Form 10-Q
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
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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 March 31, 2010
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
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95-3629339 |
(State or other jurisdiction of incorporation
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(I.R.S. Employer Identification No.) |
or organization) |
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701 North Haven Ave, Suite 350, Ontario, California
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91764 |
(Address of Principal Executive Offices)
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(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):
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Large accelerated filer o
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Accelerated filer þ
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Non-accelerated filer o
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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: 106,298,217 outstanding as of May 4, 2010.
CVB FINANCIAL CORP.
2010 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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March 31, |
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December 31, |
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2010 |
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2009 |
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ASSETS |
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Cash and due from banks |
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$ |
281,275 |
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$ |
103,254 |
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Interest-bearing balances due from depository institutions |
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50,193 |
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|
1,226 |
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Total cash
and cash equivalents |
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331,468 |
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104,480 |
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Investment in stock of Federal Home Loan Bank (FHLB) |
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97,582 |
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97,582 |
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Investment securities available-for-sale |
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2,073,975 |
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2,108,463 |
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Investment securities held-to-maturity |
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3,472 |
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3,838 |
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Loans held-for-sale |
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5,141 |
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1,439 |
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Loans and lease finance receivables |
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3,947,129 |
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4,079,013 |
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Allowance for credit losses |
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(112,321 |
) |
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(108,924 |
) |
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Net Loans and lease finance receivables |
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3,834,808 |
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3,970,089 |
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Premises and equipment, net |
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41,519 |
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41,444 |
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Bank owned life insurance |
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110,331 |
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109,480 |
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Accrued interest receivable |
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27,423 |
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|
28,672 |
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Intangibles |
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11,811 |
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|
12,761 |
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Goodwill |
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55,097 |
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|
55,097 |
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FDIC loss sharing asset |
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119,108 |
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|
133,258 |
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Other assets |
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76,917 |
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|
73,166 |
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TOTAL ASSETS |
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$ |
6,788,652 |
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$ |
6,739,769 |
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LIABILITIES AND STOCKHOLDERS EQUITY |
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Liabilities: |
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Deposits: |
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Noninterest-bearing |
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$ |
1,598,022 |
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$ |
1,561,981 |
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Interest-bearing |
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2,920,577 |
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2,876,673 |
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Total deposits |
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4,518,599 |
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4,438,654 |
|
Demand Note to U.S. Treasury |
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4,232 |
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|
2,425 |
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Repurchase agreements |
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|
