total unrecognized compensation costs
related to non-vested shares granted under the plans. The cost is expected to be recognized over a
weighted-
average period of approximately 4.4 years. The expense recognized for restricted stock was
$84,000 and $224,000 for the three and nine months ended September 30, 2009.
Derivative Financial Instruments All derivative instruments, including certain
derivative instruments embedded in other contracts, are recognized on the consolidated balance
sheet at fair value. For derivatives designated as fair value hedges, changes in the fair value of
the derivative and the hedged item related to the hedged risk are recognized in earnings. Changes
in fair value of derivatives designated and accounted for as cash flow hedges, to the extent they
are effective as hedges, are recorded in Other Comprehensive Income, net of deferred taxes and
are subsequently reclassified to earnings when the hedged transaction affects earnings. Any hedge
ineffectiveness would be recognized in the income statement line item pertaining to the hedged
item.
Statement of Cash Flows Cash and cash equivalents as reported in the statements of cash
flows include cash and due from banks. Cash flows from loans and deposits are reported net.
CitizensTrust This division provides trust, investment and brokerage related services, as
well as financial, estate and business succession planning services. The Company maintains funds
in trust for customers. CitizensTrust has approximately $1.9 billion in assets under
administration, including $991.9
13
million in assets under management. The amount of these funds and
the related liability have not been recorded in the accompanying consolidated balance sheets
because they are not assets or liabilities of the Bank or Company, with the exception of any funds
held on deposit with the Bank.
Use of Estimates in the Preparation of Financial Statements The preparation of financial
statements in conformity with accounting principles generally accepted in the United States of
America 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 credit losses. Other significant estimates which may be subject to change include fair value
disclosures, impairment of investments and goodwill, and valuation of deferred tax assets, other
intangibles and OREO.
Recent Accounting Pronouncements
In August 2009, the FASB issued Accounting Standards Update (ASU) 2009-05,
Fair Value Measurements and Disclosures (Topic 820) -
Measuring Liabilities at Fair Value. The update addresses
practice difficulties caused by the tension between fair-value
measurements based on the price that would be paid to transfer a
liability to a new obligor and contractual or legal requirements
that prevent such transfers from taking place.
Companies determining the fair value of a liability may use
the perspective of an investor that holds the related obligation as an asset.
The new guidance is effective for interim and annual reporting periods beginning
after August 27, 2009, and applies to all fair-value measurements of liabilities
required by GAAP. The adoption of ASU 2009-05 did not have a material effect on
the Companys consolidated financial position or results of operations.
Shareholder Rights Plan The Company has a shareholder rights plan designed to maximize
long-term value and to protect shareholders from improper takeover tactics and takeover bids which
are not fair to all shareholders. In accordance with the plan, preferred share purchase rights were
distributed as a dividend at the rate of one right to purchase one one-thousandth of a share of the
Companys Series A Participating Preferred Stock at an initial exercise price of $50.00 (subject to
adjustment as described in the terms of the plan) upon the occurrence of certain triggering events.
For additional information concerning this plan, see Note 11 to Consolidated Financial Statements,
Commitments and Contingencies contained in the Companys Annual Report on Form 10-K for the year
ended December 31, 2008.
Other Contingencies In the ordinary course of business, the Company becomes involved in
litigation. Based upon the Companys internal records and discussions with legal counsel, the
Company records reserves for estimates of the probable outcome of all cases brought against them.
At September 30, 2009, the Company does not have any litigation reserves and is not aware of any
material pending legal action or complaints asserted against the Company.
2. INVESTMENTS
The amortized cost and estimated fair value of investment securities are shown below. The
majority of securities held are publicly traded, and the estimated fair values were obtained from
an independent pricing service based upon market quotes.
14
Table 3 Composition of Investment Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2009 |
|
|
|
|
|
|
|
Gross |
|
|
Gross |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized |
|
|
Unrealized |
|
|
|
|
|
|
|
|
|
|
Amortized |
|
|
Holding |
|
|
Holding |
|
|
|
|
|
|
Total |
|
|
|
Cost |
|
|
Gain |
|
|
Loss |
|
|
Fair Value |
|
|
Percent |
|
|
|
(Amounts in thousands) |
|
Investment Securities Available-for-Sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government agency & government-sponsored
enterprises |
|
$ |
96,386 |
|
|
$ |
253 |
|
|
$ |
(78 |
) |
|
$ |
96,561 |
|
|
|
4.23 |
% |
Mortgage-backed securities |
|
|
666,402 |
|
|
|
22,382 |
|
|
|
|
|
|
|
688,784 |
|
|
|
30.13 |
% |
CMOs / REMICs |
|
|
781,293 |
|
|
|
23,075 |
|
|
|
(1,002 |
) |
|
|
803,366 |
|
|
|
35.15 |
% |
Municipal bonds |
|
|
658,896 |
|
|
|
38,121 |
|
|
|
(272 |
) |
|
|
696,745 |
|
|
|
30.49 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Investment Securities |
|
$ |
2,202,977 |
|
|
$ |
83,831 |
|
|
$ |
(1,352 |
) |
|
$ |
2,285,456 |
|
|
|
100.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008 |
|
|
|
|
|
|
|
Gross |
|
|
Gross |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized |
|
|
Unrealized |
|
|
|
|
|
|
|
|
|
|
Amortized |
|
|
Holding |
|
|
Holding |
|
|
|
|
|
|
Total |
|
|
|
Cost |
|
|
Gain |
|
|
Loss |
|
|
Fair Value |
|
|
Percent |
|
|
|
(Amounts in thousands) |
|
Investment Securities Available-for-Sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government agency & government-sponsored
enterprises |
|
$ |
27,105 |
|
|
$ |
673 |
|
|
$ |
|
|
|
$ |
27,778 |
|
|
|
1.11 |
% |
Mortgage-backed securities |
|
|
1,150,650 |
|
|
|
33,836 |
|
|
|
(1 |
) |
|
|
1,184,485 |
|
|
|
47.50 |
% |
CMOs / REMICs |
|
|
591,531 |
|
|
|
9,855 |
|
|
|
(4,595 |
) |
|
|
596,791 |
|
|
|
23.94 |
% |
Municipal bonds |
|
|
674,655 |
|
|
|
16,704 |
|
|
|
(6,937 |
) |
|
|
684,422 |
|
|
|
27.45 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Investment Securities |
|
$ |
2,443,941 |
|
|
$ |
61,068 |
|
|
$ |
(11,533 |
) |
|
$ |
2,493,476 |
|
|
|
100.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Approximately 68% of the available-for-sale portfolio represents securities issued by the
U.S government or U.S. government-sponsored enterprises, which guarantee payment of principal and
interest.
The remaining CMO/REMICs are backed by agency-pooled collateral or whole loan collateral. All
non-agency available-for-sale CMO/REMIC issues held are rated investment grade or better by either
Standard & Poors or Moodys, as of September 30, 2009 and December 31, 2008.
Gross realized gains were $28.4 million and $6.9 million for the nine and three months
ended September 30, 2009, respectively. There were no realized gains or losses during the same
periods ended September 30, 2008.
15
Composition
of the Fair Value and Gross Unrealized Losses of Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2009 |
|
|
|
Less than 12 months |
|
|
12 months or longer |
|
|
Total |
|
|
|
|
|
|
|
Gross |
|
|
|
|
|
|
Gross |
|
|
|
|
|
|
Gross |
|
|
|
|
|
|
|
Unrealized |
|
|
|
|
|
|
Unrealized |
|
|
|
|
|
|
Unrealized |
|
|
|
|
|
|
|
Holding |
|
|
|
|
|
|
Holding |
|
|
|
|
|
|
Holding |
|
Description of Securities |
|
Fair Value |
|
|
Losses |
|
|
Fair Value |
|
|
Losses |
|
|
Fair Value |
|
|
Losses |
|
|
|
|
|
|
|
|
|
|
|
(amounts in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held-To-Maturity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CMO (1) |
|
$ |
|
|
|
$ |
|
|
|
$ |
4,237 |
|
|
$ |
1,618 |
|
|
$ |
4,237 |
|
|
$ |
1,618 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-Sale |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government agency |
|
$ |
25,109 |
|
|
$ |
78 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
25,109 |
|
|
$ |
78 |
|
CMO/REMICs |
|
|
46,438 |
|
|
|
555 |
|
|
|
31,101 |
|
|
|
447 |
|
|
|
77,539 |
|
|
|
1,002 |
|
Municipal bonds |
|
|
4,916 |
|
|
|
272 |
|
|
|
|
|
|
|
|
|
|
|
4,916 |
|
|
|
272 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
76,463 |
|
|
$ |
905 |
|
|
$ |
31,101 |
|
|
$ |
447 |
|
|
$ |
107,564 |
|
|
$ |
1,352 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
For the nine months ended September 30, 2009, the Company recorded $1.6 million, on a pre-tax
basis, of the non-credit
portion of OTTI for this security in other comprehensive income, which is included as gross
unrealized losses. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008 |
|
|
|
Less than 12 months |
|
|
12 months or longer |
|
|
Total |
|
|
|
|
|
|
|
Gross |
|
|
|
|
|
|
Gross |
|
|
|
|
|
|
Gross |
|
|
|
|
|
|
|
Unrealized |
|
|
|
|
|
|
Unrealized |
|
|
|
|
|
|
Unrealized |
|
|
|
|
|
|
|
Holding |
|
|
|
|
|
|
Holding |
|
|
|
|
|
|
Holding |
|
Description of Securities |
|
Fair Value |
|
|
Losses |
|
|
Fair Value |
|
|
Losses |
|
|
Fair Value |
|
|
Losses |
|
|
|
|
|
|
|
|
|
|
|
(amounts in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held-To-Maturity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CMO |
|
$ |
4,770 |
|
|
$ |
2,097 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
4,770 |
|
|
$ |
2,097 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-Sale |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities |
|
$ |
265 |
|
|
$ |
|
|
|
$ |
13,903 |
|
|
$ |
1 |
|
|
$ |
14,168 |
|
|
$ |
1 |
|
CMO/REMICs |
|
|
163,036 |
|
|
|
4,542 |
|
|
|
1,853 |
|
|
|
53 |
|
|
|
164,889 |
|
|
|
4,595 |
|
Municipal bonds |
|
|
159,370 |
|
|
|
5,341 |
|
|
|
37,994 |
|
|
|
1,596 |
|
|
|
197,364 |
|
|
|
6,937 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
322,671 |
|
|
$ |
9,883 |
|
|
$ |
53,750 |
|
|
$ |
1,650 |
|
|
$ |
376,421 |
|
|
$ |
11,533 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The tables above show the Companys 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 September 30, 2009 and December 31, 2008. The Company has
reviewed individual securities to determine whether a decline in fair value below the amortized
cost is other-than-temporary.
The following summarizes our analysis of these securities and the unrealized losses. This
assessment was based on the following factors: i) the length of the time and the extent to which
the fair value has been less than amortized cost; ii) adverse condition specifically related to the
security, an industry, or a geographic area and whether or not the Company expects to recover the
entire amortized cost, iii) historical and implied volatility of the fair value of the security;
iv) the payment structure of the security and the likelihood of the issuer being able to make
payments in the future; v.) failure of the issuer of the security to make scheduled interest or
principal payments, vi) any changes to the rating of the security by a rating agency, and vii)
recoveries or additional declines in fair value subsequent to the balance sheet date.
CMO Held-to-Maturity We have one investment security classified as held-to-maturity. This
security was issued by Countrywide Financial and is collateralized by Alt-A mortgages. The
mortgages are primarily fixed-rate, 30-year loans, originated in early 2006 with average FICO
scores of 715 and an average LTV of 71% at origination. The security was a senior security in the
securitization, was rated triple AAA at origination and was supported by subordinate securities.
This security is classified as held-to-maturity as we have both the intent and ability to hold this
debt security to maturity as the amount of the security, $4.2 million, is not significant to our
liquidity needs. We acquired this security in February
16
2008 at a price of 98.25%. The significant decline in the fair value of the security first appeared
in August 2008 as the current financial crisis in the markets occurred and the market for
securities collateralized by Alt-A mortgages diminished.
As of September 30, 2009, the unrealized loss on this security was $1.8 million and the fair
value on the security was 69% of the current par value. The security is rated non-investment
grade. We evaluated the security for an other than temporary decline in fair value as of September
30, 2009. We assess for credit impairment using a cash flow model. The key assumptions include
default rates, severities and prepayment rates. This security was determined to be credit impaired
during the current quarter as opposed to prior quarters due to further degradation in expected cash
flows primarily due to higher loss forecasts. We determined the amount of the credit impairment by
discounting the expected future cash flows of the underlying collateral. We recognized an other-than-temporary impairment of $1.8
million reduced by $1.6 million for the non-credit portion which was reflected in other
comprehensive income. The remaining loss of $232,000 was recognized in third quarter earnings.
The following table provides a roll-forward of credit-related other-than-temporary impairment
recognized in earnings for the three and nine months ended September 30, 2009.
|
|
|
|
|
|
|
Three and Nine Months |
|
|
|
Ended |
|
|
|
September 30, |
|
|
|
2009 |
|
Balance, beginning of the period |
|
$ |
|
|
Addition of OTTI that was not previously recognized |
|
|
232 |
|
Reduction for securities sold during the period |
|
|
|
|
|
|
|
|
|
Reduction for securities with OTTI recognized in earnings because the
security might be sold before recovery of its amortized cost basis |
|
|
|
|
|
|
|
|
|
Addition of OTTI that was previously recognized because the security
might not be sold before recovery of its amortized cost basis |
|
|
|
|
|
|
|
|
|
Reduction for increases in cash flows expected to be collected that are
recognized over the remaining life of the security |
|
|
|
|
|
|
|
|
Balance, end of the period |
|
$ |
232 |
|
|
|
|
|
Government Agency The government agency bonds are backed by the full faith and credit
of Agencies of the U.S. Government. These securities are bullet securities, that is, they have a
defined maturity date on which the principal is paid. The contractual term of these investments
provides that the Bank will receive the face value of the bond at maturity which will equal the
amortized cost of the bond. Interest is received throughout the life of the security. There was
no loss greater than 12 months on these securities at September 30, 2009.
Mortgaged-Backed Securities and CMO/REMICs Almost all of the mortgage-backed and CMO/REMICs
securities are issued by the government-sponsored enterprises such as Ginnie Mae, Fannie Mae and
Freddie Mac. These securities are collateralized or backed by the underlying residential
mortgages. All mortgage-backed securities are rated investment grade with an average life of
approximately 3.8 years. The contractual cash flows of 97.9% of these investments are guaranteed
by U.S. government-sponsored agencies. The remaining 2.1% are issued by banks. Accordingly, it is
expected the securities would not be settled at a price less than the amortized cost of the bonds.
The unrealized loss greater than 12 months on these securities at September 30, 2009 is $447,000.
This loss is comprised of bonds issued by non-government sponsored enterprises such as financial
institutions with a loss of $326,000 and two FHLMC securities with a loss of $121,000. Because we
believe the decline in fair value
is attributable to the changes in interest rates and not credit quality and because the
Company does not intend to sell the investments and it is more likely than not that the Company
will not be required
17
to sell the investments before recovery of their amortized costs, which may be
at maturity, management does not consider these investments to be other than temporarily impaired
at September 30, 2009.
Municipal Bonds Ninety-four percent of our $696.7 million municipal bond portfolio contains
securities which have an underlying rating of investment grade. The majority of our municipal bonds
are insured by the largest bond insurance companies with maturities of approximately 5.1 years.
There is no unrealized loss greater than 12 months on these securities at September 30, 2009. The
Bank diversifies its holdings by owning selections of securities from different issuers and by
holding securities from geographically diversified municipal issuers, thus reducing the Banks
exposure to any single adverse event.
We are continually monitoring the quality of our municipal bond portfolio in light of the
current financial problems exhibited by certain monoline insurance companies. While most of our
securities are insured by these companies, we feel that there is minimal risk of loss due to the
problems these insurers are having. Many of the securities that would not be rated without
insurance are pre-refunded and/or are general obligation bonds. Based on our monitoring of the
municipal marketplace, to our knowledge, none of the municipalities are exhibiting financial
problems that would lead us to believe there is a loss in any given security.
At September 30, 2009 and December 31, 2008, investment securities having an amortized cost of
approximately $2.0 billion and $2.32 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 September 30, 2009, by contractual
maturity, are shown below. Although mortgage-backed securities and CMO/REMICs have contractual
maturities through 2039, expected maturities will differ from contractual maturities because
borrowers may have the right to prepay such obligations without penalty. Mortgage-backed securities
and CMO/REMICs are included in maturity categories based upon estimated prepayment speeds.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale |
|
|
|
|
|
|
|
|
|
|
|
Weighted- |
|
|
|
Amortized |
|
|
Fair |
|
|
Average |
|
|
|
Cost |
|
|
Value |
|
|
Yield |
|
|
|
(amounts in thousands) |
|
Due in one year or less |
|
$ |
220,431 |
|
|
$ |
222,741 |
|
|
|
3.98 |
% |
Due after one year through five years |
|
|
1,028,218 |
|
|
|
1,067,139 |
|
|
|
4.47 |
% |
Due after five years through ten years |
|
|
900,220 |
|
|
|
939,536 |
|
|
|
4.36 |
% |
Due after ten years |
|
|
54,108 |
|
|
|
56,040 |
|
|
|
4.04 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
2,202,977 |
|
|
$ |
2,285,456 |
|
|
|
4.36 |
% |
|
|
|
|
|
|
|
|
|
|
|
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 September 30, 2009.
3. FAIR VALUE INFORMATION
The following disclosure provides fair value information for financial assets and liabilities
as of September 30, 2009. 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 Valuation is based upon quoted prices for identical instruments traded in
active markets. |
18
|
|
|
Level 2 Valuation is based upon quoted prices for similar instruments in active
markets, quoted prices for identical or similar instruments in markets that are not
active, and model-based valuation techniques for which all significant assumptions are
observable in the market. |
|
|
|
|
Level 3 Valuation is generated from model-based techniques that use significant
assumptions not observable in the market. These unobservable assumptions reflect the
Companys own estimates of assumptions that market participants would use in pricing
the asset or liability. Valuation techniques include use of option pricing models,
discounted cash flows and similar techniques. |
Determination of Fair Value
The following is a description of valuation methodologies used for assets and liabilities
recorded at fair value and for estimating fair value for financial instruments not recorded at fair
value.
Cash The carrying amount of cash and cash equivalents is considered to be a reasonable
estimate of fair value.
Investment securities available-for-sale Investment securities available-for-sale are valued
based upon quotes obtained from a reputable third-party pricing service. The service uses
evaluated pricing applications and model processes. Market inputs, such as, benchmark yields,
reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities,
bids, offers and reference data are considered as part of the evaluation. The inputs are related
directly to the security being evaluated, or indirectly to a similarly situated security. Market
assumptions and market data are utilized in the valuation models. Accordingly, the Company
categorized its investment portfolio as a Level 2 valuation.
Investment security held-to-maturity Investment security held-to-maturity is carried at
amortized cost-basis on the balance sheet. The fair value is determined using the same process
described above for available-for-sale securities. During the third quarter ended, an
other-than-temporary impairment loss was recognized and the carrying balance was reduced to fair
value.
Loans The carrying amount of loans and lease finance receivables is their contractual
amounts outstanding, reduced by deferred net loan origination fees and the allocable portion of the
allowance for credit losses.
The fair value of loans, other than loans on non-accrual status, was estimated by discounting
the remaining contractual cash flows using the estimated current rate at which similar loans would
be made to borrowers with similar credit risk characteristics and for the same remaining
maturities, reduced by deferred net loan origination fees and the allocable portion of the
allowance for credit losses. Accordingly, in determining the estimated current rate for discounting
purposes, no adjustment has been made for any change in borrowers credit risks since the
origination of such loans. Rather, the allocable portion of the allowance for credit losses is
considered to provide for such changes in estimating fair value.
The fair value of loans on non-accrual status has not been specifically estimated because it
is not practicable to reasonably assess the credit risk adjustment that would be applied in the
marketplace for such loans. As such, the estimated fair value of total loans at September 30, 2009
includes the carrying amount of non-accrual loans at each respective date, net of allowance for
credit losses.
Impaired loans and OREO are generally measured using the fair value of the underlying
collateral, which is determined based on the most recent appraisal information received, less costs
to sell. These loans fall within Level 2 of the fair value hierarchy. Appraised values may be
adjusted based on factors such as
the changes in market conditions from the time of valuation. These loans fall within Level 3
of the fair value hierarchy.
19
The fair value of commitments to extend credit and standby letters of credit were not
significant at September 30, 2009 as these instruments predominantly have adjustable terms and are
of a short-term nature.
Swaps The fair value of the interest rate swap contracts are provided by our counterparty
using a system that constructs a yield curve based on cash LIBOR rates, Eurodollar futures
contracts, and 3-year through 30-year swap rates. The yield curve determines the valuations of the
interest rate swaps. Accordingly, the swap is categorized as a Level 2 valuation.