785,214 |
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|
735,132 |
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Borrowings |
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653,186 |
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753,118 |
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Accrued interest payable |
|
|
6,006 |
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|
6,481 |
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Deferred compensation |
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|
9,558 |
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|
9,166 |
|
Junior subordinated debentures |
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|
115,055 |
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|
115,055 |
|
Other liabilities |
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|
44,037 |
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|
41,510 |
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TOTAL LIABILITIES |
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|
6,135,887 |
|
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|
6,101,541 |
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COMMITMENTS AND CONTINGENCIES |
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Stockholders Equity: |
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Preferred stock, authorized, 20,000,000 shares
without par; none issued or outstanding |
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Common stock, authorized, 122,070,312 shares
without par; issued and outstanding
106,293,270 (2010) and 106,263,511 (2009) |
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491,945 |
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|
491,226 |
|
Retained earnings |
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|
127,696 |
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|
120,612 |
|
Accumulated other comprehensive income, net of tax |
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|
33,124 |
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|
26,390 |
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Total stockholders equity |
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|
652,765 |
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638,228 |
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TOTAL LIABILITIES AND STOCKHOLDERS EQUITY |
|
$ |
6,788,652 |
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|
$ |
6,739,769 |
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|
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|
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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Ended March 31, |
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2010 |
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2009 |
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Interest income: |
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Loans, including fees |
|
$ |
67,768 |
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|
$ |
49,526 |
|
Investment securities: |
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Taxable |
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|
16,084 |
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|
22,436 |
|
Tax-preferred |
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|
6,532 |
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|
6,996 |
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|
|
|
|
|
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Total investment income |
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|
22,616 |
|
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|
29,432 |
|
Dividends from FHLB stock |
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66 |
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|
|
|
Federal funds sold and Interest bearing deposits
with other institutions |
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|
102 |
|
|
|
4 |
|
|
|
|
|
|
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Total interest income |
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|
90,552 |
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|
|
78,962 |
|
Interest expense: |
|
|
|
|
|
|
|
|
Deposits |
|
|
5,288 |
|
|
|
6,590 |
|
Borrowings |
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|
11,120 |
|
|
|
15,890 |
|
Junior subordinated debentures |
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|
805 |
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|
1,190 |
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|
|
|
|
|
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Total interest expense |
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|
17,213 |
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|
|
23,670 |
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|
|
|
|
|
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|
Net interest income before provision for credit losses |
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|
73,339 |
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|
55,292 |
|
Provision for credit losses |
|
|
12,200 |
|
|
|
22,000 |
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|
|
|
|
|
|
|
Net interest income after
provision for credit losses |
|
|
61,139 |
|
|
|
33,292 |
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|
|
|
|
|
|
|
Other operating income: |
|
|
|
|
|
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Impairment loss on investment securities |
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|
(98 |
) |
|
|
|
|
Plus: Reclassification of credit-related impairment loss
from other comprehensive income |
|
|
(587 |
) |
|
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|
|
|
|
|
|
|
|
|
Net impairment loss on investment securities
recognized in earnings |
|
|
(685 |
) |
|
|
|
|
Service charges on deposit accounts |
|
|
4,264 |
|
|
|
3,717 |
|
Trust and Investment Services |
|
|
2,118 |
|
|
|
1,661 |
|
Bankcard services |
|
|
640 |
|
|
|
533 |
|
BOLI income |
|
|
845 |
|
|
|
737 |
|
Reduction in FDIC loss sharing asset |
|
|
(10,583 |
) |
|
|
|
|
Other |
|
|
1,190 |
|
|
|
780 |
|
Gain on sale of securities |
|
|
|
|
|
|
8,929 |
|
|
|
|
|
|
|
|
Total other operating income (expense) |
|
|
(2,211 |
) |
|
|
16,357 |
|
|
|
|
|
|
|
|
Other operating expenses: |
|
|
|
|
|
|
|
|
Salaries and employee benefits |
|
|
18,073 |
|
|
|
15,819 |
|
Occupancy and Equipment |