Deposits & Borrowings The amounts payable to depositors for demand, savings, and money
market accounts, and the demand note to the U.S. Treasury, and short-term borrowings are considered
to be stated at fair value. The fair value of fixed-maturity certificates of deposit is estimated
using the rates currently offered for deposits of similar remaining maturities. The fair value of
long-term borrowings and junior subordinated debentures is estimated using the rates currently
offered for borrowings of similar remaining maturities.
Accrued Interest Receivable/Payable The amounts of accrued interest receivable on loans and
lease finance receivables and investments and accrued interest payable on deposits and borrowings
are considered to be stated at fair value.
The table below presents the balances of assets and liabilities measured at fair value on a
recurring basis.
Assets
& Liabilities Measured at Fair Value on a Recurring
Basis
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Prices in |
|
|
Significant |
|
|
|
|
|
|
|
|
|
|
Active Markets |
|
|
Other |
|
|
Significant |
|
|
|
Carrying Value at |
|
|
for Identical |
|
|
Observable |
|
|
Unobservable |
|
|
|
September 30, |
|
|
Assets |
|
|
Inputs |
|
|
Inputs |
|
(in thousands) |
|
2009 |
|
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
|
Description of Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities |
|
$ |
688,784 |
|
|
$ |
|
|
|
$ |
688,784 |
|
|
$ |
|
|
CMOs / REMICs |
|
|
803,366 |
|
|
|
|
|
|
|
803,366 |
|
|
|
|
|
Government agency |
|
|
96,561 |
|
|
|
|
|
|
|
96,561 |
|
|
|
|
|
Municipal bonds |
|
|
696,745 |
|
|
|
|
|
|
|
696,745 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment Securities-AFS |
|
$ |
2,285,456 |
|
|
$ |
|
|
|
$ |
2,285,456 |
|
|
$ |
|
|
Interest Rate Swaps |
|
|
5,761 |
|
|
|
|
|
|
|
5,761 |
|
|
|
|
|
|
|
|
|
|
|
Total Assets |
|
$ |
2,291,217 |
|
|
$ |
|
|
|
$ |
2,291,217 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Description of Liability |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Rate Swaps |
|
$ |
5,761 |
|
|
$ |
|
|
|
$ |
5,761 |
|
|
$ |
|
|
|
|
|
We may be required to measure certain assets at fair value on a nonrecurring basis in
accordance with GAAP. These adjustments to fair value usually result from application of
lower-of-cost-or-market accounting or write-downs of individual assets. For assets measured at
fair value on a nonrecurring basis that were still held in the balance sheet at quarter end, the
following table provides the level of valuation assumptions used to determine each adjustment and
the carrying value of the related assets at quarter end.
20
Assets & Liabilities Measured at Fair Value on a Non-Recurring Basis
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Prices in |
|
Significant |
|
|
|
|
|
For the nine |
|
|
|
|
|
|
Active Markets |
|
Other |
|
Significant |
|
months ended |
|
|
Carrying Value at |
|
for Identical |
|
Observable |
|
Unobservable |
|
September 30, |
|
|
September 30, |
|
Assets |
|
Inputs |
|
Inputs |
|
2009 |
(in thousands) |
|
2009 |
|
(Level 1) |
|
(Level 2) |
|
(Level 3) |
|
Total Losses |
|
Description of Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment Security-HTM |
|
$ |
4,237 |
|
|
$ |
|
|
|
$ |
4,237 |
|
|
$ |
|
|
|
$ |
(232 |
) |
Impaired Loans (1) |
|
$ |
44,779 |
|
|
$ |
|
|
|
$ |
3,319 |
|
|
$ |
41,460 |
|
|
$ |
(18,240 |
) |
OREO |
|
$ |
1,137 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
1,137 |
|
|
$ |
(848 |
) |
(1) Impaired loans of $16.3 million have sufficient collateral
value to cover losses and are recorded at carrying value.
The following table presents estimated fair value of 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 could have realized in a current market exchange as of September 30,
2009. The use of different market assumptions and/or estimation methodologies may have a material
effect on the estimated fair value amounts.
FAIR VALUE INFORMATION
|
|
|
|
|
|
|
|
|
|
|
September 30, 2009 |
|
|
Carrying |
|
Estimated |
|
|
Amount |
|
Fair Value |
|
|
(amounts in thousands) |
Assets |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
222,158 |
|
|
$ |
222,158 |
|
Federal funds sold and Interest-bearing balances |
|
|
|
|
|
|
|
|
due from depository institutions |
|
|
150,285 |
|
|
|
150,285 |
|
FHLB Stock |
|
|
93,240 |
|
|
|
93,240 |
|
Investment securities available-for-sale |
|
|
2,285,456 |
|
|
|
2,285,456 |
|
Investment securities held-to-maturity |
|
|
4,237 |
|
|
|
4,237 |
|
Loans and lease finance receivables, net |
|
|
3,512,771 |
|
|
|
3,546,141 |
|
Accrued interest receivable |
|
|
27,430 |
|
|
|
27,430 |
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
Deposits: |
|
|
|
|
|
|
|
|
Noninterest-bearing |
|
$ |
1,416,558 |
|
|
$ |
1,416,558 |
|
Interest-bearing |
|
|
2,623,213 |
|
|
|
2,626,464 |
|
Demand note to U.S. Treasury |
|
|
3,441 |
|
|
|
3,441 |
|
Borrowings |
|
|
1,665,326 |
|
|
|
1,721,518 |
|
Junior subordinated debentures |
|
|
115,055 |
|
|
|
115,735 |
|
Accrued interest payable |
|
|
8,420 |
|
|
|
8,420 |
|
The fair value estimates presented herein are based on pertinent information available to
management as of September 30, 2009. Although management is not aware of any factors that would
significantly affect the estimated fair value amounts, such amounts have not been comprehensively
revalued for purposes of these financial statements since that date, and therefore, current
estimates of fair value may differ significantly from the amounts presented above.
4. BUSINESS SEGMENTS
The Company has identified two principal reportable segments: Business Financial and
Commercial Banking Centers and the Treasury Department. The Companys subsidiary bank has 41
Business Financial Centers and 5 Commercial Banking Centers (branches), organized in 6 geographic
regions, which are the focal points for customer sales and services. The Company utilizes an
internal reporting
21
system to measure the performance of various operating segments within the Bank
which is the basis for determining the Banks reportable segments. The Chief Operating Decision
Maker (currently our CEO) regularly reviews the financial information of these segments in deciding
how to allocate resources and assessing performance. The Banks Business Financial and Commercial
Banking Centers are considered one operating segment as their products and services are similar and
are sold to similar types of customers,
have similar production and distribution processes, have similar economic characteristics, and
have similar reporting and organizational structures. The Treasury Departments primary focus is
managing the Banks investments, liquidity, and interest rate risk. Information related to the
Companys remaining operating segments which include construction lending, dairy and livestock
lending, SBA lending, leasing, and centralized functions have been aggregated and included in
Other. In addition, the Company allocates internal funds transfer pricing to the segments using a
methodology that charges users of funds interest expense and credits providers of funds interest
income with the net effect of this allocation being recorded in administration.
The following table represents the selected financial information for these two business
segments. Accounting principles generally accepted in the United States of America do not have an
authoritative body of knowledge regarding the management accounting used in presenting segment
financial information. The accounting policies for each of the business units is the same as those
policies identified for the consolidated Company and identified in the footnote on the summary of
significant accounting policies. The income numbers represent the actual income and expenses of
each business unit. In addition, each segment has allocated income and expenses based on
managements internal reporting system, which allows management to determine the performance of
each of its business units. Loan fees, included in the Business Financial and Commercial Banking
Centers category are the actual loan fees paid to the Company by its customers. These fees are
eliminated and deferred in the Other category, resulting in deferred loan fees for the
consolidated financial statements. All income and expense items not directly associated with the
two business segments are grouped in the Other category. Future changes in the Companys
management structure or reporting methodologies may result in changes in the measurement of
operating segment results.
The following tables present the operating results and other key financial measures for the
individual reportable segments for the three and nine months ended September 30, 2009 and 2008:
22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2009 |
|
|
|
Business |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Centers |
|
|
Treasury |
|
|
Other |
|
|
Eliminations |
|
|
Total |
|
Interest income, including loan fees |
|
$ |
38,632 |
|
|
$ |
25,388 |
|
|
$ |
11,899 |
|
|
$ |
|
|
|
$ |
75,919 |
|
Credit for funds provided (1) |
|
|
14,877 |
|
|
|
|
|
|
|
6,723 |
|
|
|
(21,600 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income |
|
|
53,509 |
|
|
|
25,388 |
|
|
|
18,622 |
|
|
|
(21,600 |
) |
|
|
75,919 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
6,920 |
|
|
|
13,286 |
|
|
|
907 |
|
|
|
|
|
|
|
21,113 |
|
Charge for funds used (1) |
|
|
2,522 |
|
|
|
8,995 |
|
|
|
10,083 |
|
|
|
(21,600 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense |
|
|
9,442 |
|
|
|
22,281 |
|
|
|
10,990 |
|
|
|
(21,600 |
) |
|
|
21,113 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
|
44,067 |
|
|
|
3,107 |
|
|
|
7,632 |
|
|
|
|
|
|
|
54,806 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for credit losses |
|
|
|
|
|
|
|
|
|
|
13,000 |
|
|
|
|
|
|
|
13,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income after provision
for credit losses |
|
$ |
44,067 |
|
|
$ |
3,107 |
|
|
|
($5,368 |
) |
|
$ |
|
|
|
$ |
41,806 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest income |
|
|
5,058 |
|
|
|
6,667 |
|
|
|
3,377 |
|
|
|
|
|
|
|
15,102 |
|
Non-interest expense |
|
|
12,236 |
|
|
|
383 |
|
|
|
17,226 |
|
|
|
|
|
|
|
29,845 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment pretax profit (loss) |
|
$ |
36,889 |
|
|
$ |
9,391 |
|
|
|
($19,217 |
) |
|
$ |
|
|
|
$ |
27,063 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2008 |
|
|
|
Business |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Centers |
|
|
Treasury |
|
|
Other |
|
|
Eliminations |
|
|
Total |
|
Interest income, including loan fees |
|
|
42,120 |
|
|
$ |
30,620 |
|
|
$ |
10,767 |
|
|
$ |
|
|
|
$ |
83,507 |
|
Credit for funds provided (1) |
|
|
18,306 |
|
|
|
|
|
|
|
4,458 |
|
|
|
(22,764 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income |
|
|
60,426 |
|
|
|
30,620 |
|
|
|
15,225 |
|
|
|
(22,764 |
) |
|
|
83,507 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
7,214 |
|
|
$ |
24,712 |
|
|
|
2,569 |
|
|
|
|
|
|
|
34,495 |
|
Charge for funds used (1) |
|
|
19,360 |
|
|
$ |
856 |
|
|
|
2,548 |
|
|
|
(22,764 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense |
|
|
26,574 |
|
|
|
25,568 |
|
|
|
5,117 |
|
|
|
(22,764 |
) |
|
|
34,495 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
|
33,852 |
|
|
|
5,052 |
|
|
|
10,108 |
|
|
|
|
|
|
|
49,012 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for credit losses |
|
|
|
|
|
|
|
|
|
|
4,000 |
|
|
|
|
|
|
|
4,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income after provision
for credit losses |
|
$ |
33,852 |
|
|
$ |
5,052 |
|
|
$ |
6,108 |
|
|
$ |
|
|
|
$ |
45,012 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest income |
|
|
5,471 |
|
|
$ |
1 |
|
|
|
2,901 |
|
|
|
|
|
|
|
8,373 |
|
Non-interest expense |
|
|
12,173 |
|
|
$ |
342 |
|
|
|
16,542 |
|
|
|
|
|
|
|
29,057 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment pretax profit (loss) |
|
$ |
27,150 |
|
|
$ |
4,711 |
|
|
|
($7,533 |
) |
|
$ |
|
|
|
$ |
24,328 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2009 |
|
|
|
Business |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Centers |
|
|
Treasury |
|
|
Other |
|
|
Eliminations |
|
|
Total |
|
Interest income, including loan fees |
|
$ |
115,711 |
|
|
$ |
80,877 |
|
|
$ |
34,068 |
|
|
$ |
|
|
|
$ |
230,656 |
|
Credit for funds provided (1) |
|
|
37,526 |
|
|
|
|
|
|
|
16,457 |
|
|
|
(53,983 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income |
|
|
153,237 |
|
|
|
80,877 |
|
|
|
50,525 |
|
|
|
(53,983 |
) |
|
|
230,656 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
21,382 |
|
|
|
41,400 |
|
|
|
3,681 |
|
|
|
|
|
|
|
66,463 |
|
Charge for funds used (1) |
|
|
9,325 |
|
|
|
20,167 |
|
|
|
24,491 |
|
|
|
(53,983 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense |
|
|
30,707 |
|
|
|
61,567 |
|
|
|
28,172 |
|
|
|
(53,983 |
) |
|
|
66,463 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
|
122,530 |
|
|
|
19,310 |
|
|
|
22,353 |
|
|
|
|
|
|
|
164,193 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for credit losses |
|
|
|
|
|
|
|
|
|
|
55,000 |
|
|
|
|
|
|
|
55,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income after provision
for credit losses |
|
$ |
122,530 |
|
|
$ |
19,310 |
|
|
|
($32,647 |
) |
|
$ |
|
|
|
$ |
109,193 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest income |
|
|
14,670 |
|
|
|
28,215 |
|
|
|
8,283 |
|
|
|
|
|
|
|
51,168 |
|
Non-interest expense |
|
|
36,939 |
|
|
|
1,122 |
|
|
|
56,160 |
|
|
|
|
|
|
|
94,221 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment pretax profit (loss) |
|
$ |
100,261 |
|
|
$ |
46,403 |
|
|
|
($80,524 |
) |
|
$ |
|
|
|
$ |
66,140 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment assets as of September 30, 2009 |
|
$ |
4,241,933 |
|
|
$ |
2,724,010 |
|
|
$ |
738,934 |
|
|
$ |
(1,158,612 |
) |
|
$ |
6,546,265 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2008 |
|
|
|
Business |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Centers |
|
|
Treasury |
|
|
Other |
|
|
Eliminations |
|
|
Total |
|
Interest income, including loan fees |
|
$ |
125,280 |
|
|
$ |
90,545 |
|
|
$ |
33,870 |
|
|
$ |
|
|
|
$ |
249,695 |
|
Credit for funds provided (1) |
|
|
39,224 |
|
|
|
|
|
|
|
6,421 |
|
|
|
(45,645 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income |
|
|
164,504 |
|
|
|
90,545 |
|
|
|
40,291 |
|
|
|
(45,645 |
) |
|
|
249,695 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
27,569 |
|
|
|
71,568 |
|
|
|
8,934 |
|
|
|
|
|
|
|
108,071 |
|
Charge for funds used (1) |
|
|
27,519 |
|
|
|
6,596 |
|
|
|
11,530 |
|
|
|
(45,645 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense |
|
|
55,088 |
|
|
|
78,164 |
|
|
|
20,464 |
|
|
|
(45,645 |
) |
|
|
108,071 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
|
109,416 |
|
|
|
12,381 |
|
|
|
19,827 |
|
|
|
|
|
|
|
141,624 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for credit losses |
|
|
|
|
|
|
|
|
|
|
8,700 |
|
|
|
|
|
|
|
8,700 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income after provision
for credit losses |
|
$ |
109,416 |
|
|
$ |
12,381 |
|
|
$ |
11,127 |
|
|
$ |
|
|
|
$ |
132,924 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest income |
|
|
16,068 |
|
|
|
7 |
|
|
|
9,141 |
|
|
|
|
|
|
|
25,216 |
|
Non-interest expense |
|
|
36,135 |
|
|
|
950 |
|
|
|
50,749 |
|
|
|
|
|
|
|
87,834 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment pretax profit (loss) |
|
$ |
89,349 |
|
|
$ |
11,438 |
|
|
|
($30,481 |
) |
|
$ |
|
|
|
$ |
70,306 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment assets as of September 30, 2008 |
|
$ |
3,300,145 |
|
|
$ |
2,588,209 |
|
|
$ |
609,060 |
|
|
$ |
(75,628 |
) |
|
$ |
6,421,786 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Credit for funds provided and charge for funds used is eliminated in the consolidated
presentation. |
5. DERIVATIVE FINANCIAL INSTRUMENTS
The Bank is exposed to certain risks relating to its ongoing business operations. The primary
risks managed by using derivative instruments are market risk and interest rate risk. As of
September 30, 2009, the Bank entered into 28 interest-rate swap agreements with customers and 28
with a counterparty bank. The swaps are not designated as hedging instruments. The purpose of
entering into offsetting derivatives not designated as a hedging instrument is to provide the Bank
a variable-rate loan receivable and provide the customer the financial effects of a fixed-rate loan
without creating volatility in the banks earnings.
The structure of the swaps is as follows. The Bank enters into a swap with its customers to
allow them to convert variable rate loans to fixed rate loans, and at the same time, the Bank
enters into a swap with the counterparty bank to allow the Bank to pass on the interest-rate risk
associated with fixed rate loans. The net effect of the transaction allows the Bank to receive
interest on the loan from the customer
at a variable rate based on LIBOR plus a spread. The changes in the market value of the swaps
primarily offset each other and therefore do not have a significant impact on the Companys results
of operations.
24
As of September 30, 2009, the total notional amount of the Banks swaps was $171.8 million.
The following tables present the location of the asset and liability and the amount of gain
recognized as of and for the nine months ended September 30, 2009.
Fair
Value of Derivative Instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Derivatives |
|
|
Liability Derivatives |
|
|
|
September 30, 2009 |
|
|
September 30, 2009 |
|
|
|
(amounts in thousands) |
|
Derivatives Not Designated as |
|
Balance Sheet |
|
|
|
|
|
|
Balance Sheet |
|
|
|
|
Hedging Instruments |
|
Location |
|
|
Fair Value |
|
|
Location |
|
|
Fair Value |
|
Interest Rate Swaps |
|
Other Assets |
|
$ |
5,761 |
|
|
Other Liabilities |
|
$ |
5,761 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Derivatives |
|
|
|
|
|
$ |
5,761 |
|
|
|
|
|
|
$ |
5,761 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Effect of Derivative Instruments on the Consolidated Statement of Earnings for
the nine months ended September 30, 2009
(amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Gain |
|
Derivatives Not Designated as |
|
Location of Gain Recognized in |
|
|
Recognized in Income |
|
Hedging Instruments |
|
Income on Derivative |
|
|
on Derivative |
|
|
|
|
|
|
|
September 30, 2009 |
|
Interest Rate Swaps |
|
Other Income |
|
$ |
275 |
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
$ |
275 |
|
|
|
|
|
|
|
|
|
6. SUBSEQUENT EVENTS
On October 16, 2009, the Bank acquired substantially all of the assets and assumed
substantially all of the liabilities of San Joaquin Bank (SJB) headquartered in Bakersfield,
California from the FDIC as receiver for SJB, including all five SJB branches. Based upon a
preliminary closing with the FDIC as of October 16, 2009, the Bank acquired (a) an estimated $690
million in loans, (b) $24 million in investment securities, and (c) $18 million in cash and other
assets, and assumed (a) an estimated $530 million in deposits, (b) $121 million in borrowings, and
(c) $1 million in other liabilities. The foregoing amounts represent SJBs book value and do not
reflect fair value. These amounts are estimates and, accordingly, are subject to adjustment based
upon final settlement with the FDIC. The Company is currently in the process of determining
fair value amounts.
On October 28, 2009, the Company repurchased the warrant issued to the U.S. Treasury as part
of the U.S. Treasurys Capital Purchase Program. The repurchase price of $1,307,000 was recorded in
additional paid-in-capital on the balance sheet. The warrant to purchase 1,669,521 shares of the
Companys voting common stock at an exercise price of $11.68 was reduced in half to 834,761 shares,
upon completion of the Companys common stock offering on July 27, 2009.
The Company has evaluated subsequent events through November 5, 2009, the date that these
consolidated financial statements were issued.
25
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
Managements discussion and analysis is written to provide greater insight into the results of
operations and the financial condition of CVB Financial Corp. and its subsidiaries. Throughout this
discussion, Company refers to CVB Financial Corp. and its subsidiaries as a consolidated entity.
CVB refers to CVB Financial Corp. as the unconsolidated parent company and Bank refers to
Citizens Business Bank. For a more complete understanding of the Company and its operations,
reference should be made to the financial statements included in this report and this discussion
and analysis should be read in conjunction with the Companys 2008 Annual Report on Form 10-K.
Certain statements in this Report on Form 10-Q constitute forward-looking statements under the
Private Securities Litigation Reform Act of 1995 which involve risks and uncertainties. Our actual
results may differ significantly from the results discussed in such forward-looking statements.