|
|
5,052 |
|
|
|
4,448 |
|
Professional services |
|
|
2,807 |
|
|
|
1,695 |
|
Amortization of intangibles |
|
|
950 |
|
|
|
789 |
|
Other |
|
|
9,040 |
|
|
|
8,646 |
|
|
|
|
|
|
|
|
Total other operating expenses |
|
|
35,922 |
|
|
|
31,397 |
|
|
|
|
|
|
|
|
Earnings before income taxes |
|
|
23,006 |
|
|
|
18,252 |
|
Income taxes |
|
|
6,887 |
|
|
|
5,084 |
|
|
|
|
|
|
|
|
Net earnings |
|
$ |
16,119 |
|
|
$ |
13,168 |
|
Preferred stock dividend and other reductions |
|
|
54 |
|
|
|
1,992 |
|
|
|
|
|
|
|
|
Net earnings allocated to common shareholders |
|
$ |
16,065 |
|
|
$ |
11,176 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
$ |
22,853 |
|
|
$ |
19,443 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per common share |
|
$ |
0.15 |
|
|
$ |
0.13 |
|
|
|
|
|
|
|
|
Diluted earnings per common share |
|
$ |
0.15 |
|
|
$ |
0.13 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends per common share |
|
$ |
0.085 |
|
|
$ |
0.085 |
|
|
|
|
|
|
|
|
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
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|
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|
|
|
|
|
|
|
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|
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Accumulated |
|
|
|
|
|
|
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|
Common |
|
|
|
|
|
|
|
|
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Other |
|
|
|
|
|
|
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|
|
Shares |
|
|
Common |
|
|
Retained |
|
|
Comprehensive |
|
|
Comprehensive |
|
|
|
|
|
|
Outstanding |
|
|
Stock |
|
|
Earnings |
|
|
Income |
|
|
Income |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance January 1, 2010 |
|
|
106,263 |
|
|
$ |
491,226 |
|
|
$ |
120,612 |
|
|
$ |
26,390 |
|
|
|
|
|
|
$ |
638,228 |
|
Proceeds from exercise of stock options |
|
|
30 |
|
|
|
152 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
152 |
|
Tax benefit from exercise of stock options |
|
|
|
|
|
|
35 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35 |
|
Stock-based Compensation Expense |
|
|
|
|
|
|
532 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
532 |
|
Cash
dividends declared |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common ($0.085 per share) |
|
|
|
|
|
|
|
|
|
|
(9,035 |
) |
|
|
|
|
|
|
|
|
|
|
(9,035 |
) |
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings |
|
|
|
|
|
|
|
|
|
|
16,119 |
|
|
|
|
|
|
$ |
16,119 |
|
|
|
16,119 |
|
Other comprehensive gain: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain on securities
available-for-sale, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,394 |
|
|
|
6,394 |
|
|
|
6,394 |
|
Portion of impairment loss on
investment securities reclassified
in the current year, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
340 |
|
|
|
340 |
|
|
|
340 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
22,853 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance March 31, 2010 |
|
|
106,293 |
|
|
$ |
491,945 |
|
|
$ |
127,696 |
|
|
$ |
33,124 |
|
|
|
|
|
|
$ |
652,765 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
Common |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
Shares |
|
|
Preferred |
|
|
Common |
|
|
Retained |
|
|
Comprehensive |
|
|
Comprehensive |
|
|
|
|
|
|
Outstanding |
|
|
Stock |
|
|
Stock |
|
|
Earnings |
|
|
Loss |
|
|
Income |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance January 1, 2009 |
|
|
83,270 |
|
|
$ |
121,508 |
|
|
$ |
364,469 |
|
|
$ |
100,184 |
|
|
$ |
28,731 |
|
|
|
|
|
|
$ |
614,892 |
|
Issuance of common stock |
|
|
56 |
|
|
|
|
|
|
|
280 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
280 |
|
Tax benefit from exercise
of stock options |
|
|
|
|
|
|
|
|
|
|
62 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
62 |
|
Stock-based Compensation Expense |
|
|
|
|
|
|
|
|
|
|
393 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
393 |
|
Amortization of preferred stock
discount |
|
|
|
|
|
|
352 |
|
|
|
|
|
|
|
(352 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends ($0.085 per share) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,626 |
) |
|
|
|
|
|
|
|
|
|
|
(1,626 |
) |
Common |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,083 |
) |
|
|
|
|
|
|
|
|
|
|
(7,083 |
) |
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,168 |
|
|
|
|
|
|
$ |
13,168 |
|
|
|
13,168 |
|
Other comprehensive loss: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized loss on securities
available-for-sale, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,275 |
|
|
|
6,275 |
|
|
|
6,275 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
19,443 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance March 31, 2009 |
|
|
83,326 |
|
|
$ |
121,860 |
|
|
$ |
365,204 |
|
|
$ |
104,291 |
|
|
$ |
35,006 |
|
|
|
|
|
|
$ |
626,361 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At March 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
Disclosure of reclassification amount |
|
|
|
|
|
|
|
|
Unrealized gain on securities arising during the period |
|
$ |
11,610 |
|
|
$ |
10,819 |
|
Tax benefit |
|
|
(4,876 |
) |
|
|
(4,544 |
) |
|
|
|
|
|
|
|
Net unrealized gain on securities |
|
$ |
6,734 |
|
|
$ |
6,275 |
|
|
|
|
|
|
|
|
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 Three Months |
|
|
|
Ended March 31, |
|
|
|
2010 |
|
|
2009 |
|
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
|
|
|
|
Interest and dividends received |
|
$ |
78,809 |
|
|
$ |
78,131 |
|
Service charges and other fees received |
|
|
8,177 |
|
|
|
7,421 |
|
Interest paid |
|
|
(17,736 |
) |
|
|
(24,965 |
) |
Cash paid to vendors and employees |
|
|
(27,384 |
) |
|
|
(25,026 |
) |
Income taxes paid |
|
|
|
|
|
|
(1,200 |
) |
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
41,866 |
|
|
|
34,361 |
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
Proceeds from sales of investment securities |
|
|
|
|
|
|
165,935 |
|
Proceeds from repayment of investment securities |
|
|
72,514 |
|
|
|
101,344 |
|
Proceeds from maturity of investment securities |
|
|
30,845 |
|
|
|
16,937 |
|
Purchases of investment securities |
|
|
(57,854 |
) |
|
|
(113,618 |
) |
Net decrease in loans and lease finance receivables |
|
|
116,375 |
|
|
|
62,932 |
|
Proceeds from sales of premises and equipment |
|
|
12 |
|
|
|
119 |
|
Proceeds from sales of other real estate owned |
|
|
1,874 |
|
|
|
3,428 |
|
Purchase of premises and equipment |
|
|
(1,734 |
) |
|
|
(1,553 |
) |
Other, net |
|
|
(10 |
) |
|
|
(120 |
) |
|
|
|
|
|
|
|
Net cash provided by investing activities |
|
|
162,022 |
|
|
|
235,404 |
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
Net increase in transaction deposits |
|
|
50,129 |
|
|
|
152,819 |
|
Net increase in time deposits |
|
|
29,930 |
|
|
|
124,291 |
|
Advances from Federal Home Loan Bank |
|
|
|
|
|
|
203,500 |
|
Repayment of advances from Federal Home Loan Bank |
|
|
(100,000 |
) |
|
|
(782,660 |
) |
Net increase in other borrowings |
|
|
1,807 |
|
|
|
365 |
|
Net increase in repurchase agreements |
|
|
50,082 |
|
|
|
46,204 |
|
Cash dividends on preferred stock |
|
|
|
|
|
|
(1,626 |
) |
Cash dividends on common stock |
|
|
(9,035 |
) |
|
|
(7,083 |
) |
Proceeds from exercise of stock options |
|
|
152 |
|
|
|
280 |
|
Tax benefit related to exercise of stock options |
|
|
35 |
|
|
|
62 |
|
|
|
|
|
|
|
|
Net cash (used in)/provided by financing activities |
|
|
23,100 |
|
|
|
(263,848 |
) |
|
|
|
|
|
|
|
NET INCREASE IN CASH AND CASH EQUIVALENTS |
|
|
226,988 |
|
|
|
5,917 |
|
CASH AND CASH EQUIVALENTS, beginning of period |
|
|
104,480 |
|
|
|
95,297 |
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS, end of period |
|
$ |
331,468 |
|
|
$ |
101,214 |
|
|
|
|
|
|
|
|
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 Three Months |
|
|
|
Ended March 31, |
|
|
|
2010 |
|
|
2009 |
|
RECONCILIATION OF NET EARNINGS TO NET CASH PROVIDED BY
OPERATING ACTIVITIES: |
|
|
|
|
|
|
|
|
Net earnings |
|
$ |
16,119 |
|
|
$ |
13,168 |
|
Adjustments to reconcile net earnings to net cash
provided by operating activities: |
|
|
|
|
|
|
|
|
Gain on sale of investment securities |
|
|
|
|
|
|
(8,929 |
) |
(Gain)/Loss on sale of premises and equipment |
|
|
9 |
|
|
|
(8 |
) |
Gain on sale of other real estate owned |
|
|
(185 |
) |
|
|
|
|
Increase from bank owned life insurance |
|
|
(845 |
) |
|
|
(737 |
) |
Net amortization of premiums on investment securities |
|
|
998 |
|
|
|
36 |
|
Accretion of SJB Discount |
|
|
(13,378 |
) |
|
|
|
|
Provisions for credit losses |
|
|
12,200 |
|
|
|
22,000 |
|
Reduction in FDIC Loss Sharing Asset |
|
|
10,583 |
|
|
|
|
|
Stock-based compensation |
|
|
532 |
|
|
|
393 |
|
Depreciation and amortization |
|
|
2,588 |
|
|
|
2,635 |
|
Change in accrued interest receivable |
|
|
1,250 |
|
|
|
105 |
|
Change in accrued interest payable |
|
|
(475 |
) |
|
|
(1,294 |
) |
Change in other assets and liabilities |
|
|
12,470 |
|
|
|
6,992 |
|
|
|
|
|
|
|
|
Total adjustments |
|
|
25,747 |
|
|
|
21,193 |
|
|
|
|
|
|
|
|
NET CASH PROVIDED BY OPERATING ACTIVITIES |
|
$ |
41,866 |
|
|
$ |
34,361 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING ACTIVITIES |
|
|
|
|
|
|
|
|
Transfer from loans to Other Real Estate Owned |
|
$ |
17,397 |
|
|
$ |
6,291 |
|
See accompanying notes to the consolidated financial statements.
7
CVB FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
For the three months ended March 31, 2010 and 2009
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 three months
ended March 31, 2010 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, 2009 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
44 Business Financial Centers and 6 Commercial Banking Centers with its headquarters located in the
city of Ontario.
The Companys operating business units have been divided 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
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 March 31, 2010, the Company had entered into
commitments with certain customers amounting to $653.5 million compared to $596.6 million at
December 31, 2009. Letters of credit at March 31, 2010 and December 31, 2009, were $68.5 million
and $69.5 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.
Acquired loans for which there is deterioration in credit quality between origination and
acquisition of the loans and the bank does not expect to collect all amounts due according to the
loans contractual terms are accounted for individually or in pools of loans based on common risk
characteristics. These loans are within the scope of accounting guidance for loans acquired with
deteriorated credit quality. The excess of the loans or pools scheduled contractual principal
and interest payments over all cash flows expected at acquisition is the nonaccretable difference.
The remaining amount, representing the excess of the loans cash flows expected to be collected
over the fair value is the accretable yield (accreted into interest income over the remaining life
of the loan or pool). The Bank has also elected to account for acquired loans not within the scope
of accounting guidance using this same methodology.
9
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 three months of 2010, we recorded a provision for credit losses of $12.2 million. The
allowance for credit losses was $112.3 million as of March 31, 2010, or 3.20% of total non-covered
loans and leases.
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 three months of 2010, the Company recorded an increase of $1,250,000 in the reserve
for undisbursed commitments. As of March 31, 2010, the balance in this reserve was $9.2 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 less selling costs. Fair value is usually based on the
value of underlying collateral.
At
March 31, 2010, the Company had impaired loans of $86.3 million. Of this amount, $2.9
million consisted of non-accrual residential construction and land loans, $31.2 million in
non-accrual commercial construction loans, $13.7 million of non-accrual single family mortgage
loans, $22.0 million of non-accrual commercial real estate loans, $6.9 million of non-accrual
commercial and industrial loans, and $123,000 of non-accrual consumer loans. Impaired loans also
include $23.9 million of loans whose terms were modified in a troubled debt restructure, of which
$14.4 million are classified as non-accrual. The remaining
balance of $9.5 million consists of two
loans performing according to the restructured terms. The impaired loans of $86.3 million, net of
$8.7 million in charge-offs, are supported by collateral with a stated fair value less selling
costs and net of prior liens. For the collateral-deficient loans, the amount of specific reserve
was $1.7 million at March 31, 2010. At December 31, 2009, the Bank had classified as impaired,
loans with a balance of $72.3 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 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.