Factors that might cause such a difference include, but are not limited to, local, regional,
national and international economic conditions and events and the impact they may have on us and
our customers; ability to attract deposits and other sources of liquidity; oversupply of inventory
and continued deterioration in values of California real estate, both residential and commercial; a
prolonged slowdown in construction activity; changes in the financial performance and/or condition
of our borrowers; changes in the level of non-performing assets and charge-offs; the effect of
acquisitions we may make; the effect of changes in laws and regulations (including laws and
regulations concerning taxes, banking, securities, executive compensation and insurance) with which
we and our subsidiaries must comply; changes in estimates of future reserve requirements based upon
the periodic review thereof under relevant regulatory and accounting requirements; inflation,
interest rate, securities market and monetary fluctuations; political instability; acts of war or
terrorism, or natural disasters, such as earthquakes, or the effects of pandemic flu; the timely
development and acceptance of new banking products and services and perceived overall value of
these products and services by users; changes in consumer spending, borrowing and savings habits;
technological changes; the ability to increase market share and control expenses; changes in the
competitive environment among financial and bank holding companies and other financial service
providers; continued volatility in the credit and equity markets and its effect on the general
economy; the effect of changes in accounting policies and practices, as may be adopted by the
regulatory agencies, as well as 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; the costs and effects of legal and regulatory
developments including the resolution of legal proceedings or regulatory or other governmental
inquiries and the results of regulatory examinations or reviews. For additional information
concerning these factors and other factors which may cause actual results to differ from the
results discussed in our forward-looking statements, see the periodic filings the Company makes
with the Securities and Exchange Commission, and in particular Item 1A. Risk Factors contained in
the Companys Annual Report on Form 10-K for the year ended December 31, 2008. The Company does not
undertake, and specifically disclaims, any obligation to update any forward-looking statements to
reflect the occurrence of events or circumstances after the date of such statements except as
required by law.
OVERVIEW
We are a bank holding company with one bank subsidiary, Citizens Business Bank. We have three
other inactive subsidiaries: CVB Ventures, Inc.; Chino Valley Bancorp and Orange National Bancorp.
We are also the common stockholder of CVB Statutory Trust I, CVB Statutory Trust II and CVB
Statutory Trust III, statutory trusts which were formed to issue trust preferred securities in
order to increase the capital of the Company. Through our acquisition of FCB in June 2007, we
acquired FCB Capital Trust II, another statutory trust. We are based in Ontario, California in
what is known as the
Inland Empire of California. Our geographical market area encompasses the City of Stockton
(the middle of the Central Valley) in the center of California to the City of Laguna Beach (in
Orange County) in the southern
26
portion of California. Our mission is to offer the finest financial
products and services to professionals and businesses in our market area.
Our primary source of income is from the interest earned on our loans and investments and our
primary area of expense is the interest paid on deposits, borrowings, and salaries and benefits.
As such our net income is subject to fluctuations in interest rates and their impact on our income
statement. We are also subject to competition from other financial institutions, which may affect
our pricing of products and services, and the fees and interest rates we can charge on them.
Economic conditions in our California service area impact our business. We have seen a
significant decline in the housing market resulting in slower growth in construction loans.
Unemployment is high and the Inland Empire and other areas of our marketplace have been
significantly impacted as economic conditions, both nationally and in California, continue to
deteriorate. Approximately 22% of our total loan portfolio of $3.6 billion is located in the
Inland Empire region of California. The balance of the portfolio is from outside of this region.
Our provision for credit losses for the first nine months of 2009, which was significantly higher
than our provision for credit losses for the first nine months of 2008, reflects an increase in our
classified loans, as we continue to see the impact of deteriorating economic conditions on our loan
portfolio. Continued weaknesses in the local and state economy could adversely affect us through
diminished loan demand, credit quality deterioration, and increases in loan delinquencies and
defaults.
Over the past few years, we have been active in acquisitions and we will continue to consider
acquisition targets, including FDIC-assisted acquisitions, which will enable us to meet our
business objectives and enhance shareholder value along with organic growth. Since 2000, we have
acquired four banks and a leasing company, and we have opened four de novo branches: Bakersfield,
Fresno, Madera, and Stockton, California. We also have five Commercial Banking Centers. Although
able to take deposits, these centers operate primarily as sales offices and focus on business
clients and their principals, professionals, and high net-worth individuals. One of these centers
is located in the San Fernando Valley. The other four centers are located within a Business
Financial Center in San Bernardino, Los Angeles and Orange counties. For a discussion of our
recent acquisition of San Joaquin Bank, see Recent Developments below.
The full impact of the decreases in interest rates on deposits during 2008 was realized during
the first nine months of 2009. Our net interest income before provision for credit losses of $164.2
million, increased by $22.6 million or 15.93%, compared to net interest income before provision for
credit losses of $141.6 million for the same period in 2008. The Bank has always had an excellent
base of interest free deposits primarily due to our specialization in businesses and professionals
as customers. As of September 30, 2009, 35.07% of our deposits are interest-free. This has allowed
us to have a low cost of deposits, currently 0.66% for the first nine months of 2009, which
contributed to a substantial reduction in interest expense for the first nine months of 2009
compared to the same period last year.
Our net income decreased to $48.4 million for the first nine months of 2009 compared with
$50.8 million for the first nine months of 2008, a decrease of $2.4 million or 4.82%. The decrease
of $2.4 million is primarily the result of the increase in provision for credit losses of $46.3
million and an increase in non-interest expense of $6.4 million, offset by an increase in net
interest income before provision for credit losses of $22.6 million and gain on sale of securities
of $28.4 million. Diluted earnings per common share decreased to $0.40 per share for 2009, from
$0.61 per share in 2008. A substantial portion of the decrease in diluted earnings per share is
associated with dividends paid and amortization of the discount on our preferred stock which was
repaid in the current quarter.
Our net income increased to $19.3 million for the quarter ended September 30, 2009 compared
with $17.5 million for the same period in 2008, an increase of $1.8 million or 10.66%. The
increase of $1.8 million is primarily the result of the gain of sale of securities of $6.9 million
and an increase in net interest income of $5.8 million, offset by an increase in provision for
credit losses of $9.0 million.
27
Diluted earnings per common share decreased to $0.10 per share
for the third quarter of 2009 from $0.21 per share for the third quarter of 2008. Due to the
repurchase of preferred stock, current-quarter diluted earnings per common share reflected a
one-time, non-cash reduction in net income applicable to common stockholders of $7.6 million, or
$.07 per share.
RECENT DEVELOPMENTS
On October 16, 2009, the Bank acquired substantially all of the assets and assumed
substantially all of the liabilities of San Joaquin Bank (SJB) headquartered in Bakersfield,
California from the FDIC as receiver for SJB, including all five SJB branches. Based upon a
preliminary closing with the FDIC as of October 16, 2009, the Bank acquired (a) an estimated $690
million in loans, (b) $24 million in investment securities, and (c) $18 million in cash and other
assets, and assumed (a) an estimated $530 million in deposits, (b) $121 million in borrowings, and
(c) $1 million in other liabilities. The foregoing amounts represent SJBs book value and do not
reflect fair value. These amounts are estimates and, accordingly, are subject to adjustment based
upon final settlement with the FDIC. The Company is currently in the process of determining fair
value amounts.
On October 28, 2009, the Company repurchased the warrant issued to the U.S. Treasury as part
of the U.S. Treasurys Capital Purchase Program. The repurchase price of $1,307,000 was recorded in
additional paid-in-capital on the balance sheet. The warrant to purchase 1,669,521 shares of the
Companys voting common stock at an exercise price of $11.68 was reduced in half to 834,761 shares,
upon completion of the Companys common stock offering on July 27, 2009.
CRITICAL ACCOUNTING ESTIMATES
Critical accounting estimates are defined as those that are reflective of significant
judgments and uncertainties, and could potentially result in materially different results under
different assumptions and conditions. We believe that our most critical accounting estimates upon
which our financial condition depends, and which involve the most complex or subjective decisions
or assessments are as follows:
Allowance for Credit Losses: Arriving at an appropriate level of allowance for credit losses
involves a high degree of judgment. Our allowance for credit losses provides for probable losses
based upon evaluations of known and inherent risks in the loan portfolio. The determination of the
balance in the allowance for credit losses is based on an analysis of the loan and lease finance
receivables portfolio using a systematic methodology and reflects an amount that, in our judgment,
is adequate to provide for probable credit losses inherent in the portfolio, after giving
consideration to the character of the loan portfolio, current economic conditions, past credit loss
experience, and such other factors as deserve current recognition in estimating inherent credit
losses. The provision for credit losses is charged to expense. For a full discussion of our
methodology of assessing the adequacy of the allowance for credit losses, see the Risk Management
section of this Managements Discussion and Analysis of Financial Condition and Results of
Operations.
Investment Portfolio: The investment portfolio is an integral part of the Companys financial
performance. We invest primarily in fixed income securities. Accounting estimates are used in the
valuation of the investment portfolio and these estimates do impact the presentation of our
financial condition and results of operations. We classify as held-to-maturity those debt
securities that we have the positive intent and ability to hold to maturity. Securities classified
as trading are those securities that are bought and held principally for the purpose of selling
them in the near term. All other debt and equity
securities are classified as available-for-sale. Securities held-to-maturity are accounted for
at cost and adjusted for amortization of premiums and accretion of discounts. Trading securities
are accounted for at fair value with the unrealized holding gains and losses being included in
current earnings. Securities available-for-sale are accounted for at fair value, with the net
unrealized gains and losses, net of income tax effects, presented as a separate component of
stockholders equity. Realized gains and losses on sales
28
of securities are recognized in earnings
at the time of sale and are determined on a specific-identification basis. Purchase premiums and
discounts are recognized in interest income using the effective-yield method over the terms of the
securities. Our investment in Federal Home Loan Bank (FHLB) stock is carried at cost.
At each reporting date, securities are assessed to determine whether there is an
other-than-temporary impairment. Other-than-temporary impairment on investment securities is
recognized in earnings when there are credit losses on a debt security for which management does
not intend to sell and for which it is more-likely-than-not that the Company will not have to sell
prior to recovery of the noncredit impairment. In those situations, the portion of the total
impairment that is attributable to the credit loss would be recognized in earnings, and the
remaining difference between the debt securitys amortized cost basis and its fair value would be
included in other comprehensive income.
Income Taxes: We account for income taxes using the asset and liability method by deferring
income taxes based on estimated future tax effects of differences between the tax and book basis of
assets and liabilities considering the provisions of enacted tax laws. These differences result in
deferred tax assets and liabilities, which are included in our balance sheets. We must also assess
the likelihood that any deferred tax assets will be recovered from future taxable income and
establish a valuation allowance for those assets determined to not likely be recoverable. Our
judgment is required in determining the amount and timing of recognition of the resulting deferred
tax assets and liabilities, including projections of future taxable income. Although we have
determined a valuation allowance is not required for any of our deferred tax assets, there is no
guarantee that these assets are recoverable.
Goodwill and Intangible Assets: We have acquired entire banks and branches of banks. Those
acquisitions accounted for under the purchase method of accounting have given rise to goodwill and
intangible assets. We record the assets acquired and liabilities assumed at their fair value. These
fair values are determined through the use of internal and external valuation techniques. The
purchase price is allocated to assets and liabilities, including identified intangibles. The
identified intangibles are amortized over the estimated lives of the assets or liabilities. Any
excess purchase price after this allocation results in goodwill. Goodwill is tested on an annual
basis for impairment.
ANALYSIS OF THE RESULTS OF OPERATIONS
Earnings
We reported net earnings of $48.4 million for the nine months ended September 30, 2009. This
represented a decrease of $2.4 million or 4.82%, from net earnings of $50.8 million for the nine
months ended September 30, 2008 primarily due to an increase in loan loss provision of $46.3
million and an increase in non-interest expense of $6.4 million, offset by gains on sales of
securities of $28.4 million and an increase in our net interest income of $22.6 million year over
year. Basic and diluted earnings per common share for the nine-month period decreased to $0.40 per
share for 2009, compared to $0.61 earnings per common share for 2008. The annualized return on
average assets was 0.99% for the nine months of 2009 compared to an annualized return on average
assets of 1.07% for the nine months of 2008. The annualized return on average equity was 10.01%
for the nine months ended September 30, 2009, compared to an annualized return of 15.10% for the
nine months ended September 30, 2008. The decrease in annualized return on average equity for the
nine-month period is attributed to an increase in our average equity balance as a result of the
preferred stock we issued to the U.S. Treasury in December 2008 as a result of our participation in
the Treasurys Capital Purchase Program. During the third
quarter, we raised $132.5 million in gross proceeds from common stock issuance and repurchased
all of the preferred stock issued to the U.S. Treasury.
For the quarter ended September 30, 2009, our net earnings were $19.3 million. This
represented an increase of $1.8 million or 10.66%, from net earnings of $17.5 million, for the
third quarter of 2008. Basic and diluted earnings per common share decreased to $0.10 per share for
the third quarter of 2009
29
compared to $0.21 per share for the third quarter of 2008. The annualized
return on average assets was 1.17% and 1.08% for the third quarter of 2009 and 2008, respectively.
The annualized return on average equity was 11.33% and 15.55% for the third quarter of 2009 and
2008, respectively.
Net Interest Income
The principal component of our earnings is net interest income, which is the difference
between the interest and fees earned on loans and investments (earning assets) and the interest
paid on deposits and borrowed funds (interest-bearing liabilities). Net interest margin is the
taxable-equivalent of net interest income as a percentage of average earning assets for the period.
The level of interest rates and the volume and mix of earning assets and interest-bearing
liabilities impact net interest income and net interest margin. The net interest spread is the
yield on average earning assets minus the cost of average interest-bearing liabilities. Our net
interest income, interest spread, and net interest margin are sensitive to general business and
economic conditions. These conditions include short-term and long-term interest rates, inflation,
monetary supply, and the strength of the economy, in general, and the local economies in which we
conduct business. Our ability to manage the net interest income during changing interest rate
environments will have a significant impact on our overall performance. Our balance sheet is
currently liability-sensitive; meaning interest-bearing liabilities will generally reprice more
quickly than earning assets. Therefore, our net interest margin is likely to decrease in sustained
periods of rising interest rates and increase in sustained periods of declining interest rates. We
manage net interest income by affecting changes in the mix of earning assets as well as the mix of
interest-bearing liabilities, changes in the level of interest-bearing liabilities in proportion to
earning assets, and in the growth of earning assets.
Our net interest income, before the provision for credit losses, totaled $164.2 million for
the nine months ended September 30, 2009. This represented an increase of $22.6 million, or 15.93%,
over net interest income, before provision for credit losses, of $141.6 million for the same period
in 2008. The increase in net interest income of $22.6 million resulted from a $41.6 million
decrease in interest expense, offset by an $19.0 million decrease in interest income.
Interest income totaled $230.7 million for the first nine months of 2009. This represented a
decrease of $19.0 million, or 7.63%, compared to total interest income of $249.7 million for the
same period last year. The decrease in interest income was primarily the result of the decrease in
average yield on earning assets to 5.18% for the nine months of 2009 from 5.75% for the same period
of 2008, or 57 basis points. Average earning assets increased by $164.9 million, or 2.74%, from
$6.01 billion to $6.18 billion.
Interest expense totaled $66.5 million for the first nine months of 2009. This represented a
decrease of $41.6 million, or 38.50%, from total interest expense of $108.1 million for the same
period last year. The decrease in interest expense was primarily the result of a decrease in the
average rate paid on interest-bearing liabilities to 1.98% for the first nine months of 2009 from
3.10% for the same period in 2008, or 112 basis points. The decrease in rates paid on deposits and
borrowings was offset by an increase in average interest-bearing deposits of $460.6 million, or
23.09%, from $1.99 billion to $2.46 billion.
For the third quarter ended September 30, 2009, our net interest income, before provision for
credit losses, totaled $54.8 million. This represented an increase of $5.8 million, or 11.82%, over
net interest income of $49.0 million for the same period in 2008. The increase in net interest
income of $5.8 million
resulted from a decrease of $13.4 million in interest expense, offset by a $7.6 million
decrease in interest income.
Interest income totaled $75.9 million for the third quarter of 2009. This represented a
decrease of $7.6 million, or 9.09%, compared to total interest income of $83.5 million for the same
period last year. The decrease in interest income for the third quarter ending September 30, 2009
as compared to the third quarter ending September 30, 2008 was primarily the result of the decrease
in average yield on earning assets to 5.11% for the third quarter of 2009 from 5.65% for the same
period of 2008, or 54 basis points. Average earning assets increased by $54.6 million, or 0.90%,
from $6.09 billion to $6.14 billion.
30
Interest expense totaled $21.1 million for the third quarter of 2009. This represented a
decrease of $13.4 million or 38.79%, from total interest expense of $34.5 million for the same
period last year. The decrease in interest expense was primarily the result of a decrease in the
average rate paid on interest-bearing liabilities to 1.89% for the third quarter ending September
30, 2009 from 2.91% for the same period in 2008, or 102 basis points. The decrease in yields was
offset by an increase in average interest-bearing deposits of $658.8 million, or 34.03%, from $1.94
billion to $2.59 billion.
Table 1 shows the average balances of assets, liabilities, and stockholders equity and the
related interest income, expense, and yields/rates for the nine -month and three-month period ended
September 30, 2009 and 2008. Yields for tax-preferenced investments are shown on a taxable
equivalent basis using a 35% tax rate.
TABLE 1 Distribution of Average Assets, Liabilities, and Stockholders Equity; Interest Rates and
Interest Differentials
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine-month period ended September 30, |
|
|
|
2009 |
|
|
2008 |
|
|
|
Average |
|
|
|
|
|
|
Average |
|
|
Average |
|
|
|
|
|
|
Average |
|
|
|
Balance |
|
|
Interest |
|
|
Yield/Rate |
|
|
Balance |
|
|
Interest |
|
|
Yield/Rate |
|
|
|
(amounts in thousands) |
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment Securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable |
|
$ |
1,699,786 |
|
|
$ |
59,848 |
|
|
|
4.73 |
% |
|
$ |
1,778,551 |
|
|
$ |
65,448 |
|
|
|
4.95 |
% |
Tax preferenced (1) |
|
|
669,615 |
|
|
|
20,560 |
|
|
|
5.78 |
% |
|
|
685,113 |
|
|
|
21,336 |
|
|
|
5.84 |
% |
Investment in FHLB stock |
|
|
93,240 |
|
|
|
195 |
|
|
|
0.28 |
% |
|
|
88,508 |
|
|
|
3,666 |
|
|
|
5.52 |
% |
Federal Funds Sold & Interest Bearing |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits with other institutions |
|
|
68,786 |
|
|
|
195 |
|
|
|
0.38 |
% |
|
|
1,334 |
|
|
|
34 |
|
|
|
3.40 |
% |
Loans (2) (3) |
|
|
3,646,862 |
|
|
|
149,858 |
|
|
|
5.49 |
% |
|
|
3,459,916 |
|
|
|
159,211 |
|
|
|
6.15 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Earning Assets |
|
|
6,178,289 |
|
|
|
230,656 |
|
|
|
5.18 |
% |
|
|
6,013,422 |
|
|
|
249,695 |
|
|
|
5.75 |
% |
Total Non Earning Assets |
|
|
356,180 |
|
|
|
|
|
|
|
|
|
|
|
357,204 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets |
|
$ |
6,534,469 |
|
|
|
|
|
|
|
|
|
|
$ |
6,370,626 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings Deposits (4) |
|
$ |
1,286,477 |
|
|
$ |
7,469 |
|
|
|
0.78 |
% |
|
$ |
1,260,483 |
|
|
$ |
13,255 |
|
|
|
1.40 |
% |
Time Deposits |
|
|
1,168,682 |
|
|
|
11,494 |
|
|
|
1.31 |
% |
|
|
734,050 |
|
|
|
14,978 |
|
|
|
2.73 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Deposits |
|
|
2,455,159 |
|
|
|
18,963 |
|
|
|
1.03 |
% |
|
|
1,994,533 |
|
|
|
28,233 |
|
|
|
1.89 |
% |
Other Borrowings |
|
|
1,984,526 |
|
|
|
47,500 |
|
|
|
3.16 |
% |
|
|
2,605,543 |
|
|
|
79,838 |
|
|
|
4.03 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Bearing Liabilities |
|
|
4,439,685 |
|
|
|
66,463 |
|
|
|
1.98 |
% |
|
|
4,600,076 |
|
|
|
108,071 |
|
|
|
3.10 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest bearing deposits |
|
|
1,380,349 |
|
|
|
|
|
|
|
|
|
|
|
1,257,843 |
|
|
|
|
|
|
|
|
|
Other Liabilities |
|
|
68,597 |
|
|
|
|
|
|
|
|
|
|
|
63,389 |
|
|
|
|
|
|
|
|
|
Stockholders Equity |
|
|
645,838 |
|
|
|
|
|
|
|
|
|
|
|
449,318 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Stockholders Equity |
|
$ |
6,534,469 |
|
|
|
|
|
|
|
|
|
|
$ |
6,370,626 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
|
|
|
|
$ |
164,193 |
|
|
|
|
|
|
|
|
|
|
$ |
141,624 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest spread tax equivalent |
|
|
|
|
|
|
|
|
|
|
3.20 |
% |
|
|
|
|
|
|
|
|
|
|
2.65 |
% |
Net interest margin |
|
|
|
|
|
|
|
|
|
|
3.57 |
% |
|
|
|
|
|
|
|
|
|
|
3.18 |
% |
Net interest margin tax equivalent |
|
|
|
|
|
|
|
|
|
|
3.75 |
% |
|
|
|
|
|
|
|
|
|
|
3.37 |
% |
Net interest margin excluding loan fees |
|
|
|
|
|
|
|
|
|
|
3.52 |
% |
|
|
|
|
|
|
|
|
|
|
3.09 |
% |
Net interest margin excluding loan fees tax equivalent |
|
|
|
|
|
|
|
|
|
|
3.70 |
% |
|
|
|
|
|
|
|
|
|
|
3.28 |
% |
|
|
|
(1) |
|
Non tax-equivalent rate was 4.11% for 2009 and 4.15% for 2008.