FDIC Loss Sharing Asset The FDIC loss sharing asset is initially recorded at fair value
which represents the present value of the estimated cash payments from the FDIC for future losses
on covered loans. The ultimate collectability of this asset is dependent upon the performance of
the underlying covered loans, the passage of time and claims paid by the FDIC.
10
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 March 31, 2010 goodwill was $55.1 million. As of March 31, 2010, intangible assets that
continue to be subject to amortization include core deposit premiums of $11.8 million (net of $20.2
million of accumulated amortization). Amortization expense for such intangible assets was $950,000
for the three months ended March 31, 2010. Estimated amortization expense, for the remainder of
2010 is expected to be $2.8 million. Estimated amortization expense, for the succeeding five fiscal
years is $3.5 million for year one, $2.2 million for year two, $1.1 million for year three,
$475,000 for year four and $1.8 million thereafter. The weighted average remaining life of
intangible assets is approximately 3.9 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 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.
11
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 March 31, 2010 was 106,293,270. 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 three months ended |
|
|
|
March 31 |
|
|
|
2010 |
|
|
2009 |
|
Earnings per common share |
|
|
|
|
|
|
|
|
Net earnings |
|
$ |
16,119 |
|
|
$ |
13,168 |
|
Less: Dividends on preferred stock and discount amortization |
|
|
|
|
|
|
1,978 |
|
|
|
|
|
|
|
|
Net earnings available to common shareholders |
|
$ |
16,119 |
|
|
$ |
11,190 |
|
|
|
|
|
|
|
|
Less: Net earnings allocated to restricted stock |
|
|
54 |
|
|
|
14 |
|
|
|
|
|
|
|
|
Net earnings allocated to common shareholders (numerator) |
|
$ |
16,065 |
|
|
$ |
11,176 |
|
|
|
|
|
|
|
|
|
|
Weighted Average Shares Outstanding (denominator) |
|
|
105,929 |
|
|
|
83,174 |
|
Earnings per common share |
|
$ |
0.15 |
|
|
$ |
0.13 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per common share |
|
|
|
|
|
|
|
|
Net income allocated to common shareholders (numerator) |
|
$ |
16,065 |
|
|
$ |
11,176 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Shares Outstanding |
|
|
105,929 |
|
|
|
83,174 |
|
Incremental shares from assumed exercise of outstanding options |
|
|
192 |
|
|
|
129 |
|
|
|
|
|
|
|
|
Diluted Weighted Average Shares Outstanding (denominator) |
|
|
106,121 |
|
|
|
83,303 |
|
Diluted earnings per common share |
|
$ |
0.15 |
|
|
$ |
0.13 |
|
|
|
|
|
|
|
|
Stock-Based Compensation At March 31, 2010, the Company has three stock-based employee
compensation plans, which are described more fully in Note 16 in the Companys Annual Report on
Form 10-K. The Company accounts for stock compensation using the modified prospective method.
Under this method, awards that are granted, modified, or settled after December 31, 2005, are fair
valued as of grant date and compensation costs recognized over the vesting period on a
straight-lined basis. Also under this method, unvested stock awards as of January 1, 2006 are
recognized over the remaining service period with no change in historical reported earnings.
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.
12
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 $2.0 billion in assets under
administration, including $1.0 billion 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 January 2010, the FASB issued an accounting standards
update (ASU) 2010-06, which amends FASB ASC Topic 820, Fair Value Measurements and Disclosures. The
update requires new disclosures about recurring or nonrecurring fair value measurements including
significant transfers into and out of Level 1 and Level 2 fair value measurements and information
about purchases, sales, issuances, and settlements on a gross basis in the reconciliation of Level
3 fair value measurements. The ASU also clarifies existing fair-value measurement disclosure
guidance about the level of disaggregation, inputs, and valuation techniques. Except for the
detailed Level 3 roll forward disclosures, the guidance in the ASU is effective for interim and
annual reporting periods beginning after December 31, 2009. The adoption of ASU 2010-06 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 12 to Consolidated Financial Statements,
Commitments and Contingencies contained in the Companys Annual Report on Form 10-K for the year
ended December 31, 2009.
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 March 31, 2010, the Company does not have any litigation reserves and is not aware of any
material pending legal action or complaints asserted against the Company.
13
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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2010 |
|
|
|
|
|
|
|
Gross |
|
|
Gross |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized |
|
|
Unrealized |
|
|
|
|
|
|
|
|
|
|
Amortized |
|
|
Holding |
|
|
Holding |
|
|
|
|
|
|
Total |
|
|
|
Cost |
|
|
Gain |
|
|
Loss |
|
|
Fair Value |
|
|
Percent |
|
|
|
(Amounts in thousands) |
|
Investment Securities Available-for-Sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury securities |
|
$ |
503 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
503 |
|
|
|
0.02 |
% |
Government agency & government-sponsored
enterprises |
|
|
55,604 |
|
|
|
83 |
|
|
|
(94 |
) |
|
|
55,593 |
|
|
|
2.68 |
% |
Mortgage-backed securities |
|
|
588,108 |
|
|
|
20,912 |
|
|
|
(125 |
) |
|
|
608,895 |
|
|
|
29.37 |
% |
CMOs / REMICs |
|
|
727,782 |
|
|
|
22,878 |
|
|
|
(240 |
) |
|
|
750,420 |
|
|
|
36.18 |
% |
Municipal bonds |
|
|
641,268 |
|
|
|
17,446 |
|
|
|
(2,671 |
) |
|
|
656,043 |
|
|
|
31.63 |
% |
Other securities |
|
|
2,521 |
|
|
|
|
|
|
|
|
|
|
|
2,521 |
|
|
|
0.12 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Investment Securities |
|
$ |
2,015,786 |
|
|
$ |
61,319 |
|
|
$ |
(3,130 |
) |
|
$ |
2,073,975 |
|
|
|
100.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009 |
|
|
|
|
|
|
|
Gross |
|
|
Gross |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized |
|
|
Unrealized |
|
|
|
|
|
|
|
|
|
|
Amortized |
|
|
Holding |
|
|
Holding |
|
|
|
|
|
|
Total |
|
|
|
Cost |
|
|
Gain |
|
|
Loss |
|
|
Fair Value |
|
|
Percent |
|
|
|
(Amounts in thousands) |
|
Investment Securities Available-for-Sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury securities |
|
$ |
507 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
507 |
|
|
|
0.02 |
% |
Government agency & government-sponsored
enterprises |
|
|
21,574 |
|
|
|
140 |
|
|
|
(1 |
) |
|
|
21,713 |
|
|
|
1.03 |
% |
Mortgage-backed securities |
|
|
629,998 |
|
|
|
18,138 |
|
|
|
(968 |
) |
|
|
647,168 |
|
|
|
30.70 |
% |
CMOs / REMICs |
|
|
759,179 |
|
|
|
17,297 |
|
|
|
(3,311 |
) |
|
|
773,165 |
|
|
|
36.67 |
% |
Municipal bonds |
|
|
647,556 |
|
|
|
18,290 |
|
|
|
(2,420 |
) |
|
|
663,426 |
|
|
|
31.46 |
% |
Other securities |
|
|
2,484 |
|
|
|
|
|
|
|
|
|
|
|
2,484 |
|
|
|
0.12 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Investment Securities |
|
$ |
2,061,298 |
|
|
$ |
53,865 |
|
|
$ |
(6,700 |
) |
|
$ |
2,108,463 |
|
|
|
100.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Approximately 67% 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 March 31, 2010 and December 31, 2009.
There were no realized gains or losses in our available-for-sale portfolio for the three
months ended March 31, 2010. Gross realized gains were $8.9 million for the same period in 2009
and no realized losses.
14
Composition of the Fair Value and Gross Unrealized Losses of Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2010 |
|
|
|
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 |
|
$ |
|
|
|
$ |
|
|
|
$ |
3,472 |
|
|
$ |
1,068 |
|
|
$ |
3,472 |
|
|
$ |
1,068 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-Sale |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government agency |
|
$ |
19,963 |
|
|
$ |
94 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
19,963 |
|
|
$ |
94 |
|
Mortgage-backed securities |
|
|
57,242 |
|
|
|
125 |
|
|
|
|
|
|
|
|
|
|
|
57,242 |
|
|
|
125 |
|
CMO/REMICs |
|
|
23,738 |
|
|
|
62 |
|
|
|
8,432 |
|
|
|
178 |
|
|
|
32,170 |
|
|
|
240 |
|
Municipal bonds |
|
|
98,811 |
|
|
|
2,359 |
|
|
|
1,771 |
|
|
|
312 |
|
|
|
100,582 |
|
|
|
2,671 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
199,754 |
|
|
$ |
2,640 |
|
|
$ |
10,203 |
|
|
$ |
490 |
|
|
$ |
209,957 |
|
|
$ |
3,130 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 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) |
|
$ |
|
|
|
$ |
|
|
|
$ |
3,838 |
|
|
$ |
1,671 |
|
|
$ |
3,838 |
|
|
$ |
1,671 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-Sale |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government agency |
|
$ |
5,022 |
|
|
$ |
1 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
5,022 |
|
|
$ |
1 |
|
Mortgage-backed securities |
|
|
73,086 |
|
|
|
968 |
|
|
|
|
|
|
|
|
|
|
|
73,086 |
|
|
|
968 |
|
CMO/REMICs |
|
|
179,391 |
|
|
|
3,025 |
|
|
|
9,640 |
|
|
|
286 |
|
|
|
189,031 |
|
|
|
3,311 |
|
Municipal bonds |
|
|
80,403 |
|
|
|
2,122 |
|
|
|
1,785 |
|
|
|
298 |
|
|
|
82,188 |
|
|
|
2,420 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
337,902 |
|
|
$ |
6,116 |
|
|
$ |
11,425 |
|
|
$ |
584 |
|
|
$ |
349,327 |
|
|
$ |
6,700 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
For the twelve months ended December 31, 2009, the Company recorded $1.7 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. |
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 March 31, 2010 and December 31, 2009. 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 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, $3.5 million, is not significant to our
liquidity needs. We acquired this security in February 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.