|
|
(2) |
|
Loan fees are included in total interest income as follows, (000)s
omitted: 2009, $2,279; 2008, $4,193 |
|
(3) |
|
Non performing loans are included
in net loans as follows: 2009, $58.1 million; 2008, $16.6 million |
|
(4) |
|
Includes interest bearing demand and money market accounts |
31
TABLE 1 Distribution of Average Assets, Liabilities, and Stockholders Equity; Interest Rates and
Interest Differentials
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
|
|
2009 |
|
|
2008 |
|
|
|
Average |
|
|
|
|
|
|
Average |
|
|
Average |
|
|
|
|
|
|
Average |
|
|
|
Balance |
|
|
Interest |
|
|
Rate |
|
|
Balance |
|
|
Interest |
|
|
Rate |
|
|
|
(amounts in thousands) |
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment Securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable |
|
$ |
1,635,607 |
|
|
$ |
18,278 |
|
|
|
4.49 |
% |
|
$ |
1,767,850 |
|
|
$ |
22,142 |
|
|
|
5.01 |
% |
Tax preferenced (1) |
|
|
665,405 |
|
|
|
6,749 |
|
|
|
5.76 |
% |
|
|
672,765 |
|
|
|
7,036 |
|
|
|
5.88 |
% |
Investment in FHLB stock |
|
|
93,240 |
|
|
|
195 |
|
|
|
0.84 |
% |
|
|
91,729 |
|
|
|
1,367 |
|
|
|
5.96 |
% |
Federal Funds Sold & Interest Bearing |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits with other institutions |
|
|
143,220 |
|
|
|
136 |
|
|
|
0.38 |
% |
|
|
752 |
|
|
|
8 |
|
|
|
4.26 |
% |
Loans (2) (3) |
|
|
3,606,945 |
|
|
|
50,561 |
|
|
|
5.56 |
% |
|
|
3,556,724 |
|
|
|
52,954 |
|
|
|
5.92 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Earning Assets |
|
|
6,144,417 |
|
|
|
75,919 |
|
|
|
5.11 |
% |
|
|
6,089,820 |
|
|
|
83,507 |
|
|
|
5.65 |
% |
Total Non Earning Assets |
|
|
413,697 |
|
|
|
|
|
|
|
|
|
|
|
354,801 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets |
|
$ |
6,558,114 |
|
|
|
|
|
|
|
|
|
|
$ |
6,444,621 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings Deposits (4) |
|
$ |
1,380,686 |
|
|
$ |
2,466 |
|
|
|
0.71 |
% |
|
$ |
1,215,066 |
|
|
$ |
3,477 |
|
|
|
1.14 |
% |
Time Deposits |
|
|
1,214,205 |
|
|
|
3,468 |
|
|
|
1.13 |
% |
|
|
721,035 |
|
|
|
3,940 |
|
|
|
2.17 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Deposits |
|
|
2,594,891 |
|
|
|
5,934 |
|
|
|
0.91 |
% |
|
|
1,936,101 |
|
|
|
7,417 |
|
|
|
1.52 |
% |
Other Borrowings |
|
|
1,796,234 |
|
|
|
15,179 |
|
|
|
3.31 |
% |
|
|
2,715,548 |
|
|
|
27,078 |
|
|
|
3.90 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Bearing Liabilities |
|
|
4,391,125 |
|
|
|
21,113 |
|
|
|
1.89 |
% |
|
|
4,651,650 |
|
|
|
34,495 |
|
|
|
2.91 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest bearing deposits |
|
|
1,427,916 |
|
|
|
|
|
|
|
|
|
|
|
1,299,630 |
|
|
|
|
|
|
|
|
|
Other Liabilities |
|
|
62,538 |
|
|
|
|
|
|
|
|
|
|
|
46,619 |
|
|
|
|
|
|
|
|
|
Stockholders Equity |
|
|
676,535 |
|
|
|
|
|
|
|
|
|
|
|
446,722 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Stockholders Equity |
|
$ |
6,558,114 |
|
|
|
|
|
|
|
|
|
|
$ |
6,444,621 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
|
|
|
|
$ |
54,806 |
|
|
|
|
|
|
|
|
|
|
$ |
49,012 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest spread tax equivalent |
|
|
|
|
|
|
|
|
|
|
3.22 |
% |
|
|
|
|
|
|
|
|
|
|
2.74 |
% |
Net interest margin |
|
|
|
|
|
|
|
|
|
|
3.57 |
% |
|
|
|
|
|
|
|
|
|
|
3.24 |
% |
Net interest margin tax equivalent |
|
|
|
|
|
|
|
|
|
|
3.75 |
% |
|
|
|
|
|
|
|
|
|
|
3.43 |
% |
Net interest margin excluding loan fees |
|
|
|
|
|
|
|
|
|
|
3.52 |
% |
|
|
|
|
|
|
|
|
|
|
3.16 |
% |
Net interest margin excluding loan fees tax equivalent |
|
|
|
|
|
|
|
|
|
|
3.70 |
% |
|
|
|
|
|
|
|
|
|
|
3.35 |
% |
|
|
|
(1) |
|
Non tax equivalent rate was 4.08% for 2009 and 4.18% for 2008. |
|
(2) |
|
Loan fees are included in total interest income as follows, (000)s omitted: 2009, $886;
2008, $1,190 |
|
(3) |
|
Non performing loans are included in net loans as follows, (000)s omitted: 2009, $58.1
million; 2008, $16.6 million |
|
(4) |
|
Includes interest bearing demand and money market accounts |
As stated above, the net interest margin measures net interest income as a percentage of
average earning assets. Our tax effected (TE) net interest margin was 3.75% for the nine months of
2009, compared to 3.37% for the first nine months of 2008. Our tax effected (TE) net interest
margin for the third quarter of 2009 was 3.75%, compared to 3.43% for the third quarter of 2008.
The increase in the net interest margin over the same period last year is primarily the result of
the decreasing interest rate environment, which impacted interest earned and interest paid as a
percent of earning assets. This was partially offset by changes in the mix of assets and
liabilities as discussed in the following paragraphs.
Generally, our net interest margin improves in a decreasing interest rate environment as our
deposits and borrowings reprice much faster than our loans and securities.
The net interest spread is the difference between the yield on average earning assets and the
cost of average interest-bearing liabilities. The net interest spread is an indication of our
ability to manage rates received on loans and investments and rates paid on deposits and borrowings
in a competitive and changing interest rate environment. Our net interest spread (TE) was 3.20% for
the nine months of 2009 and 2.65% for the same period last year. The increase in the net interest
spread for the nine months ended September 30, 2009 resulted from a 112 basis point decrease in the
cost of interest-bearing liabilities, offset by a 57 basis point decrease in the yield on earning
assets, thus generating a 55 basis point increase in the net interest spread from the same period
last year.
For the third quarter of 2009, the Companys net interest spread (TE) was 3.22% as compared to
2.74% for the same period last year. The increase in net interest spread for the third quarter
ended September 30, 2009 resulted from a 102 basis point decrease in the cost of interest-bearing
liabilities,
32
offset by a 54 basis point decrease in the yield on earning assets, thus generating a
48 basis point increase in the net interest spread from the same period last year.
The yield (TE) on earning assets decreased to 5.18% for the nine months of 2009, from 5.75%
for the same period last year, and reflects a decreasing interest rate environment and a change in
the mix of earning assets. Average loans as a percent of earning assets increased to 59.03% in the
nine months of 2009 from 57.54% for the same period in 2008. Average investments as a percent of
earning assets decreased to 38.35% in the nine months of 2009 from 40.97% for the same period in
2008. The yield on loans for the first nine months of 2009 decreased to 5.49% as compared to 6.15%
for the same period in 2008 as a result of the decreasing interest rate environment. The yield on
loans declined at a slower rate than general interest rates as approximately 63% of the Companys
loans are fixed-rate loans or hybrid adjustable loans with interest rates that are typically fixed
for the first five or ten years of the loans and reset at fixed rates for the remaining term. The
yield (TE) on investments for the first nine months of 2009 decreased to 5.03% compared to 5.20%
for the same period in 2008. The decrease in rates, offset by an increase in average loan
balances, resulted in a decrease in our interest income.
The cost of average interest-bearing liabilities decreased to 1.98% for the first nine months
of 2009 as compared to 3.10% for the same period in 2008, reflecting the decrease in interest rates
and a change in the mix of interest-bearing liabilities. The fact that the cost of interest-bearing
liabilities dropped more than the yield on earning assets is due to the liability-sensitive nature
of our balance sheet. Average borrowings as a percent of average interest-bearing liabilities
decreased to 44.70% during the first nine months of 2009 as compared to 56.64% for the same period
in 2008. The cost of borrowings for the first nine months of 2009 decreased to 3.16% as compared to
4.03% for the same period in 2008, reflecting the decrease in interest rates. Borrowings typically
have a higher cost than interest-bearing deposits. The cost of interest-bearing deposits for the
first nine months of 2009 decreased to 1.03% as compared to 1.89% for the same period in 2008, also
reflecting the declining interest rate environment. The FDIC has approved the payment of interest
on certain demand deposit accounts. This could have a negative impact on our net interest margin,
net interest spread, and net earnings, should this be implemented fully. Currently, we pay interest
on NOW and Money Market Accounts. The overall decrease in interest rates and decrease in average
borrowings, offset by an increase in average deposits, resulted in a decrease in our interest
expense.
For the third quarter of 2009, the yield (TE) on earning assets decreased to 5.11%, from 5.65%
for the same period last year. The cost of average interest-bearing liabilities decreased to 1.89%
for the third quarter of 2009 as compared to 2.91% for the same period in 2008. The changes reflect
the decreasing interest rate environment and change in mix of earning assets and interest-bearing
liabilities, reflecting similar trends as described above.
Table 2 presents a comparison of interest income and interest expense resulting from changes
in the volumes and rates on average earning assets and average interest-bearing liabilities for the
periods indicated. Changes in interest income or expense attributable to volume changes are
calculated by multiplying the change in volume by the initial average interest rate. The change in
interest income or expense attributable to changes in interest rates is calculated by multiplying
the change in interest rate by the initial volume. The changes attributable to both interest rate
and volume changes are calculated by multiplying the change in rate times the change in volume.
33
TABLE 2 Rate and Volume Analysis for Changes in Interest Income,
Interest Expense and Net Interest Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comparison of nine months ended September 30, |
|
|
|
2009 Compared to 2008 |
|
|
|
Increase (Decrease) Due to |
|
|
|
|
|
|
|
|
|
|
|
Rate/ |
|
|
|
|
|
|
Volume |
|
|
Rate |
|
|
Volume |
|
|
Total |
|
|
|
|
|
|
|
( amounts in thousands ) |
|
|
|
|
|
Interest Income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable investment securities |
|
$ |
(2,756 |
) |
|
$ |
(2,906 |
) |
|
$ |
62 |
|
|
$ |
(5,600 |
) |
Tax-advantaged securities |
|
|
(768 |
) |
|
|
(38 |
) |
|
|
30 |
|
|
|
(776 |
) |
Fed funds sold & interest-bearing
deposits with other institutions |
|
|
1,720 |
|
|
|
(30 |
) |
|
|
(1,529 |
) |
|
|
161 |
|
Investment in FHLB stock |
|
|
196 |
|
|
|
(3,478 |
) |
|
|
(189 |
) |
|
|
(3,471 |
) |
Loans |
|
|
8,576 |
|
|
|
(17,033 |
) |
|
|
(896 |
) |
|
|
(9,353 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest on earning assets |
|
|
6,968 |
|
|
|
(23,485 |
) |
|
|
(2,522 |
) |
|
|
(19,039 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings deposits |
|
|
271 |
|
|
|
(5,829 |
) |
|
|
(183 |
) |
|
|
(5,741 |
) |
Time deposits |
|
|
8,850 |
|
|
|
(7,775 |
) |
|
|
(4,604 |
) |
|
|
(3,529 |
) |
Other borrowings |
|
|
(18,979 |
) |
|
|
(17,190 |
) |
|
|
3,831 |
|
|
|
(32,338 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest on interest-bearing liabilities |
|
|
(9,858 |
) |
|
|
(30,794 |
) |
|
|
(956 |
) |
|
|
(41,608 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Interest Income |
|
$ |
16,826 |
|
|
$ |
7,309 |
|
|
$ |
(1,566 |
) |
|
$ |
22,569 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comparison of quarters ended September 30, |
|
|
|
2009 Compared to 2008 |
|
|
|
Increase (Decrease) Due to |
|
|
|
|
|
|
|
|
|
|
|
Rate/ |
|
|
|
|
|
|
Volume |
|
|
Rate |
|
|
Volume |
|
|
Total |
|
|
|
( amounts in thousands ) |
|
Interest Income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable investment securities |
|
$ |
(1,764 |
) |
|
$ |
(2,298 |
) |
|
$ |
198 |
|
|
$ |
(3,864 |
) |
Tax-advantaged securities |
|
|
(175 |
) |
|
|
(101 |
) |
|
|
(11 |
) |
|
|
(287 |
) |
Fed funds sold & interest-bearing
deposits with other institutions |
|
|
1,517 |
|
|
|
(7 |
) |
|
|
(1,382 |
) |
|
|
128 |
|
Investment in FHLB stock |
|
|
23 |
|
|
|
(1,174 |
) |
|
|
(21 |
) |
|
|
(1,172 |
) |
Loans |
|
|
747 |
|
|
|
(3,219 |
) |
|
|
79 |
|
|
|
(2,393 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest on earning assets |
|
|
348 |
|
|
|
(6,799 |
) |
|
|
(1,137 |
) |
|
|
(7,588 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings deposits |
|
|
475 |
|
|
|
(1,313 |
) |
|
|
(161 |
) |
|
|
(999 |
) |
Time deposits |
|
|
2,690 |
|
|
|
(1,885 |
) |
|
|
(1,289 |
) |
|
|
(484 |
) |
Other borrowings |
|
|
(9,162 |
) |
|
|
(4,094 |
) |
|
|
1,357 |
|
|
|
(11,899 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest on interest-bearing liabilities |
|
|
(5,997 |
) |
|
|
(7,292 |
) |
|
|
(93 |
) |
|
|
(13,382 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Interest Income |
|
$ |
6,345 |
|
|
$ |
493 |
|
|
$ |
(1,044 |
) |
|
$ |
5,794 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and Fees on Loans
Our major source of revenue and primary component of interest income is interest and fees on
loans. Interest and fees on loans totaled $149.9 million for the first nine months of 2009. This
represented a decrease of $9.3 million, or 5.88%, from interest and fees on loans of $159.2 million
for the same period in 2008. The decrease in interest and fees on loans for the first nine months
of 2009 reflects the decrease in rates between periods, offset by increases in the average balance
of loans. The yield on loans decreased to 5.18% for the first nine months of 2009, compared to
5.75% for the same period in 2008.
34
Average loans increased $186.9 million, or 5.40%, from $3.46 billion for the first nine months
of 2008 to $3.65 billion for the first nine months of 2009.
Interest and fees on loans totaled $50.6 million for the third quarter of 2009. This
represented a decrease of $2.4 million, or 4.52%, from interest and fees on loans of $53.0 million
for the same period in 2008. The decrease was primarily due to the decrease in yields on loans,
offset by increases in average loan balances.
In general, we stop accruing interest on a loan after its principal or interest becomes 90
days or more past due. When a loan is placed on nonaccrual, all interest previously accrued but not
collected is charged against earnings. There was no interest income that was accrued and not
reversed on non-performing loans at September 30, 2009 and 2008.
Fees collected on loans are an integral part of the loan pricing decision. Loan fees and the
direct costs associated with the origination of loans are deferred and deducted from the loan
balance. Deferred net loan fees are recognized in interest income over the term of the loan using
the effective-yield method. We recognized loan fee income of $2.3 million for the first nine months
of 2009, as compared to $4.2 million for the same period in 2008, a decrease of $1.9 million or
45.65%. This was due to a decrease in loan demand during the first nine months of 2009.
Interest on Investments
The second most important component of interest income is interest on investments, which
totaled $80.4 million for the first nine months of 2009. This represented a decrease of $6.4
million, or 7.35%, from interest on investments of $86.8 million for the same period in 2008. The
decrease in interest on investments for the nine months of 2009 from the same period last year was
primarily the result of a decrease in yield on investments and a decrease in average investments.
The interest rate environment and the investment strategies we employ directly affect the yield on
the investment portfolio. We continually adjust our investment strategies in response to the
changing interest rate environment in order to maximize the rate of total return consistent within
prudent risk parameters, and to minimize the overall interest rate risk of the Company. The total
yield (TE) on investments decreased to 5.03% for the first nine months of 2009 compared to 5.20%
for the first nine months of 2008. Average investment balances for the first nine months for 2009
decreased $94.3 million, or 3.83% from the same period last year.
For the third quarter of 2009, interest income on investments totaled $25.0 million. This
represented a decrease of $4.2 million or 14.23%, from interest on investments of $29.2 million for
the same period in 2008. The decrease in interest on investments for the third quarter of 2009 from
the same period last year reflected decreases in the average balance of investments and in the
interest rates. The total yield (TE) on investments decreased to 4.86% for the third quarter of
2009, compared to 5.25% for the same period in 2008 as a result of the decreasing interest rate
environment.
Interest on Deposits
Interest on deposits totaled $19.0 million for the first nine months of 2009. This
represented a decrease of $9.2 million, or 32.83%, from interest on deposits of $28.2 million for
the first nine months of 2008. The decrease is due to the decrease in interest rates on deposits
offset by increases in average interest-bearing deposit balances. The cost of interest-bearing
deposits decreased to 1.03% for the first nine months of 2009 from 1.89% for the first nine months
of 2008. Average interest-bearing deposits increased $460.6 million, or 23.09%, over the same
period last year.
For the third quarter of 2009, interest on deposits totaled $5.9 million. This represented a
decrease of $1.5 million, or 20.00%, from interest on deposits of $7.4 million for the same period
in 2008. The decrease is due to the decrease in interest rates on deposit offset by increases in
average interest-bearing deposit balances. The cost of interest-bearing deposits decreased to
0.91% for the third quarter of 2009
35
from 1.52% for the third quarter of 2008. Average interest-bearing deposits increased $658.8
million, or 34.03%, over the same period last year.
Interest on Borrowings
Interest on borrowings totaled $44.4 million for the first nine months of 2009. This
represented a decrease of $30.2 million, or 40.49%, from interest on borrowings of $74.6 million
for the same period of 2008. The decrease is due to the decrease in interest rates paid on
borrowings and a decrease in average borrowings. Interest rates on borrowings decreased 80 basis
points, from 3.93% for the first nine months of 2008 to 3.13% for the first nine months of 2009.
Average borrowings decreased $621.0 million, or 24.94%, over the same period last year.
For the third quarter of 2009, interest on borrowings totaled $14.3 million. This represented
a decrease of $11.1 million, or 43.76%, from interest on borrowings of $25.4 million for the same
period of 2008. The decrease is due to the decrease in interest rates paid on borrowings and a
decrease in average borrowings. Interest rates on borrowings decreased 50 basis points, from 3.82%
for the third quarter of 2008 to 3.32% for the third quarter of 2009. Average borrowings decreased
$919.3 million, or 35.35%, over the same period last year.
Provision for Credit Losses
We maintain an allowance for inherent credit losses that is increased by a provision for
credit losses charged against operating results. The provision for credit losses is determined by
management as the amount to be added to the allowance for probable credit losses after net
charge-offs have been deducted to bring the allowance to an adequate level which, in managements
best estimate, is necessary to absorb probable credit losses within the existing loan portfolio.
We made a provision for credit losses of $55.0 million during the first nine months of 2009
and $8.7 million during the same period in 2008. The increase in allowance during the first nine
months of 2009 was primarily due to the increase in classified loans. We continue to make greater
provisions for credit losses in order to build our reserves based on historical losses and current
economic indicators. We believe the allowance is appropriate as of the end of the period covered by
this report. We continually assess the quality of our portfolio to determine whether additional
provision for credit losses is necessary. The ratio of the allowance for credit losses to total
loans as of September 30, 2009 and 2008 was 2.43% and 1.11%, respectively.
No assurance can be given that economic conditions which adversely affect the Companys
service areas, past credit loss experience, the characteristics of our loan portfolio or other
circumstances will not be reflected in increased provisions for credit losses in the future. The
nature of this process requires considerable judgment. Net charge-offs totaled $21.6 million for
the first nine months of 2009 and $1.7 million during the same period of 2008. See Risk
Management Credit Risk herein.