15
As of March 31, 2010, the unrealized loss on this security was $1.1 million and the fair value
on the security was 62% 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 March 31, 2010. 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 have additional credit impairment
during the first quarter of 2010 due to continued 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 loss of $685,000 in first quarter earnings.
The following table provides a roll-forward of credit-related other-than-temporary impairment
recognized in earnings for the three months ended March 31, 2010.
|
|
|
|
|
|
|
For the three |
|
|
|
months ended |
|
|
|
March 31, 2010 |
|
|
|
(in thousands) |
|
Balance, beginning of the period |
|
$ |
323 |
|
Addition of OTTI that was not previously recognized |
|
|
685 |
|
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 |
|
$ |
1,008 |
|
|
|
|
|
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 March 31, 2010.
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 3.1 years. The contractual cash flows of 98.0% of these investments are guaranteed
by U.S. government-sponsored agencies. The remaining 2.0% 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 March 31, 2010 is $178,000. This
loss is primarily comprised of two bonds issued by non-government sponsored enterprises such as
financial institutions. 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 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 March 31, 2010.
16
Municipal
Bonds Ninety-five percent of our $656.0 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 5.8 years.
The unrealized loss greater than 12 months on these securities at March 31, 2010 was $312,000. 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. 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 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 March 31, 2010.
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 March 31, 2010 and December 31, 2009, investment securities having an amortized cost of
approximately $1.86 billion and $2.02 billion respectively, were pledged to secure public deposits,
short and long-term borrowings, and for other purposes as required or permitted by law.
The amortized cost and fair value of debt securities at March 31, 2010, by contractual
maturity, are shown below. Although mortgage-backed securities and CMO/REMICs have contractual
maturities through 2029, 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 |
|
$ |
164,274 |
|
|
$ |
166,678 |
|
|
|
4.52 |
% |
Due after one year through five years |
|
|
1,012,059 |
|
|
|
1,047,842 |
|
|
|
4.36 |
% |
Due after five years through ten years |
|
|
705,379 |
|
|
|
726,686 |
|
|
|
4.36 |
% |
Due after ten years |
|
|
134,074 |
|
|
|
132,769 |
|
|
|
4.05 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
2,015,786 |
|
|
$ |
2,073,975 |
|
|
|
4.35 |
% |
|
|
|
|
|
|
|
|
|
|
|
The investment in FHLB stock is periodically evaluated for impairment based on, among other
things, the capital adequacy of the FHLB and its overall financial condition. No impairment losses
have been recorded through March 31, 2010.
17
3. FAIR VALUE INFORMATION
The following disclosure provides fair value information for financial assets and liabilities
as of March 31, 2010 and December 31, 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. |
|
|
|
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 first quarter ended, an
other-than-temporary impairment loss was recognized and the carrying balance was reduced to fair
value.
Non-covered 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. As a result, this fair value is
not necessarily the value which would be derived using an exit price.
Non-covered 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. Appraised values may be adjusted based on factors such as the changes in
market conditions from the time of valuation or discounted cash flows of the property. As such,
these loans fall within Level 3 of the fair value hierarchy.
18
The fair value of commitments to extend credit and standby letters of credit were not
significant at either March 31, 2010 or December 31, 2009, as these instruments predominantly have
adjustable terms and are of a short-term nature.
Covered
Loans Covered loans were measured at fair value on the date of acquisition.
Thereafter, covered loans are not measured at fair value on a recurring basis. The above valuation
discussion for non-covered loans is applicable to covered loans following their acquisition date.
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 as of March 31, 2010 and December 31, 2009.