Other Operating Income
Other operating income for the Company includes income derived from special services offered
by the Bank, such as CitizensTrust, merchant card, international banking, and other business
services. Also included in other operating income are service charges and fees, primarily from
deposit accounts; gains (net of losses) from the sale of investment securities, other real estate
owned, and fixed assets; and other revenues not included as interest on earning assets.
Other operating income totaled $51.2 million for the first nine months of 2009. This
represents an increase of $26.0 million, or 102.92%, over other operating income of $25.2 million
for the same period in 2008. The increase is due to the gain on sale of securities of $28.4
million during the first nine months
36
of 2009. This was partially offset by decreases in trust and investment services income of
$958,000, or 16.23% and BOLI income of $1.07 million, or 33.95%.
Other operating income totaled $15.1 million for the quarter ended September 30, 2009. This
represents an increase of $6.7 million or 80.35% over total other operating income of $8.4 million
for the quarter ended September 30, 2008. This increase was primarily due to the gain on sale of
securities of $6.9 million during the quarter ended September 30, 2009.
Other operating income as a percent of net revenues (net interest income before loan loss
provision plus other operating income) was 23.76% for the first nine months of 2009, as compared to
15.11% for the same period in 2008.
Other Operating Expenses
Other operating expenses for the Company include expenses for salaries and benefits,
occupancy, equipment, stationary and supplies, professional services, amortization of intangibles,
and other expenses. Other operating expenses totaled $94.2 million for the first nine months of
2009. This represents an increase of $6.4 million, or 7.27% over other operating expenses of $87.8
million for the same period in 2008. The increase was primarily due to $6.1 million in charges for
FDIC special assessments and increases in insurance premiums.
For the third quarter of 2009, other operating expenses totaled $29.8 million. This represents
an increase of $788,000, or 2.71%, over other operating expenses of $29.1 million for the same
period last year.
At September 30, 2009, we employed 679 full time equivalent employees, compared to 695 full
time equivalent employees at September 30, 2008.
For the most part, other operating expenses reflect the direct expenses and related
administrative expenses associated with staffing, maintaining, promoting, and operating branch
facilities. Our ability to control other operating expenses in relation to asset growth can be
measured in terms of other operating expenses as a percentage of average assets. Operating expenses
measured as a percentage of average assets was 1.93% and 1.84% for the first nine months of 2009
and 2008, respectively.
Our ability to control other operating expenses in relation to the level of net revenue (net
interest income plus other operating income) is measured by the efficiency ratio and indicates the
percentage of net revenue that is used to cover expenses. For the first nine months of 2009, the
efficiency ratio was 58.76%, compared to a ratio of 55.54% for the same period in 2008.
Income Taxes
The Companys effective tax rate for the three and nine months of 2009 was 28.61% and 26.90%,
compared to 28.23% and 27.75% for the same period in 2008. The effective tax rates are below the
nominal combined Federal and State tax rates as a result of the increase in tax-preferenced income
from certain investments and municipal loans/leases as a percentage of total income for each
period. The majority of tax preferenced income is derived from municipal securities.
37
RESULTS BY BUSINESS SEGMENTS
We have two reportable business segments: Business Financial and Commercial Banking Centers,
and Treasury. The results of these two segments are included in the reconciliation between
business segment totals and our consolidated total. Our business segments do not include the
results of administration units that do not meet the definition of an operating segment.
Business Financial and Commercial Banking Centers
Key measures we use to evaluate the Business Financial and Commercial Banking Centers
performance are included in the following table for the three and nine months ended September 30,
2009 and 2008. The table also provides additional significant segment measures useful to
understanding the performance of this segment.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended |
|
|
Three months ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Key Measures: |
|
(amounts in thousands) |
|
Statement of Operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
$ |
153,237 |
|
|
$ |
164,504 |
|
|
$ |
53,509 |
|
|
$ |
60,426 |
|
Interest expense |
|
|
30,707 |
|
|
|
55,088 |
|
|
|
9,442 |
|
|
|
26,574 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Interest Income |
|
$ |
122,530 |
|
|
$ |
109,416 |
|
|
$ |
44,067 |
|
|
$ |
33,852 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest income |
|
|
14,670 |
|
|
|
16,068 |
|
|
|
5,058 |
|
|
|
5,471 |
|
Non-interest expense |
|
|
36,939 |
|
|
|
36,135 |
|
|
|
12,236 |
|
|
|
12,173 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment pretax profit (loss) |
|
$ |
100,261 |
|
|
$ |
89,349 |
|
|
$ |
36,889 |
|
|
$ |
27,150 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average loans |
|
$ |
3,646,862 |
|
|
$ |
3,459,916 |
|
|
$ |
3,606,945 |
|
|
$ |
3,556,724 |
|
Average non-interest bearing deposits |
|
$ |
1,380,349 |
|
|
$ |
1,257,843 |
|
|
$ |
1,427,916 |
|
|
$ |
1,299,630 |
|
Average interest-bearing deposits |
|
$ |
2,455,159 |
|
|
$ |
1,994,533 |
|
|
$ |
2,594,891 |
|
|
$ |
1,936,101 |
|
Yield on loans |
|
|
5.49 |
% |
|
|
6.15 |
% |
|
|
5.56 |
% |
|
|
5.92 |
% |
Rate paid on deposits |
|
|
1.03 |
% |
|
|
1.89 |
% |
|
|
0.91 |
% |
|
|
1.52 |
% |
For the nine months ended September 30, 2009, segment profit increased by $10.9 million,
or 12.21%, compared to the same period last year. This was primarily due to the decrease in
interest expense which overshadowed the decrease in interest income. Rates paid on deposits
decreased 86 basis points while yields on loans decreased 66 basis points. The decreases in
interest rates were offset by increases in average balances. Average interest-bearing deposits
increased $460.6 million, or 23.09%; while average loans increased $186.9 million, or 5.40%.
Non-interest income decreased by $1.4 million, or 8.70%, compared to the first nine months of 2008.
Non-interest expense increased $804,000, or 2.22%, compared to the same period last year.
For the quarter ended September 30, 2009, segment profit increased by $9.7 million, or 35.87%,
compared to the same period last year. This was primarily due to the increase in net interest
income. Non-interest income decreased by $413,000, or 7.55%, compared to the quarter ended
September 30, 2008. Non-interest expense increased $63,000, or 0.52%, compared to the same period
last year.
Treasury
Key measures we use to evaluate the Treasurys performance are included in the following table
for the three and nine months ended September 30, 2009 and 2008. The table also provides
additional significant segment measures useful to understanding the performance of this segment.
38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended |
|
|
Three months ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Key Measures: |
|
|
(amounts in thousands) |
|
Statement of Operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
$ |
80,877 |
|
|
$ |
90,545 |
|
|
$ |
25,388 |
|
|
$ |
30,620 |
|
Interest expense |
|
|
61,567 |
|
|
|
78,164 |
|
|
|
22,281 |
|
|
|
25,568 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Interest Income |
|
$ |
19,310 |
|
|
$ |
12,381 |
|
|
$ |
3,107 |
|
|
$ |
5,052 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest income |
|
|
28,215 |
|
|
|
7 |
|
|
|
6,667 |
|
|
|
1 |
|
Non-interest expense |
|
|
1,122 |
|
|
|
950 |
|
|
|
383 |
|
|
|
342 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment pretax profit (loss) |
|
$ |
46,403 |
|
|
$ |
11,438 |
|
|
$ |
9,391 |
|
|
$ |
4,711 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average investments |
|
$ |
2,531,427 |
|
|
$ |
2,553,506 |
|
|
$ |
2,537,472 |
|
|
$ |
2,533,096 |
|
Average borrowings |
|
$ |
1,869,471 |
|
|
$ |
2,490,488 |
|
|
$ |
1,681,179 |
|
|
$ |
2,600,493 |
|
Yield on investments-TE |
|
|
5.03 |
% |
|
|
5.20 |
% |
|
|
4.86 |
% |
|
|
5.25 |
% |
Non-tax equivalent yield |
|
|
4.11 |
% |
|
|
4.15 |
% |
|
|
4.08 |
% |
|
|
4.18 |
% |
Rate paid on borrowings |
|
|
3.13 |
% |
|
|
3.93 |
% |
|
|
3.32 |
% |
|
|
3.82 |
% |
For the nine months ended September 30, 2009, segment profit increased by $35.0 million
over the same period last year. The increase is primarily due to the $28.4 million gain on sale of
securities recognized during the first nine months of 2008 and the increase in net interest income
of $6.9 million year over year. The increase in net interest income is due to the fact that a
substantial portion of our securities portfolio is fixed rate while our rate on borrowings
decreased 80 basis points from 3.93% in the first nine months of 2008 to 3.13% for the same period
in 2009.
For the quarter ended September 30, 2009, segment profit increased by $4.7 million over the
same period last year. The increase is due to the $6.9 million gain on sale of securities
recognized during the three months ended September 30, 2009.
There are no provisions for credit losses or taxes in the segments as these are accounted for
at the corporate level.
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended |
|
|
Three months ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Key Measures: |
|
|
(amounts in thousands) |
|
Statement of Operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
$ |
50,525 |
|
|
$ |
40,291 |
|
|
$ |
18,622 |
|
|
$ |
15,225 |
|
Interest expense |
|
|
28,172 |
|
|
|
20,464 |
|
|
|
10,990 |
|
|
|
5,117 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
$ |
22,353 |
|
|
$ |
19,827 |
|
|
$ |
7,632 |
|
|
$ |
10,108 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for Credit Losses |
|
|
55,000 |
|
|
|
8,700 |
|
|
|
13,000 |
|
|
|
4,000 |
|
Non-interest income |
|
|
8,283 |
|
|
|
9,141 |
|
|
|
3,377 |
|
|
|
2,901 |
|
Non-interest expense |
|
|
56,160 |
|
|
|
50,749 |
|
|
|
17,226 |
|
|
|
16,542 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre-tax loss |
|
$ |
(80,524 |
) |
|
$ |
(30,481 |
) |
|
$ |
(19,217 |
) |
|
$ |
(7,533 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
The Companys administration and other operating departments reported pre-tax loss of
$80.5 million for the first nine months of 2009. This represents an increase of $50.0 million or
164.18%, from a pre-tax loss of $30.5 million for the same period in 2008. The increase in pre-tax
loss is primarily attributed to the increase in provision for credit losses of $46.3 million and
increase in non-interest expense of $5.4 million, offset by increase in net interest income of $2.5
million.
For the quarter ended September 30, 2009, the companys administration and other
operating departments reported pre-tax loss of $19.2 million. This represents an increase of $11.7
million or 155.10%, from a pre-tax loss of $7.5 million for the same period in 2008. The increase
in pre-tax loss is primarily attributed to the increase in provision for credit losses of $9.0
million.
39
ANALYSIS OF FINANCIAL CONDITION
The Company reported total assets of $6.55 billion at September 30, 2009. This represented a
decrease of $103.4 million, or 1.55%, from total assets of $6.65 billion at December 31, 2008
primarily due to a decrease in investment securities of $210.7 million and net loans of $170.1
million, offset by an increase in cash of $126.9 million and increase in federal funds sold of
$150.0 million. Earning assets totaled $6.05 billion at September 30, 2009. This represented a
decrease of $230.8 million, or 3.68%, from total earning assets of $6.28 billion at December 31,
2008. Total liabilities were $5.89 billion at September 30, 2009, down $140.0 million, or 2.32%,
from total liabilities of $6.03 billion at December 31, 2008. Total equity increased $36.6 million,
or 5.96%, to $651.5 million at September 30, 2009, compared with total equity of $614.9 million at
December 31, 2008.
Investment Securities
The Company reported total investment securities of $2.29 billion at September 30, 2009. This
represented a decrease of $210.6 million, or 8.42%, from total investment securities of $2.50
billion at December 31, 2008. During the first nine months of 2009, we sold certain securities
with relatively short maturities. Investment securities comprise 37.87% of the Companys total
earning assets at September 30, 2009.
Securities held as available-for-sale are reported at fair value for financial reporting
purposes. The related unrealized gains or losses, net of income taxes, are recorded in
stockholders equity. At September 30, 2009, securities held as available-for-sale had a fair value
of $2.29 billion, representing 99.8% of total investment securities, with an amortized cost of
$2.20 billion. At September 30, 2009, the net unrealized holding gain on securities
available-for-sale was $82.5 million and that resulted in accumulated other comprehensive income of
$47.8 million (net of $34.7 million in deferred taxes). At December 31, 2008, the Company reported
net unrealized gain on investment securities available-for-sale of $49.5 million and accumulated
other comprehensive income of $28.7 million (net of deferred taxes of $20.8 million).
Table 3 sets forth investment securities available-for-sale at September 30, 2009 and December 31,
2008.
Table 3 Composition of Investment Securities
(amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2009 |
|
|
December 31, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
Fair Value |
|
|
Total Percent |
|
|
Fair Value |
|
|
Percent |
|
Investment Securities Available-for-Sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities |
|
$ |
688,784 |
|
|
|
30.13 |
% |
|
$ |
1,184,485 |
|
|
|
47.50 |
% |
CMOs / REMICs |
|
|
803,366 |
|
|
|
35.15 |
% |
|
|
596,791 |
|
|
|
23.94 |
% |
Government agency |
|
|
96,561 |
|
|
|
4.23 |
% |
|
|
27,778 |
|
|
|
1.11 |
% |
Municipal bonds |
|
|
696,745 |
|
|
|
30.49 |
% |
|
|
684,422 |
|
|
|
27.45 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Investment Securities |
|
$ |
2,285,456 |
|
|
|
100.00 |
% |
|
$ |
2,493,476 |
|
|
|
100.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
The weighted-average yield (TE) on the investment portfolio at September 30, 2009 was 4.36%
with a weighted-average life of 4.4 years. This compares to a yield of 4.70% at December 31, 2008
with a weighted-average life of 4.9 years and a yield of 4.68% at September 30, 2008 with a
weighted-average life of 5.1 years. The weighted average life is the average number of years that
each dollar of unpaid principal due remains outstanding. Average life is computed as the
weighted-average time to the receipt of all future cash flows, using as the weights the dollar
amounts of the principal paydowns.
40
Approximately 68% of the available-for-sale portfolio represents securities issued by the U.S
government or U.S. government-sponsored enterprises, which guarantee payment of principal and
interest.
The remaining CMO/REMICs are backed by agency-pooled collateral or whole loan collateral. All
non-agency available-for-sale CMO/REMIC issues held are rated investment grade or better by either
Standard & Poors or Moodys, as of September 30, 2009 and December 31, 2008.
Composition of the Fair Value and Gross Unrealized Losses of Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2009 |
|
|
|
Less than 12 months |
|
|
12 months or longer |
|
|
Total |
|
|
|
|
|
|
|
Gross |
|
|
|
|
|
|
Gross |
|
|
|
|
|
|
Gross |
|
|
|
|
|
|
|
Unrealized |
|
|
|
|
|
|
Unrealized |
|
|
|
|
|
|
Unrealized |
|
|
|
|
|
|
|
Holding |
|
|
|
|
|
|
Holding |
|
|
|
|
|
|
Holding |
|
Description of Securities |
|
Fair Value |
|
|
Losses |
|
|
Fair Value |
|
|
Losses |
|
|
Fair Value |
|
|
Losses |
|
|
|
(amounts in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held-To-Maturity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CMO (1) |
|
$ |
|
|
|
$ |
|
|
|
$ |
4,237 |
|
|
$ |
1,618 |
|
|
$ |
4,237 |
|
|
$ |
1,618 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-Sale |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government agency |
|
$ |
25,109 |
|
|
$ |
78 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
25,109 |
|
|
$ |
78 |
|
CMO/REMICs |
|
|
46,438 |
|
|
|
555 |
|
|
|
31,101 |
|
|
|
447 |
|
|
|
77,539 |
|
|
|
1,002 |
|
Municipal bonds |
|
|
4,916 |
|
|
|
272 |
|
|
|
|
|
|
|
|
|
|
|
4,916 |
|
|
|
272 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
76,463 |
|
|
$ |
905 |
|
|
$ |
31,101 |
|
|
$ |
447 |
|
|
$ |
107,564 |
|
|
$ |
1,352 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
For the nine months ended September 30, 2009, the Company recorded $1.6 million, on a pre-tax
basis, of the non-credit portion of OTTI for this security in other comprehensive income, which is included as gross
unrealized losses. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008 |
|
|
|
Less than 12 months |
|
|
12 months or longer |
|
|
Total |
|
|
|
|
|
|
|
Gross |
|
|
|
|
|
|
Gross |
|
|
|
|
|
|
Gross |
|
|
|
|
|
|
|
Unrealized |
|
|
|
|
|
|
Unrealized |
|
|
|
|
|
|
Unrealized |
|
|
|
|
|
|
|
Holding |
|
|
|
|
|
|
Holding |
|
|
|
|
|
|
Holding |
|
Description of Securities |
|
Fair Value |
|
|
Losses |
|
|
Fair Value |
|
|
Losses |
|
|
Fair Value |
|
|
Losses |
|
|
|
(amounts in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held-To-Maturity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CMO |
|
$ |
4,770 |
|
|
$ |
2,097 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
4,770 |
|
|
$ |
2,097 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-Sale |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities |
|
$ |
265 |
|
|
$ |
|
|
|
$ |
13,903 |
|
|
$ |
1 |
|
|
$ |
14,168 |
|
|
$ |
1 |
|
CMO/REMICs |
|
|
163,036 |
|
|
|
4,542 |
|
|
|
1,853 |
|
|
|
53 |
|
|
|
164,889 |
|
|
|
4,595 |
|
Municipal bonds |
|
|
159,370 |
|
|
|
5,341 |
|
|
|
37,994 |
|
|
|
1,596 |
|
|
|
197,364 |
|
|
|
6,937 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
322,671 |
|
|
$ |
9,883 |
|
|
$ |
53,750 |
|
|
$ |
1,650 |
|
|
$ |
376,421 |
|
|
$ |
11,533 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The tables above show the Companys 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 September 30, 2009 and December 31, 2008. The Company has
reviewed the individual securities to determine whether a decline in fair value below the amortized
cost basis is other-than-temporary. A summary of our analysis of these securities and the
unrealized losses is described more fully in Note 2 Investment Securities in the notes to the
consolidated financial statements. Economic trends may adversely affect the value of the portfolio
of investment securities that we hold.
During the third quarter of 2009, the Company recognized an other-than-temporary impairment on
the held-to-maturity investment security. The total impairment of $1.8 million was reduced by $1.6
million for the non-credit portion which was reflected in other comprehensive income. The
remaining $232,000 was recognized in third quarter earnings.
41
Loans
At September 30, 2009, we reported total loans, net of deferred loan fees, of $3.60 billion.
This represents a decrease of $136.8 million, or 3.66%, from total loans, net of deferred loan
fees, of $3.74 billion at December 31, 2008. Total loans, net of deferred loan fees, comprise
59.55% of our total earning assets.
Table 4 Distribution of Loan Portfolio by Type (Dollar amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
|
|
|
December 31, 2008 |
|
|
|
|
Commercial and Industrial |
|
$ |
385,274 |
|
|
|
10.7 |
% |
|
$ |
370,829 |
|
|
|
9.9 |
% |
Real Estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction |
|
|
295,315 |
|
|
|
8.2 |
% |
|
|
351,543 |
|
|
|
9.4 |
% |
Commercial Real Estate |
|
|
1,959,725 |
|
|
|
54.3 |
% |
|
|
1,945,706 |
|
|
|
51.9 |
% |
SFR Mortgage |
|
|
290,831 |
|
|
|
8.1 |
% |
|
|
333,931 |
|
|
|
8.9 |
% |
Consumer |
|
|
67,317 |
|
|
|
1.9 |
% |
|
|
66,255 |
|
|
|
1.8 |
% |
Municipal lease finance receivables |
|
|
162,962 |
|
|
|
4.5 |
% |
|
|
172,973 |
|
|
|
4.6 |
% |
Auto and equipment leases, net of unearned discount |
|
|
34,072 |
|
|
|
0.9 |
% |
|
|
45,465 |
|
|
|
1.2 |
% |
Dairy and Livestock |
|
|
411,574 |
|
|
|
11.4 |
% |
|
|
459,329 |
|
|
|
12.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Loans |
|
|
3,607,070 |
|
|
|
100.0 |
% |
|
|
3,746,031 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Deferred net loan fees |
|
|
(6,983 |
) |
|
|
|
|
|
|
(9,193 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross loans, net of deferred loan fees |
|
$ |
3,600,087 |
|
|
|
|
|
|
$ |
3,736,838 |
|
|
|
|
|
Less: Allowance for credit losses |
|
|
(87,316 |
) |
|
|
|
|
|
|
(53,960 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loans |
|
$ |
3,512,771 |
|
|
|
|
|
|
$ |
3,682,878 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial loans are loans and leases to commercial entities to finance capital
purchases or improvements, or to provide cash flow for operations. Real estate loans are loans
secured by trust deeds on real property, including property under construction, commercial property
and single family and multifamily residences. Consumer loans include installment loans to consumers
as well as home equity loans and other loans secured by junior liens on real property. Municipal
lease finance receivables provide financing to municipalities, school districts, and other special
districts. Auto and equipment leases provide financing to both commercial entities as well as
consumers. Dairy and livestock loans are loans to finance the operating needs of wholesale dairy
farm operations, cattle feeders, livestock raisers, and farmers.
Our loan portfolio is from a variety of areas throughout our marketplace. The following is
the breakdown of our total loans and commercial real estate loans by region.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2009 |
|
|
|
|
|
|
|
|
|
|
Commercial |
Loans by County |
|
Total Loans |
|
|
|
Real Estate Loans |
|
|
(amounts in thousands) |
Los Angeles |
|
$ |
1,185,471 |
|
|
|
32.8 |
% |
|
$ |
702,327 |
|
|
|
35.8 |
% |
Inland Empire |
|
|
788,770 |
|
|
|
21.9 |
% |
|
|
617,454 |
|
|
|
31.5 |
% |
Central Valley |
|
|
619,352 |
|
|
|
17.2 |
% |
|
|
277,954 |
|
|
|
14.2 |
% |
Orange |
|
|
525,939 |
|
|
|
14.6 |
% |
|
|
204,037 |
|
|
|
10.4 |
% |
Other Areas |
|
|
487,538 |
|
|
|
13.5 |
% |
|
|
157,953 |
|
|
|
8.1 |
% |
|
|
|
|
|
$ |
3,607,070 |
|
|
|
100.0 |
% |
|
$ |
1,959,725 |
|
|
|
100.0 |
% |
|
|
|
Of particular concern in the current credit and economic environments is our real estate and
real estate construction loans. Our real estate loans are comprised of single-family residences,
multifamily residences, industrial, office and retail. We strive to have a maximum loan-to-value
ratio of 65-75%.
42
This table breaks down our real estate portfolio, with the exception of construction loans,
which are discussed in greater detail below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2009 |
|
|
|
|
|
|
|
|
|
|
Percent |
|
Average |
Real Estate Loans |
|
|
|
|
|
|
|
|
|
Owner- |
|
Loan |
(amounts in thousands) |
|
Loan Balance |
|
Percent |
|
Occupied (1) |
|
Balance |
Single Family-Direct |
|
$ |
63,788 |
|
|
|
2.8 |
% |
|
|
100.0 |
% |
|
$ |
443 |
|
Single Family-Mortgage Pools |
|
|
227,043 |
|
|
|
10.1 |
% |
|
|
100.0 |
% |
|
|
394 |
|
Multifamily |
|
|
109,064 |
|
|
|
4.8 |
% |
|
|
0.0 |
% |
|
|
859 |
|
Industrial |
|
|
664,735 |
|
|
|
29.6 |
% |
|
|
36.5 |
% |
|
|
869 |
|
Office |
|
|
380,823 |
|
|
|
16.9 |
% |
|
|
25.0 |
% |
|
|
994 |
|
Retail |
|
|
219,989 |
|
|
|
9.8 |
% |
|
|
14.3 |
% |
|
|
1,000 |
|
Medical |
|
|
128,951 |
|
|
|
5.7 |
% |
|
|
43.9 |
% |
|
|
1,816 |
|
Secured by Farmland |
|
|
155,119 |
|
|
|
6.9 |
% |
|
|
100.0 |
% |
|
|
2,216 |
|
Other |
|
|
301,044 |
|
|
|
13.4 |
% |
|
|
53.2 |
% |
|
|
1,149 |
|
|
|
|
|
|
$ |
2,250,556 |
|
|
|
100.0 |
% |
|
|
45.9 |
% |
|
$ |
1,027 |
|
|
|
|
|
|
|
(1) |
|
Represents percentage of owner-occupied in each real estate loan category |
In the table above, Single Family-Direct represents those single-family residence loans that
we have made directly to our customers. These loans total $63.8 million. In addition, we have
purchased pools of owner-occupied single-family loans from real estate lenders, Single
Family-Mortgage Pools, totaling $227.0 million. These loans were purchased with FICO scores
predominantly ranging from 700 to over 800 and original loan-to-value ratios of 60% to 80%. These
pools were purchased to diversify our loan portfolio since we make few single-family loans. Due to
market conditions, we have not purchased any mortgage pools since August 2007.
As of September 30, 2009, the Company had $295.3 million in construction loans. This
represents 8.2% of total loans outstanding of $3.6 billion. Of this $295.3 million in construction
loans, approximately 26%, or $76.7 million, were for single-family residences, residential land
loans, and multi-family land development loans. The remaining construction loans, totaling $218.7
million, were related to commercial construction. The average balance of any single construction
loan is approximately $4.0 million. Our construction loans are located throughout our marketplace
as can be seen in the following table.
43
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction Loans |
|
September 30, 2009 |
|
(amounts in thousands) |
|
SFR & Multifamily |
|
|
|
Land |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Development |
|
|
|
|
|
|
Construction |
|
|
|
|
|
|
Total |
|
|
|
|
|
Inland Empire |
|
$ |
3,486 |
|
|
|
15.3 |
% |
|
$ |
18,632 |
|
|
|
34.6 |
% |
|
$ |
22,118 |
|
|
|
28.8 |
% |
Orange |
|
|
5,196 |
|
|
|
22.8 |
% |
|
|
|
|
|
|
0.0 |
% |
|
|
5,196 |
|
|
|
6.8 |
% |
Los Angeles |
|
|
|
|
|
|
0.0 |
% |
|
|
17,687 |
|
|
|
32.8 |
% |
|
|
17,687 |
|
|
|
23.1 |
% |
Central Valley |
|
|
14,100 |
|
|
|
61.9 |
% |
|
|
|
|
|
|
0.0 |
% |
|
|
14,100 |
|
|
|
18.4 |
% |
San Diego |
|
|
|
|
|
|
0.0 |
% |
|
|
6,303 |
|
|
|
11.7 |
% |
|
|
6,303 |
|
|
|
8.2 |
% |
Other (includes out-of-state) |
|
|
|
|
|
|
0.0 |
% |
|
|
11,256 |
|
|
|
20.9 |
% |
|
|
11,256 |
|
|
|
14.7 |
% |
|
|
|
|
|
$ |
22,782 |
|
|
|
100.0 |
% |
|
$ |
53,878 |
|
|
|
100.0 |
% |
|
$ |
76,660 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
|
|
Land |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Development |
|
|
|
|
|
|
Construction |
|
|
|
|
|
|
Total |
|
|
|
|
|
Inland Empire |
|
$ |
17,794 |
|
|
|
39.7 |
% |
|
$ |
61,412 |
|
|
|
35.3 |
% |
|
$ |
79,206 |
|
|
|
36.3 |
% |
Orange |
|
|
|
|
|
|
0.0 |
% |
|
|
23,624 |
|
|
|
13.6 |
% |
|
|
23,624 |
|
|
|
10.8 |
% |
Los Angeles |
|
|
4,700 |
|
|
|
10.5 |
% |
|
|
41,905 |
|
|
|
24.1 |
% |
|
|
46,605 |
|
|
|
21.3 |
% |
Central Valley |
|
|
15,413 |
|
|
|
34.3 |
% |
|
|
17,682 |
|
|
|
10.2 |
% |
|
|
33,095 |
|
|
|
15.1 |
% |
Other (includes out-of-state) |
|
|
6,977 |
|
|
|
15.5 |
% |
|
|
29,148 |
|
|
|
16.8 |
% |
|
|
36,125 |
|
|
|
16.5 |
% |
|
|
|
|
|
$ |
44,884 |
|
|
|
100.0 |
% |
|
$ |
173,771 |
|
|
|
100.0 |
% |
|
$ |
218,655 |
|
|
|
100.0 |
% |
|
|
|
Of the total SFR and multifamily loans, $32.4 million are for multifamily and the remainder
represents single-family loans.
Allowance for Credit Losses
The allowance for credit losses was $87.3 million as of September 30, 2009. This represents
an increase of $33.4 million, or 61.82%, compared to allowance for credit losses of $54.0 million
as of December 31, 2008. Activity in the allowance for credit losses was as follows for the first
nine months of 2009.
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
|
(amounts in thousands) |
|
|
|
|
|
|
|
|
|
|
Balance, beginning of year |
|
$ |
53,960 |
|
|
$ |
33,049 |
|
Provision charged to operations |
|
|
55,000 |
|
|
|
26,600 |
|
Loans charged-off |
|
|
(22,362 |
) |
|
|
(6,037 |
) |
Recoveries on loans previously charged-off |
|
|
718 |
|
|
|
348 |
|
|
|
|
|
|
|
|
Balance, end of the period |
|
$ |
87,316 |
|
|
$ |
53,960 |
|
|
|
|
|
|
|
|
Non-performing Assets
We had non-performing assets of $59.3 million at September 30, 2009. Non-performing assets
represent 1.65% of total loans and OREO and 0.91% of total assets at September 30, 2009. We had
non-performing assets of $24.2 million at December 31, 2008. Non-performing assets include
non-accrual loans plus other real estate owned (foreclosed property).
44
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
|
(amounts in thousands) |
|
Non-accrual loans |
|
$ |
58,134 |
|
|
$ |
17,684 |
|
Other real estate owned (OREO) |
|
|
1,137 |
|
|
|
6,565 |
|
|
|
|
|
|
|
|
Total nonperforming assets |
|
$ |
59,271 |
|
|
$ |
24,249 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructured loans |
|
$ |
3,017 |
|
|
$ |
2,500 |
|
|
|
|
|
|
|
|
Percentage of nonperforming assets
to total loans outstanding & OREO |
|
|
1.65 |
% |
|
|
0.65 |
% |
|
|
|
|
|
|
|
Percentage of nonperforming assets
to total assets |
|
|
0.91 |
% |
|
|
0.36 |
% |
|
|
|
|
|
|
|
We had loans with a balance of $61.1 million classified as impaired at September 30, 2009.
This balance includes the non-performing loans of $58.1 million and loans which were restructured
in a troubled debt restructuring with a balance of $3.0 million as of September 30, 2009. At
December 31, 2008, we had impaired loans with a balance of $20.2 million. Impaired loans measured
1.70% of total loans as of September 30, 2009.
As of September 30, 2009, we had $1.1 million in OREO compared to $6.6 million as of December
31, 2008, a decrease of $5.4 million. This was primarily due to the sales of existing OREO
properties of $12.3 million and $848,000 in OREO write-downs, offset by the transfer of $7.6
million from non-performing loans during the first nine months of 2009. During the first nine
months of 2009, the Bank incurred expenses of $1.2 million related to the holding of OREO.
The table below provides trends in our non-performing assets and delinquencies over the past
year.
45
Non-Performing Assets & Delinquency Trends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
June 30, |
|
|
March 31, |
|
|
December 31, |
|
|
September 30, |
|
|
|
2009 |
|
|
2009 |
|
|
2009 |
|
|
2008 |
|
|
2008 |
|
Non-Performing Loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential Construction and Land |
|
$ |
15,729 |
|
|
$ |
17,348 |
|
|
$ |
20,943 |
|
|
$ |
7,524 |
|
|
$ |
8,020 |
|
Commercial Construction |
|
|
19,636 |
|
|
|
21,270 |
|
|
|
22,102 |
|
|
|
|
|
|
|
|
|
Residential Mortgage |
|
|
8,102 |
|
|
|
4,632 |
|
|
|
2,203 |
|
|
|
3,116 |
|
|
|
2,062 |
|
Commercial Real Estate |
|
|
13,522 |
|
|
|
7,041 |
|
|
|
1,661 |
|
|
|
4,658 |
|
|
|
4,995 |
|
Commercial and Industrial |
|
|
1,045 |
|
|
|
859 |
|
|
|
792 |
|
|
|
2,074 |
|
|
|
1,248 |
|
Consumer |
|
|
100 |
|
|
|
115 |
|
|
|
336 |
|
|
|
312 |
|
|
|
312 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
58,134 |
|
|
$ |
51,265 |
|
|
$ |
48,037 |
|
|
$ |
17,684 |
|
|
$ |
16,637 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of Total Loans |
|
|
1.61 |
% |
|
|
1.42 |
% |
|
|
1.31 |
% |
|
|
0.47 |
% |
|
|
0.46 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Past Due 30-89 Days |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Construction |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
2,500 |
|
Residential Mortgage |
|
|
1,510 |
|
|
|
2,069 |
|
|
|
3,814 |
|
|
|
1,931 |
|
|
|
481 |
|
Commercial Real Estate |
|
|
190 |
|
|
|
1,074 |
|
|
|
8,341 |
|
|
|
2,402 |
|
|
|
19 |
|
Commercial and Industrial |
|
|
5,094 |
|
|
|
590 |
|
|
|
1,720 |
|
|
|
592 |
|
|
|
1,852 |
|
Dairy & Livestock |
|
|
|
|
|
|
3,551 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer |
|
|
87 |
|
|
|
8 |
|
|
|
62 |
|
|
|
231 |
|
|
|
55 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
6,881 |
|
|
$ |
7,292 |
|
|
$ |
13,937 |
|
|
$ |
5,156 |
|
|
$ |
4,907 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of Total Loans |
|
|
0.19 |
% |
|
|
0.20 |
% |
|
|
0.38 |
% |
|
|
0.14 |
% |
|
|
0.14 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OREO |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential Construction and Land |
|
$ |
1,137 |
|
|
$ |
1,789 |
|
|
$ |
2,416 |
|
|
$ |
6,158 |
|
|
$ |
1,612 |
|
Commercial Real Estate |
|
|
|
|
|
|
1,187 |
|
|
|
4,612 |
|
|
|
87 |
|
|
|
|
|
Commercial and Industrial |
|
|
|
|
|
|
893 |
|
|
|
893 |
|
|
|
|
|
|
|
|
|
Residential Mortgage |
|
|
|
|
|
|
|
|
|
|
745 |
|
|
|
320 |
|
|
|
315 |
|
Consumer |
|
|
|
|
|
|
166 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
1,137 |
|
|
$ |
4,035 |
|
|
$ |
8,666 |
|
|
$ |
6,565 |
|
|
$ |
1,927 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Non-Performing, Past Due & OREO |
|
$ |
66,152 |
|
|
$ |
62,592 |
|
|
$ |
70,640 |
|
|
$ |
29,405 |
|
|
$ |
23,471 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of Total Loans |
|
|
1.84 |
% |
|
|
1.73 |
% |
|
|
1.93 |
% |
|
|
0.79 |
% |
|
|
0.65 |
% |
We had $58.1 million in non-performing loans at September 30, 2009, or 1.61% of total loans.
This compares to $51.3 million in non-performing loans at June 30, 2009, $48.0 million in
non-performing loans at March 31, 2009, $17.7 million in non-performing loans at December 31, 2008
and $16.6 million at September 30, 2008. Non-performing loans consist of $15.7 million in
residential real estate construction and land loans, $19.6 million in commercial construction
loans, $8.1 million in single-family mortgage loans, $13.5 million in commercial real estate loans,
$1.1 million in other commercial loans and $0.1 million in consumer loans.
The economic downturn has had an impact on our market area and on our loan portfolio. With
the exception of assets discussed above, we are not aware of any other loans as of September 30,
2009 for which known credit problems of the borrower would cause serious doubts as to the ability
of such borrowers to comply with their present loan repayment terms, or any known events that would
result in the loan being designated as non-performing at some future date. We can anticipate that
there will be some losses in the loan portfolio given the current state of the economy. However,
we cannot predict the extent to which the deterioration in general economic conditions, real estate
values, increase in general rates of interest, change in the financial conditions or business of a
borrower may adversely affect a borrowers ability to pay. See Risk Management Credit Risk
herein.
Deposits
The primary source of funds to support earning assets (loans and investments) is the
generation of deposits from our customer base. The ability to grow the customer base and
subsequently deposits is a crucial element in the performance of the Company.
At September 30, 2009, total deposits were $4.0 billion, representing an increase of $531.6
million, or 15.15%, over total deposits of $3.51 billion at December 31, 2008. The composition of
deposits is as follows:
46
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2009 |
|
|
December 31, 2008 |
|
|
|
(Amounts in thousands) |
|
Non-interest bearing deposits |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits |
|
$ |
1,416,558 |
|
|
|
35.0 |
% |
|
$ |
1,334,248 |
|
|
|
38.0 |
% |
Interest bearing deposits |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings Deposits |
|
|
1,399,838 |
|
|
|
34.7 |
% |
|
|
1,143,779 |
|
|
|
32.6 |
% |
Time deposits |
|
|
1,223,375 |
|
|
|
30.3 |
% |
|
|
1,030,129 |
|
|
|
29.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deposits |
|
$ |
4,039,771 |
|
|
|
100.0 |
% |
|
$ |
3,508,156 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
The amount of non-interest-bearing demand deposits in relation to total deposits is an
integral element in achieving a low cost of funds. Demand deposits totaled $1.42 billion at
September 30, 2009, representing an increase of $82.3 million, or 6.17%, over total demand deposits
of $1.33 billion at December 31, 2008. Non-interest-bearing demand deposits represented 35.0% of
total deposits as of September 30, 2009 and 38.0% of total deposits as of December 31, 2008.
Savings deposits, which include savings, interest-bearing demand, and money market accounts,
totaled $1.40 billion at September 30, 2009, representing an increase of $256.0 million, or 22.39%,
over savings deposits of $1.14 billion at December 31, 2008.
Time deposits totaled $1.22 billion at September 30, 2009. This represented an increase of
$193.2 million, or 18.76%, over total time deposits of $1.03 billion at December 31, 2008.
Other Borrowed Funds
To achieve the desired growth in earning assets and to fully utilize our capital, we fund this
growth through generating sources of funds other than deposits. The first source of funds we pursue
is non-interest-bearing deposits (the lowest cost of funds to the Company). Next we pursue the
growth in interest-bearing deposits and finally we supplement the growth in deposits with borrowed
funds. Average borrowed funds, as a percent of average total funding (total deposits plus demand
notes plus borrowed funds) was 32.77% as of September 30, 2009, as compared to 40.12% as of
December 31, 2008.
During 2009 and 2008, we entered into short-term borrowing agreements (borrowings with
original maturities of one year or less) with the Federal Home Loan Bank (FHLB) and other
institutions. The Bank had no outstanding balances under these agreements at September 30, 2009 and
$776.5 million at December 31, 2008. The decrease is due to the repayment of short-term borrowings
as a result of the increases in deposits and customer repurchase agreements during 2009. We also
sold investment securities and used the proceeds from the sale to repay short-term borrowings. The
weighted average annual interest rate on short-term borrowings was 1.39% at December 31, 2008. The
FHLB holds certain investment securities and loans of the Bank as collateral for these borrowings.
In June 2006, the Company purchased securities totaling $250.0 million. This purchase was
funded by a repurchase agreement of $250.0 million with a double cap embedded in the repurchase
agreement. The interest rate on this agreement is fixed at 4.95% and the maturity is September 30,
2012. In November 2006, we began a repurchase agreement product with our customers. This product,
known as Citizens Sweep Manager, sells our investment securities overnight to our customers under an
agreement to repurchase them the next day. These repurchase agreements are with customers who have
other banking relationships with us. As of September 30, 2009 and December 31, 2008, total
customer repurchases were $460.3 million and $357.8 million, respectively, with weighted average
annual interest rates of 0.97% and 1.29%. As of September 30, 2009 and December 31, 2008, total
funds borrowed under these agreements were $710.3 million and $607.8 million, respectively.
47
We also entered into long-term borrowing agreements (borrowings with original maturities
of one year or longer) with the FHLB. We had outstanding balances of $950.0 million under these
agreements at both September 30, 2009 and December 31, 2008. The weighted average annual interest
rate was 4.09% at both September 30, 2009 and December 31, 2008, respectively. The FHLB holds
certain investment securities and loans of the Bank as collateral for these borrowings.
The Bank has an agreement, known as the Treasury Tax & Loan (TT&L) Note Option Program, with
the Federal Reserve Bank and the U.S. Department of Treasury in which federal tax deposits made by
depositors can be held by the bank until called (withdrawn) by the U.S. Department of Treasury. The
maximum amount of accumulated federal tax deposits allowable to be held by the Bank, as set forth
in the agreement, is $15.0 million. On September 30, 2009 and December 31, 2008 the amounts held by
the Bank in the TT&L Note Option Program were $3.4 million and $5.4 million, collateralized by
securities, respectively. Amounts are payable on demand.
At September 30, 2009, borrowed funds totaled $1.67 billion, representing a decrease of $682.1
million, or 29.01%, from total borrowed funds of $2.35 billion at December 31, 2008.
Aggregate Contractual Obligations
The following table summarizes our contractual commitments as of September 30, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturity by Period |
|
|
|
|
|
|
|
Less Than |
|
|
One Year |
|
|
Four Year |
|
|
After |
|
|
|
|
|
|
|
One |
|
|
to Three |
|
|
to Five |
|
|
Five |
|
|
|
Total |
|
|
Year |
|
|
Years |
|
|
Years |
|
|
Years |
|
|
|
|
|
|
|
(amounts in thousands) |
|
Deposits |
|
$ |
4,039,771 |
|
|
$ |
4,026,737 |
|
|
$ |
9,473 |
|
|
$ |
448 |
|
|
$ |
3,113 |
|
Repurchase Agreements |
|
|
710,326 |
|
|
|
460,326 |
|
|
|
250,000 |
|
|
|
|
|
|
|
|
|
FHLB and Other Borrowings |
|
|
958,441 |
|
|
|
403,441 |
|
|
|
100,000 |
|
|
|
450,000 |
|
|
|
5,000 |
|
Junior Subordinated Debentures |
|
|
115,055 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
115,055 |
|
Deferred Compensation |
|
|
9,136 |
|
|
|
847 |
|
|
|
1,624 |
|
|
|
1,594 |
|
|
|
5,071 |
|
Operating Leases |
|
|
25,286 |
|
|
|
4,697 |
|
|
|
7,386 |
|
|
|
4,352 |
|
|
|
8,851 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
5,858,015 |
|
|
$ |
4,896,048 |
|
|
$ |
368,483 |
|
|
$ |
456,394 |
|
|
$ |
137,090 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits represent non-interest bearing, money market, savings, NOW, certificates of
deposits, brokered and all other deposits.
Repurchase agreements represent amounts due to customers, in addition to, the repurchase
agreement with J.P. Morgan.
FHLB borrowings represent the amounts that are due to the Federal Home Loan Bank. These
borrowings have fixed maturity dates. Other borrowings represent the amounts on FCB subordinated
debt and TT&L.
Junior subordinated debentures represent the amounts that are due from the Company to CVB
Statutory Trust I, CVB Statutory Trust II & CVB Statutory Trust III. The debentures have the same
maturity as the Trust Preferred Securities. CVB Statutory Trust I, which matures in 2033, became
callable in whole or in part in December 2008. CVB Statutory Trust II, which matures in 2034,
became callable in whole or in part in January 2009. CVB Statutory Trust III, which matures in
2036, will become callable in whole or in part in 2011. It also represents FCB Capital Trust II
which matures in 2033 and became callable in 2008. We have not called any of our debentures as of
September 30, 2009.
Deferred compensation primarily represents the amounts that are due to former employees
salary continuation agreements as a result of acquisitions.
48
Operating leases represent the total minimum lease payments under noncancelable operating
leases.
Off-Balance Sheet Arrangements
At September 30, 2009, we had commitments to extend credit of approximately $559.5 million and
obligations under letters of credit of $69.8 million and available lines of credit totaling $1.07
billion from certain institutions. Commitments to extend credit are agreements to lend to
customers, provided there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may require payment of a
fee. Commitments are generally variable rate, and many of these commitments are expected to expire
without being drawn upon. As such, the total commitment amounts do not necessarily represent future
cash requirements. The Bank uses the same credit underwriting policies in granting or accepting
such commitments or contingent obligations as it does for on-balance-sheet instruments, which
consist of evaluating customers creditworthiness individually. The Company has a reserve for
undisbursed commitments of $6.0 million as of September 30, 2009 and $4.2 million as of December
31, 2008.
Standby letters of credit written are conditional commitments issued by the Bank to guarantee
the financial performance of a customer to a third party. Those guarantees are primarily issued to
support private borrowing arrangements. The credit risk involved in issuing letters of credit is
essentially the same as that involved in extending loan facilities to customers. When deemed
necessary, the Bank holds appropriate collateral supporting those commitments.
The following table summarizes the off-balance sheet arrangements at September 30, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturity by Period |
|
|
|
|
|
|
|
Less Than |
|
|
One Year |
|
|
Four Year |
|
|
After |
|
|
|
|
|
|
|
One |
|
|
to Three |
|
|
to Five |
|
|
Five |
|
|
|
Total |
|
|
Year |
|
|
Years |
|
|
Years |
|
|
Years |
|
2009 |
|
|
|
|
(Amounts in thousands) |
|
Commitment to extend credit |
|
|
559,537 |
|
|
|
184,353 |
|
|
|
48,096 |
|
|
|
45,920 |
|
|
|
281,168 |
|
Obligations under letters of credit |
|
|
69,830 |
|
|
|
51,344 |
|
|
|
12,600 |
|
|
|
5,886 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
629,367 |
|
|
$ |
235,697 |
|
|
$ |
60,696 |
|
|
$ |
51,806 |
|
|
$ |
281,168 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liquidity and Cash Flow
Since the primary sources and uses of funds for the Bank are deposits and loans, the
relationship between gross loans and total deposits provides a useful measure of the Banks
liquidity. Typically, the closer the ratio of loans to deposits is to 100%, the more reliant the
Bank is on its loan portfolio to provide for short-term liquidity needs. Since repayment of loans
tends to be less predictable than the maturity of investments and other liquid resources, the
higher the loan to deposit ratio the less liquid are the Banks assets. For the first nine months
of 2009, the Banks loan to deposit ratio averaged 95.08%, compared to an average ratio of 106.38%
for the same period in 2008. The Banks ratio of loans to deposits and customer repurchases
averaged 85.49% for the first nine months of 2009 and 95.69% for the same period in 2008.
CVB is a company separate and apart from the Bank that must provide for its own liquidity and
must service its own obligations. Substantially all of CVBs revenues are obtained from dividends
declared and paid by the Bank. The remaining cash flow is from rents paid by third parties on
office space in the Companys corporate headquarters. CVB has demonstrated its own ability to raise
additional funds in the
capital markets. There are statutory and regulatory provisions that could limit the ability
of the Bank to pay dividends to CVB. In addition, our regulators could limit the ability of the
Bank or the Company to pay dividends or make other distributions. At September 30, 2009,
approximately $106.0 million of the Banks equity was unrestricted and available to be paid as
dividends to CVB. Management of CVB
49
believes that such restrictions will not have an impact on the
ability of CVB to meet its ongoing cash obligations.
For the Bank, sources of funds normally include principal payments on loans and investments,
other borrowed funds, and growth in deposits. Uses of funds include withdrawal of deposits,
interest paid on deposits, increased loan balances, purchases, and other operating expenses.
Net cash provided by operating activities totaled $69.4 million for the first nine months of
2009, compared to $66.3 million for the same period last year. The increase in cash provided by
operating activities is primarily attributed to a decrease in interest paid on deposits.
Net cash provided by investing activities totaled $239.0 million for the first nine months of
2009, compared to net cash used in investing activities of $154.4 million for the same period in
2008. The increase in cash provided by investing activities was primarily the result of the sales
and repayments of mortgage-backed securities and decrease in loans during the first nine months of
2009.
Net cash used in financing activities totaled $181.5 million for the first nine months of
2009, compared to net cash provided by financing activities of $91.0 million for the same period
last year. The increase in cash used was primarily due to repayment of FHLB advances and decrease
in other borrowings, offset by increases in deposits. In addition, we raised $126.1 million in net
proceeds from the issuance of common stock through an underwritten public offering. The proceeds,
along with other funds were used to repurchase all of the preferred stock issued to the U.S.
Treasury.
At September 30, 2009, cash and cash equivalents totaled $222.2 million. This represented an
increase of $129.7 million, or 140.38%, over a total of $92.4 million at September 30, 2008 and an
increase of $126.9 million, or 133.12%, over a total of $95.3 million at December 31, 2008.
Capital Resources
Historically, our primary source of capital has been the retention of operating earnings. In
order to ensure adequate levels of capital, we conduct an ongoing assessment of projected sources,
needs and uses of capital in conjunction with projected increases in assets and the level of risk.
As part of this ongoing assessment, the Board of Directors reviews the various components of
capital. Although we are not one of the 19 large financial institutions required to conduct a
forward-looking capital assessment, or stress test, pursuant to the U.S. Treasurys Capital
Assistance Program (CAP), the stress assessment requirements under the CAP or similar requirements
could be extended or otherwise impact financial institutions beyond the 19 participating
institutions, including us. As a result, we could determine independently or, our regulators could
require us, to raise additional capital.
During the third quarter we raised $132.5 million in gross proceeds ($126.1 million in net
proceeds) from the issuance of common stock in an underwritten public offering. The net proceeds
were used, along with other funds, to repurchase the preferred stock issued to the United States
Treasury as part of our participation in the Capital Purchase Program.
The Bank and the Company are required to meet risk-based capital standards set by their
respective regulatory authorities. The risk-based capital standards require the achievement of a
minimum ratio of total capital to risk-weighted assets of 8.0% (of which at least 4.0% must be Tier
1 capital). In addition, the regulatory authorities require the highest rated institutions to
maintain a minimum leverage ratio of 4.0%. To be considered well-capitalized for bank regulatory
purposes, the Bank and the Company are
required to have a Tier 1 risk-based capital ratio equal to or greater than 6%, a total
risk-based capital ratio equal to or greater than 10% and a Tier 1 leverage ratio equal to or
greater than 5%. At September 30, 2009, the Bank and the Company exceeded the minimum risk-based
capital ratios and leverage ratios required to be considered well-capitalized for regulatory
purposes.
50
The Companys equity capital was $651.5 million at September 30, 2009. This represented an
increase of $36.6 million, or 5.96%, over equity capital of $614.9 million at December 31, 2008.
The increase was due primarily to the net earnings for the first nine months of 2009 in the amount
of $48.3 million and the increase in unrealized gain on securities available-for-sale, net of tax,
of $18.2 million, offset by total common and preferred dividends of $27.5 million. The Companys
2008 Annual Report on Form 10-K (Managements Discussion and Analysis and Note 16 of the
accompanying financial statements) describes the regulatory capital requirements of the Company and
the Bank. Common stock holders are entitled to receive dividends declared by the Board of
Directors out of funds legally available for such payment. Although we have historically paid cash
dividends on our common stock, we are not required to do so and our Board of Directors could reduce
or eliminate our common stock dividend in the future.
The table below presents the Companys and the Banks risk-based and leverage capital ratios
as of September 30, 2009, and December 31, 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Required |
|
|
|
|
|
|
Minimum |
|
September 30, 2009 |
|
December 31, 2008 |
Capital Ratios |
|
Ratios |
|
Company |
|
Bank |
|
Company |
|
Bank |
Risk-based capital ratios: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier I |
|
|
4.00 |
% |
|
|
15.3 |
% |
|
|
15.2 |
% |
|
|
14.2 |
% |
|
|
13.9 |
% |
Total |
|
|
8.00 |
% |
|
|
16.6 |
% |
|
|
16.5 |
% |
|
|
15.5 |
% |
|
|
15.2 |
% |
Leverage ratio |
|
|
4.00 |
% |
|
|
10.1 |
% |
|
|
10.1 |
% |
|
|
9.8 |
% |
|
|
9.7 |
% |
Tangible Capital Ratio |
|
|
|
|
|
|
9.1 |
% |
|
|
10.8 |
% |
|
|
8.5 |
% |
|
|
10.1 |
% |
RISK MANAGEMENT
We have adopted a Risk Management Plan to ensure the proper control and management of all risk
factors inherent in the operation of the Company and the Bank. Specifically, credit risk, interest
rate risk, liquidity risk, transaction risk, compliance risk, strategic risk, reputation risk,
price risk and foreign exchange risk, can all affect the market risk exposure of the Company. These
specific risk factors are not mutually exclusive. It is recognized that any product or service
offered by us may expose the Bank to one or more of these risks. Our Risk Management Committee and
Risk Management Department monitors these risks to minimize exposure to the Company.
Credit Risk
Credit risk is defined as the risk to earnings or capital arising from an obligors failure to
meet the terms of any contract or otherwise fail to perform as agreed. Credit risk is found in all
activities where success depends on counter party, issuer, or borrower performance. Credit risk
arises through the extension of loans and leases, certain securities, and letters of credit.
Credit risk in the investment portfolio and correspondent bank accounts is addressed through
defined limits in the Banks policy statements. In addition, certain securities carry insurance to
enhance credit quality of the bond. Limitations on industry concentration, aggregate customer
borrowings, geographic boundaries and standards on loan quality also are designed to reduce loan
credit risk. Senior Management, Directors Committees, and the Board of Directors are provided with
information to appropriately identify, measure, control and monitor the credit risk of the Bank.
Implicit in lending activities is the risk that losses will occur and that the amount of such
losses will vary over time. Consequently, we maintain an allowance for credit losses by charging a
provision for credit losses to earnings. Loans determined to be losses are charged against the
allowance for credit losses. Our allowance for credit losses is maintained at a level considered by
us to be adequate to provide for estimated probable losses inherent in the existing portfolio.
51
The allowance for credit losses is based upon estimates of probable losses inherent in the
loan and lease portfolio. The nature of the process by which we determine the appropriate allowance
for credit losses requires the exercise of considerable judgment. The amount actually observed in
respect of these losses can vary significantly from the estimated amounts. We employ a systematic
methodology that is intended to reduce the differences between estimated and actual losses.
Our methodology for assessing the appropriateness of the allowance is conducted on a regular
basis and considers all loans. The systematic methodology consists of two major elements.
The first major element includes a detailed analysis of the loan portfolio in two phases. In
the first phase, individual loans are reviewed to identify loans for impairment. A loan is impaired
when principal and interest are deemed uncollectible in accordance with the original contractual
terms of the loan. Impairment is measured as either the expected future cash flows discounted at
each loans effective interest rate, the fair value of the loans collateral if the loan is
collateral dependent, or an observable market price of the loan (if one exists). Upon measuring the
impairment, we will ensure an appropriate level of allowance is present or established.
Central to the first phase of our credit risk management is its loan risk rating system. The
originating credit officer assigns borrowers an initial risk rating, which is reviewed and possibly
changed by Credit Management. The risk rating is based primarily on a thorough analysis of each
borrowers financial capacity in conjunction with industry and economic trends. Credit 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 in a borrowers financial condition, which would
impact the ability of the borrower to perform under the contract. Risk ratings are adjusted as
necessary.
Loans are risk rated into the following categories: Pass, Special Mention, Substandard,
Doubtful, and Loss. Each of these groups is assessed and appropriate amounts used in determining
the adequacy of our allowance for losses. The Impaired and Doubtful loans are analyzed on an
individual basis for allowance amounts. The other categories have formulae used to determine the
needed allowance amount.
The Bank obtains a quarterly independent credit review by engaging an outside party to review
our loans. The primary purpose of this review is to evaluate our existing loan ratings and provide
an assessment as to the effectiveness of our allowance process.
Based on the risk rating system, specific allowances are established in cases where we have
identified significant conditions or circumstances related to a credit that we believe indicates
the probability that a loss has been incurred. We perform a detailed analysis of these loans,
including, but not limited to, cash flows, appraisals of the collateral, conditions of the
marketplace for liquidating the collateral and assessment of the guarantors. We then determine the
inherent loss potential and allocate a portion of the allowance for losses as a specific allowance
for each of these credits.
The second phase is conducted by evaluating or segmenting the remainder of the loan portfolio
into groups or pools of loans with similar characteristics in accordance with SFAS No. 5,
Accounting for Contingencies. In this second phase, groups or pools of homogeneous loans are
reviewed to determine a portfolio formula allowance. In the case of the portfolio formula
allowance, homogeneous portfolios, such as small business loans, consumer loans, agricultural
loans, and real estate loans, are aggregated or
pooled in determining the appropriate allowance. The risk assessment process in this case
emphasizes trends in the different portfolios for delinquency, loss, and other-behavioral
characteristics of the subject portfolios.
The second major element in our methodology for assessing the appropriateness of the allowance
consists of our considerations of all known relevant internal and external factors that may affect
a loans collectability. This includes our estimates of the amounts necessary for concentrations,
economic
52
uncertainties, the volatility of the market value of collateral, and other relevant
factors. The relationship of the two major elements of the allowance to the total allowance may
fluctuate from period to period.
In the second major element of the analysis which considers all known relevant internal and
external factors that may affect a loans collectability, we perform an evaluation of various
conditions, the effects of which are not directly measured in the determination of the formula and
specific allowances. The evaluation of the inherent loss with respect to these conditions is
subject to a higher degree of uncertainty because they are not identified with specific problem
credits or portfolio segments. The conditions evaluated in connection with the second element of
the analysis of the allowance include, but are not limited to the following conditions that existed
as of the balance sheet date:
|
|
|
then-existing general economic and business conditions affecting the key lending areas of the Company, |
|
|
|
|
then-existing economic and business conditions of areas outside the lending areas, such as other sections of the United States, Asia and Latin America, |
|
|
|
|
credit quality trends (including trends in non-performing loans expected to result from existing conditions), |
|
|
|
|
collateral values |
|
|
|
|
loan volumes and concentrations, |
|
|
|
|
seasoning of the loan portfolio, |
|
|
|
|
specific industry conditions within portfolio segments, |
|
|
|
|
recent loss experience in particular segments of the portfolio, |
|
|
|
|
duration of the current business cycle, |
|
|
|
|
bank regulatory examination results and |
|
|
|
|
findings of the Companys external credit examiners. |
We review these conditions in discussion with our senior credit officers. To the extent that
any of these conditions is evidenced by a specifically identifiable problem credit or portfolio
segment as of the evaluation date, our estimate of the effect of such condition may be reflected as
a specific allowance applicable to such credit or portfolio segment. Where any of these conditions
is not evidenced by a specifically identifiable problem credit or portfolio segment as of the
evaluation date, our evaluation of the inherent loss related to such condition is reflected in the
second major element of the allowance. Although we have allocated a portion of the allowance to
specific loan categories, the adequacy of the allowance must be considered in its entirety.
Table 7 presents a comparison of net credit losses, the provision for credit losses (including
adjustments incidental to mergers), and the resulting allowance for credit losses for the nine
months ended September 30, 2009 and 2008.
53
TABLE 7 Summary of Credit Loss Experience
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30, |
|
|
|
2009 |
|
|
2008 |
|
|
|
(amounts in thousands) |
|
Amount of Total Loans at End of Period (1) |
|
$ |
3,600,087 |
|
|
$ |
3,595,337 |
|
|
|
|
|
|
|
|
Average Total Loans Outstanding (1) |
|
$ |
3,646,862 |
|
|
$ |
3,459,916 |
|
|
|
|
|
|
|
|
Allowance for Credit Losses: |
|
|
|
|
|
|
|
|
Beginning of Period |
|
$ |
53,960 |
|
|
$ |
33,049 |
|
Loans Charged-Off: |
|
|
|
|
|
|
|
|
Construction Loans |
|
|
18,769 |
|
|
|
|
|
Real Estate Loans |
|
|
817 |
|
|
|
888 |
|
Commercial and Industrial |
|
|
2,315 |
|
|
|
546 |
|
Lease Financing Receivables |
|
|
294 |
|
|
|
318 |
|
Consumer Loans |
|
|
167 |
|
|
|
240 |
|
|
|
|
|
|
|
|
Total Loans Charged-Off |
|
|
22,362 |
|
|
|
1,992 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recoveries: |
|
|
|
|
|
|
|
|
Real Estate Loans |
|
|
471 |
|
|
|
192 |
|
Commercial and Industrial |
|
|
40 |
|
|
|
20 |
|
Lease Financing Receivables |
|
|
189 |
|
|
|
10 |
|
Consumer Loans |
|
|
18 |
|
|
|
79 |
|
|
|
|
|
|
|
|
Total Loans Recovered |
|
|
718 |
|
|
|
301 |
|
Net Loans Charged-Off |
|
|
21,644 |
|
|
|
1,691 |
|
|
|
|
|
|
|
|
Provision Charged to Operating Expense |
|
|
55,000 |
|
|
|
8,700 |
|
|
|
|
|
|
|
|
Allowance for Credit Losses at End of period |
|
$ |
87,316 |
|
|
$ |
40,058 |
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Net of deferred loan fees |
|
|
|
|
|
|
|
|
|
Net Loans Charged-Off to Average Total Loans |
|
|
0.59 |
% |
|
|
0.05 |
% |
Net Loans Charged-Off to Total Loans at End of Period |
|
|
0.60 |
% |
|
|
0.05 |
% |
Allowance for Credit Losses to Average Total Loans |
|
|
2.39 |
% |
|
|
1.16 |
% |
Allowance for Credit Losses to Total Loans at End of Period |
|
|
2.43 |
% |
|
|
1.11 |
% |
Net Loans Charged-Off to Allowance for Credit Losses |
|
|
24.79 |
% |
|
|
4.22 |
% |
Net Loans Charged-Off to Provision for Credit Losses |
|
|
39.35 |
% |
|
|
19.44 |
% |
While we believe that the allowance at September 30, 2009, was adequate to absorb losses
from any known or inherent risks in the portfolio, no assurance can be given that economic
conditions or natural disasters which adversely affect the Companys service areas or other
circumstances or conditions, including those identified above, will not be reflected in increased
provisions or credit losses in the future.
54
|
|
|
ITEM 3. |
|
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
Market Risk
In the normal course of our business activities, we are exposed to market risks, including
price and liquidity risk. Market risk is the potential of loss from adverse changes in market rates
and prices, such as interest rates (interest rate risk). Liquidity risk arises from the possibility
that we may not be able to satisfy current or future commitments or that we may be more reliant on
alternative funding sources such as long-term debt. Financial products that expose us to market
risk include securities, loans, deposits, debts and derivative financial instruments.
Counterparty Risk
Recent developments in the financial markets have placed an increased awareness of
Counterparty Risks. These risks occur when a financial institution has an indebtedness or
potential for indebtedness to another financial institution. We have assessed our Counterparty
Risk at the end of the third quarter with the following results:
|
|
|
We have $250 million in a repurchase agreement with an embedded double cap. We entered
into this transaction in September 2006 to protect against rising interest rates. The
repurchase agreement is with JP Morgan. The Moodys public debt rating for this
institution is Aa3. |
|
|
|
|
We do not have any investments in the preferred stock of any other company. |
|
|
|
|
We do not have in our investment portfolio any trust preferred securities of any other
company. |
|
|
|
|
All of our investment securities are either municipal securities or securities backed by
mortgages, FNMA, FHLMC or FHLB. |
|
|
|
|
All of our commercial line insurance policies are with companies with the highest AM
Best ratings of AXII or above. |
|
|
|
|
We have no significant counterparty exposure related to derivatives such as interest
rate swaps. |
|
|
|
|
We have no significant exposure to our Cash Surrender Value of Life insurance since most
of the insurance companies carry an AM Best rating of A or greater. |
|
|
|
|
We have $280.0 million in Fed Funds lines of credit with other banks. All of these
banks are major U.S. banks, with over $15.0 billion in assets. We rely on these funds for
overnight borrowings. We currently have no outstanding Fed Funds balances. |
Interest Rate Risk
During periods of changing interest rates, the ability to reprice interest-earning assets and
interest-bearing liabilities can influence net interest income, the net interest margin, and
consequently, our earnings. Interest rate risk is managed by attempting to control the spread
between rates earned on interest-earning assets and the rates paid on interest-bearing liabilities
within the constraints imposed by market competition in the Banks service area. Short-term
repricing risk is minimized by controlling the level of floating rate loans and maintaining a
downward sloping ladder of bond payments and maturities. Basis risk is managed by the timing and
magnitude of changes to interest-bearing deposit rates. Yield curve risk is reduced by keeping the
duration of the loan and bond portfolios balanced to attempt to minimize the risks of rising or
falling yields. Options risk in the bond portfolio is monitored monthly and actions are recommended
when appropriate.
We monitor the interest rate sensitivity risk to earnings from potential changes in interest
rates using various methods, including a maturity/repricing gap analysis. This analysis measures,
at specific time intervals, the differences between earning assets and interest-bearing liabilities
for which repricing opportunities will occur. A positive difference, or gap, indicates that earning
assets will reprice faster than interest-bearing liabilities. This will generally produce a greater
net interest margin during periods of rising interest rates, and a lower net interest margin during
periods of declining interest rates. Conversely,
55
a negative gap will generally produce a lower net interest margin during periods
of rising interest rates and a greater net interest margin during periods of decreasing interest
rates.
The interest rates paid on deposit accounts do not always move in unison with the rates
charged on loans. In addition, the magnitude of changes in the rates charged on loans is not always
proportionate to the magnitude of changes in the rates paid for deposits. Consequently, changes in
interest rates do not necessarily result in an increase or decrease in the net interest margin
solely as a result of the differences between repricing opportunities of earning assets or
interest-bearing liabilities. In general, whether we report a positive gap in the short-term period
or negative gap in the long-term period does not necessarily indicate that, if interest rates
decreased, net interest income would increase, or if interest rates increased, net interest income
would decrease.
Approximately $1.5 billion, or 65%, of the total investment portfolio at September 30, 2009
consisted of securities backed by mortgages. The final maturity of these securities can be affected
by the speed at which the underlying mortgages repay. Mortgages tend to repay faster as interest
rates fall, and slower as interest rates rise. As a result, we may be subject to a prepayment
risk resulting from greater funds available for reinvestment at a time when available yields are
lower. Conversely, we may be subject to extension risk resulting from lesser amounts available
for reinvestment at a time when available yields are higher. Prepayment risk includes the risk
associated with the payment of an investments principal faster than originally intended. Extension
risk is the risk associated with the payment of an investments principal over a longer time period
than originally anticipated. In addition, there can be greater risk of price volatility for
mortgage-backed securities as a result of anticipated prepayment or extension risk.
We also utilize the results of a dynamic simulation model to quantify the estimated exposure
of net interest income to sustained interest rate changes. The sensitivity of our net interest
income is measured over a rolling two-year horizon.
The simulation model estimates the impact of changing interest rates on the interest income
from all interest-earning assets and the interest expense paid on all interest-bearing liabilities
reflected on the Companys balance sheet. This sensitivity analysis is compared to policy limits,
which specify a maximum tolerance level for net interest income exposure over a one-year horizon
assuming no balance sheet growth, given a 200 basis point upward and 100 basis point downward shift
in interest rates. A parallel and pro rata shift in rates over a 12-month period is assumed.
The following depicts the Companys net interest income sensitivity analysis as of September
30, 2009:
|
|
|
|
|
Estimated Net |
Simulated |
|
Interest Income |
Rate Changes |
|
Sensitivity |
+ 200 basis points |
|
( 3.76% ) |
- 100 basis points |
|
0.11% |
The Company is currently more liability sensitive. The estimated sensitivity does not
necessarily represent our forecast and the results may not be indicative of actual changes to our
net interest income. These estimates are based upon a number of assumptions including: the nature
and timing of interest rate levels including yield curve shape, prepayments on loans and
securities, pricing strategies on loans and deposits, and replacement of asset and liability cash
flows. While the assumptions used are based on current economic and local market conditions, there
is no assurance as to the predictive nature of these conditions including how customer preferences
or competitor influences might change.
Liquidity Risk
56
Liquidity risk is the risk to earnings or capital resulting from our inability to meet our
obligations when they come due without incurring unacceptable losses. It includes the ability to
manage unplanned decreases or changes in funding sources and to recognize or address changes in
market conditions that affect our ability to liquidate assets quickly and with minimum loss of
value. Factors considered in liquidity risk management are stability of the deposit base;
marketability, maturity, and pledging of investments; and the demand for credit.
In general, liquidity risk is managed daily by controlling the level of fed funds and the use
of funds provided by the cash flow from the investment portfolio. To meet unexpected demands, lines
of credit are maintained with correspondent banks, the Federal Home Loan Bank and the Federal
Reserve Bank. The sale of bonds maturing in the near future can also serve as a contingent source
of funds. Increases in deposit rates are considered a last resort as a means of raising funds to
increase liquidity.
Transaction Risk
Transaction risk is the risk to earnings or capital arising from problems in service or
product delivery. This risk is significant within any bank and is interconnected with other risk
categories in most activities throughout the Bank. Transaction risk is a function of internal
controls, information systems, associate integrity, and operating processes. It arises daily
throughout the Bank as transactions are processed. It pervades all divisions, departments and
branches and is inherent in all products and services we offer.
In general, transaction risk is defined as high, medium or low by the internal auditors during
the audit process. The audit plan ensures that high-risk areas are reviewed at least annually. We
utilize a third party audit firm to provide internal audit services.
The key to monitoring transaction risk is in the design, documentation and implementation of
well-defined procedures. All transaction related procedures include steps to report events that
might increase transaction risk. Dual controls are also a form of monitoring.
Compliance Risk
Compliance risk is the risk to earnings or capital arising from violations of, or
non-conformance with, laws, rules, regulations, prescribed practices, or ethical standards.
Compliance risk also arises in situations where the laws or rules governing certain Bank products
or activities of the Banks customers may be ambiguous or untested. Compliance risk exposes us to
fines, civil money penalties, payment of damages, and the voiding of contracts. Compliance risk can
also lead to a diminished reputation, reduced business value, limited business opportunities,
lessened expansion potential, and lack of contract enforceability.
There is no single or primary source of compliance risk. It is inherent in every Bank
activity. Frequently, it blends into operational risk and transaction processing. A portion of this
risk is sometimes referred to as legal risk. This is not limited solely to risk from failure to
comply with consumer protection laws; it encompasses all laws, as well as prudent ethical standards
and contractual obligations. It also includes the exposure to litigation from all aspects of
banking, traditional and non-traditional.
Our Risk Management Policy and Program and the Code of Ethical Conduct are the cornerstone for
controlling compliance risk. An integral part of controlling this risk is the proper training of
associates. The Chief Risk Officer is responsible for developing and executing a comprehensive
compliance training program. The Chief Risk Officer will ensure that each associate receives
adequate training with regard to their position to ensure that laws and regulations are not
violated. All associates who deal in compliance
high risk areas are trained to be knowledgeable about the level and severity of exposure in
those areas and the policies and procedures in place to control such exposure.
Our Risk Management Policy and Program includes an audit program aimed at identifying problems
and ensuring that problems are corrected. The audit program includes two levels of review. One is
in-
57
depth audits performed by an external firm and the other is periodic monitoring performed by
the Risk Management Division.
The Bank utilizes an external firm to conduct compliance audits as a means of identifying
weaknesses in the compliance program itself. The external firms audit plan includes a periodic
review of each branch and department of the Bank.
The branch or department that is the subject of an audit is required to respond to the audit
and correct any violations noted. The Chief Risk Officer will review audit findings and the
response provided by the branch or department to identify areas which pose a significant compliance
risk.
The Risk Management Division conducts periodic monitoring of our compliance efforts with a
special focus on those areas that expose us to compliance risk. The purpose of the periodic
monitoring is to ensure that our associates are adhering to established policies and procedures
adopted by the Bank. The Chief Risk Officer will notify the appropriate department head and the
Management Compliance Committee, the Audit Committee and the Risk Management Committee of any
violations noted. The branch or department that is the subject of the review will be required to
respond to the findings and correct any noted violations.
The Bank recognizes that customer complaints can often identify weaknesses in our compliance
program which could expose the Bank to risk. Therefore, all complaints are given prompt attention.
Our Risk Management Policy and Program includes provisions on how customer complaints are to be
addressed. The Chief Risk Officer reviews all complaints to determine if a significant compliance
risk exists and communicates those findings to the Risk Management Committee.
Strategic Risk
Strategic risk is the risk to earnings or capital arising from adverse decisions or improper
implementation of strategic decisions. This risk is a function of the compatibility between an
organizations goals, the resources deployed against those goals and the quality of implementation.
Strategic risks are identified as part of the strategic planning process. Offsite strategic
planning sessions are held annually. The strategic review consists of an economic assessment,
competitive analysis, industry outlook and legislative and regulatory review.
A primary measurement of strategic risk is peer group analysis. Key performance ratios are
compared to three separate peer groups to identify any sign of weakness and potential
opportunities. The peer group consists of:
|
1. |
|
All banks of comparable size |
|
|
2. |
|
High performing banks |
|
|
3. |
|
A list of specific banks |
Another measure is the comparison of the actual results of previous strategic initiatives
against the expected results established prior to implementation of each strategy.
The corporate strategic plan is formally presented to all branch managers and department
managers at an annual leadership conference.
Reputation Risk
Reputation risk is the risk to capital and earnings arising from negative public opinion. This
affects our ability to establish new relationships or services, or continue servicing existing
relationships. It can expose us to litigation and, in some instances, financial loss.
58
Price and Foreign Exchange Risk
Price risk arises from changes in market factors that affect the value of traded instruments.
Foreign exchange risk is the risk to earnings or capital arising from movements in foreign exchange
rates.
Our current exposure to price risk is nominal. We do not have trading accounts. Consequently,
the level of price risk within the investment portfolio is limited to the need to sell securities
for reasons other than trading. The section of this policy pertaining to liquidity risk addresses
this risk.
We maintain deposit accounts with various foreign banks. Our Interbank Liability Policy limits
the balance in any of these accounts to an amount that does not present a significant risk to our
earnings from changes in the value of foreign currencies.
Our asset liability model calculates the market value of the Banks equity. In addition,
management prepares on a monthly basis a Capital Volatility report that compares changes in the
market value of the investment portfolio.
The Balance Sheet Management Policy requires the submission of a Fair Value Matrix Report to
the Balance Sheet Management Committee on a quarterly basis. The report calculates the economic
value of equity under different interest rate scenarios, revealing the level or price risk of the
Banks interest sensitive asset and liability portfolios.
ITEM 4. CONTROLS AND PROCEDURES
As of the end of the period covered by this report, we carried out an evaluation of the
effectiveness of the Companys disclosure controls and procedures under the supervision and with
the participation of the Chief Executive Officer, the Chief Financial Officer and other senior
management of the Company. Based on the foregoing, the Companys Chief Executive Officer and the
Chief Financial Officer concluded that the Companys disclosure controls and procedures were
effective as of the end of the period covered by this report.
During our most recent fiscal quarter, there have been no changes in our internal control over
financial reporting that have materially affected or are reasonably likely to materially affect our
internal control over financial reporting.
59
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not Applicable
ITEM 1A. RISK FACTORS
We may be required to make additional provisions for loan losses and charge off
additional loans in the future, which could adversely affect our results of operations.
For the nine months ended September 30, 2009, we recorded a $55.0 million provision
for credit losses and charged-off $22.4 million in loans, net of $718,000 of recoveries.
There has been a significant slowdown in the real estate markets in portions of Los
Angeles, Riverside, San Bernardino and Orange counties and the Central Valley area of
California where a majority of our loan customers, including our largest borrowing
relationships, are based. This slowdown reflects declining prices in real estate, excess
inventories of homes and increasing vacancies in commercial and industrial properties, all
of which have contributed to financial strain on real estate developers and suppliers. As
of September 30, 2009, we had $2.3 billion in real estate loans and $295.3 million in
construction loans. Continuing deterioration in the real estate market could affect the
ability of our loan customers, including our largest borrowing relationships, to service
their debt, which could result in loan charge-offs and provisions for credit losses in the
future, which could have a material adverse effect on our financial condition, net income
and capital.
We may engage in FDIC-assisted transactions, which could present additional risks to
our business.
On October 16, 2009, we acquired substantially all of the assets and assumed
substantially all of the liabilities of San Joaquin Bank from the FDIC. We may have
opportunities to acquire the assets and liabilities of additional failed banks in
FDIC-assisted transactions. Although these FDIC-assisted transactions typically provide
for FDIC assistance to an acquiror to mitigate certain risks, such as sharing exposure to
loan losses and providing indemnification against certain liabilities of the failed
institution, we are (and would be in future transactions) subject to many of the same
risks we would face in acquiring another bank in a negotiated transaction, including risks
associated with maintaining customer relationships and failure to realize the anticipated
acquisition benefits in the amounts and within the timeframes we expect. In addition,
because these acquisitions are structured in a manner that would not allow us the time and
access to information normally associated with preparing for and evaluating a negotiated
acquisition, we may face additional risks in FDIC-assisted transactions, including
additional strain on management resources, management of problem loans, problems related
to integration of personnel and operating systems and impact to our capital resources
requiring us to raise additional capital. We cannot assure you that we will be successful
in overcoming these risks or any other problems encountered in connection with
FDIC-assisted transactions. Our inability to overcome these risks could have a material
adverse effect on our business, financial condition and net income.
Except as described above, there are no material changes to the risk factors as
previously disclosed in our Annual Report on Form 10-K for the year ended December 31,
2008. The materialization of any risks and uncertainties identified in our Forward
Looking Statements contained in this report together with those previously disclosed in
the Form 10-K and any subsequent Form 10-Q or those that are presently unforeseen could
result in significant adverse effects on our financial condition, results of operations
and cash flows. See Item 2.
Managements Discussion and Analysis of Financial Condition and Results of
Operations General in this Quarterly Report on Form 10-Q.
60
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
We did not repurchase any common stock during the nine months ended September
30, 2009. Our Board of Directors has authorized the repurchase of up to 10,000,000 shares
of our common stock, all of which remain to be repurchased at September 30, 2009. In
September 2009, we repurchased 130,000 shares of our Series B Preferred Stock which we
issued to the United States government as part of our participation in the TARP program.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable
ITEM 5. OTHER INFORMATION
Not Applicable
61
ITEM 6. EXHIBITS
|
|
|
Exhibit No. |
|
Description of Exhibits |
|
|
|
10.1
|
|
Employment Agreement, dated September 16, 2009, by and between CVB Financial Corp.,
Citizens Business Bank and Mr. Christopher D. Myers (1) |
|
|
|
10.2
|
|
Amendment No. 1 to 2008 Equity Incentive Plan (1) |
|
|
|
10.3
|
|
(a) Letter Agreement between the Company and the U.S. Treasury, dated September 2,
2009 (2) |
|
|
|
10.3
|
|
(b) Letter Agreement between the Company and the U.S. Treasury, dated August 26, 2009 (3) |
|
|
|
31.1
|
|
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002. |
|
|
|
31.2
|
|
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002. |
|
|
|
32.1
|
|
Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002. |
|
|
|
32.2
|
|
Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002. |
|
|
|
(1) |
|
Incorporated herein by reference from our Current Report on Form 8-K filed with the SEC
on September 22, 2009. |
|
(2) |
|
Incorporated herein by reference from our Current Report on Form 8-K filed with the SEC
on September 3, 2009. |
|
(3) |
|
Incorporated herein by reference from our Current Report on Form 8-K filed with the SEC
on September 1, 2009. |
62
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
|
|
|
|
CVB FINANCIAL CORP.
(Registrant)
|
|
Date: November 5, 2009 |
/s/ Edward J. Biebrich Jr.
|
|
|
Edward J. Biebrich Jr. |
|
|
Chief Financial Officer |
|
|
63
exv31w1
Exhibit 31.1
CERTIFICATION
I, Christopher D. Myers, certify that:
1. I have reviewed this quarterly report on Form 10-Q of CVB Financial Corp.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or
omit to state a material fact necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial information included in
this report, fairly present in all material respects the financial condition, results of operations
and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrants other certifying officer and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information
relating to the registrant, including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in which this report is being
prepared;
(b) Designed such internal control over financial reporting, or caused such internal control
over financial reporting to be designed under our supervision, to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting
principles;
(c) Evaluated the effectiveness of the registrants disclosure controls and procedures and
presented in this report our conclusions about the effectiveness of the disclosure controls
and procedures, as of the end of the period covered by this report based on such evaluation;
and
(d) Disclosed in this report any change in the registrants internal control over financial
reporting that occurred during the registrants most recent fiscal quarter (the registrants
fourth fiscal quarter in the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrants internal control over financial
reporting; and
5. The registrants other certifying officer and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrants auditors and the audit
committee of the registrants Board of Directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of
internal control over financial reporting which are reasonably likely to adversely affect
the registrants ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have
a significant role in the registrants internal control over financial reporting.
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Date: November 5, 2009 |
/s/ Christopher D. Myers
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Christopher D. Myers |
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Chief Executive Officer |
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exv31w2
Exhibit 31.2
CERTIFICATION
I, Edward J. Biebrich, Jr, certify that:
1. I have reviewed this quarterly report on Form 10-Q of CVB Financial Corp.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or
omit to state a material fact necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial information included in
this report, fairly present in all material respects the financial condition, results of operations
and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrants other certifying officer and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information
relating to the registrant, including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in which this report is being
prepared;
(b) Designed such internal control over financial reporting, or caused such internal control
over financial reporting to be designed under our supervision, to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting
principles;
(c) Evaluated the effectiveness of the registrants disclosure controls and procedures and
presented in this report our conclusions about the effectiveness of the disclosure controls
and procedures, as of the end of the period covered by this report based on such evaluation;
and
(d) Disclosed in this report any change in the registrants internal control over financial
reporting that occurred during the registrants most recent fiscal quarter (the registrants
fourth fiscal quarter in the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrants internal control over financial
reporting; and
5. The registrants other certifying officer and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrants auditors and the audit
committee of the registrants Board of Directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of
internal control over financial reporting which are reasonably likely to adversely affect
the registrants ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have
a significant role in the registrants internal control over financial reporting.
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Date: November 5, 2009 |
/s/ Edward J. Biebrich, Jr.
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Edward J. Biebrich, Jr. |
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Chief Financial Officer |
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2
exv32w1
Exhibit 32.1
CERTIFICATION
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of CVB Financial Corp. (the Company) on Form 10-Q
for the period ended September 30, 2009, as filed with the Securities and Exchange Commission on
the date hereof (the Report), I, Christopher D. Myers, Chief Executive Officer of the Company,
certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of
2002, to the best of my knowledge that:
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(1) |
|
The Report fully complies with the requirements of section 13(a) or 15(d) of the
Securities Exchange Act of 1934; and |
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(2) |
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The information contained in the Report fairly presents, in all material respects, the
financial condition and results of operations of the Company. |
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Date: November 5, 2009 |
/s/ Christopher D. Myers
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Christopher D. Myers |
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Chief Executive Officer |
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3
exv32w2
Exhibit 32.2
CERTIFICATION
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of CVB Financial Corp. (the Company) on Form 10-Q
for the period ended September 30, 2009, as filed with the Securities and Exchange Commission on
the date hereof (the Report), I, Edward J. Biebrich, Jr., Chief Financial Officer of the Company,
certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of
2002, to the best of my knowledge that:
|
(1) |
|
The Report fully complies with the requirements of section 13(a) or 15(d) of the
Securities Exchange Act of 1934; and |
|
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(2) |
|
The information contained in the Report fairly presents, in all material respects, the
financial condition and results of operations of the Company. |
|
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Date: November 5, 2009 |
/s/ Edward J. Biebrich Jr.
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Edward J. Biebrich Jr. |
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Chief Financial Officer |
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4