Assets & Liabilities Measured at Fair Value on a Recurring Basis
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Prices in |
|
|
Significant |
|
|
|
|
|
|
|
|
|
|
Active Markets |
|
|
Other |
|
|
Significant |
|
|
|
|
|
|
|
for Identical |
|
|
Observable |
|
|
Unobservable |
|
|
|
Carrying Value at |
|
|
Assets |
|
|
Inputs |
|
|
Inputs |
|
(in thousands) |
|
March 31, 2010 |
|
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
Description of Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury securities |
|
$ |
503 |
|
|
$ |
|
|
|
$ |
503 |
|
|
$ |
|
|
Mortgage-backed securities |
|
|
608,895 |
|
|
|
|
|
|
|
608,895 |
|
|
|
|
|
CMOs / REMICs |
|
|
750,420 |
|
|
|
|
|
|
|
750,420 |
|
|
|
|
|
Government agency |
|
|
55,593 |
|
|
|
|
|
|
|
55,593 |
|
|
|
|
|
Municipal bonds |
|
|
656,043 |
|
|
|
|
|
|
|
656,043 |
|
|
|
|
|
Other securities |
|
|
2,521 |
|
|
|
|
|
|
|
2,521 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment Securities-AFS |
|
$ |
2,073,975 |
|
|
$ |
|
|
|
$ |
2,073,975 |
|
|
$ |
|
|
Interest Rate Swaps |
|
|
5,034 |
|
|
|
|
|
|
|
5,034 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets |
|
$ |
2,079,009 |
|
|
$ |
|
|
|
$ |
2,079,009 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Description of Liability |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Rate Swaps |
|
$ |
5,034 |
|
|
$ |
|
|
|
$ |
5,034 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19
Assets & Liabilities Measured at Fair Value on a Recurring Basis
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Prices in |
|
|
Significant |
|
|
|
|
|
|
|
|
|
|
Active Markets |
|
|
Other |
|
|
Significant |
|
|
|
|
|
|
|
for Identical |
|
|
Observable |
|
|
Unobservable |
|
|
|
Carrying Value at |
|
|
Assets |
|
|
Inputs |
|
|
Inputs |
|
(in thousands) |
|
December 31, 2009 |
|
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
Description of Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury securities |
|
$ |
507 |
|
|
$ |
|
|
|
$ |
507 |
|
|
$ |
|
|
Mortgage-backed securities |
|
|
647,168 |
|
|
|
|
|
|
|
647,168 |
|
|
|
|
|
CMOs / REMICs |
|
|
773,165 |
|
|
|
|
|
|
|
773,165 |
|
|
|
|
|
Government agency |
|
|
21,713 |
|
|
|
|
|
|
|
21,713 |
|
|
|
|
|
Municipal bonds |
|
|
663,426 |
|
|
|
|
|
|
|
663,426 |
|
|
|
|
|
Other securities |
|
|
2,484 |
|
|
|
|
|
|
|
2,484 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment Securities-AFS |
|
$ |
2,108,463 |
|
|
$ |
|
|
|
$ |
2,108,463 |
|
|
$ |
|
|
Interest Rate Swaps |
|
|
4,334 |
|
|
|
|
|
|
|
4,334 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets |
|
$ |
2,112,797 |
|
|
$ |
|
|
|
$ |
2,112,797 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Description of Liability |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Rate Swaps |
|
$ |
4,334 |
|
|
$ |
|
|
|
$ |
4,334 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 March 31, 2010 and
December 31, 2009, the following table provides the level of valuation assumptions used to
determine each adjustment and the carrying value of the related assets.
Assets & Liabilities Measured at Fair Value on a Non-Recurring Basis
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Prices in |
|
|
Significant |
|
|
|
|
|
|
For the three |
|
|
|
|
|
|
|
Active Markets |
|
|
Other |
|
|
Significant |
|
|
months ended |
|
|
|
|
|
|
|
for Identical |
|
|
Observable |
|
|
Unobservable |
|
|
March 31, |
|
|
|
Carrying Value at |
|
|
Assets |
|
|
Inputs |
|
|
Inputs |
|
|
2010 |
|
(in thousands) |
|
March 31, 2010 |
|
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
|
Total Losses |
|
Description of Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment Security-HTM |
|
$ |
3,472 |
|
|
$ |
|
|
|
$ |
3,472 |
|
|
$ |
|
|
|
$ |
(685 |
) |
Impaired Loans-Noncovered |
|
$ |
15,744 |
|
|
$ |
|
|
|
$ |
2,500 |
|
|
$ |
13,244 |
|
|
$ |
(8,745 |
) |
OREO-Noncovered |
|
$ |
15,178 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
15,178 |
|
|
$ |
(13 |
) |
OREO-Covered |
|
$ |
10,031 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
10,031 |
|
|
$ |
|
|
Assets & Liabilities Measured at Fair Value on a Non-Recurring Basis
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Prices in |
|
|
Significant |
|
|
|
|
|
|
For the year |
|
|
|
|
|
|
|
Active Markets |
|
|
Other |
|
|
Significant |
|
|
ended |
|
|
|
|
|
|
|
for Identical |
|
|
Observable |
|
|
Unobservable |
|
|
December 31, |
|
|
|
Carrying Value at |
|
|
Assets |
|
|
Inputs |
|
|
Inputs |
|
|
2009 |
|
(in thousands) |
|
December 31, 2009 |
|
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
|
Total Losses |
|
Description of Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment Security-HTM |
|
$ |
3,838 |
|
|
$ |
|
|
|
$ |
3,838 |
|
|
$ |
|
|
|
$ |
(323 |
) |
Impaired Loans-Noncovered |
|
$ |
29,982 |
|
|
$ |
|
|
|
$ |
2,500 |
|
|
$ |
27,482 |
|
|
$ |
(18,450 |
) |
OREO-Noncovered |
|
$ |
3,936 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
3,936 |
|
|
$ |
(848 |
) |
OREO-Covered |
|
$ |
5,565 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
5,565 |
|
|
$ |
|
|
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 March 31, 2010
and December 31, 2009. The use of different market assumptions and/or estimation methodologies may
have a material effect on the estimated fair value amounts.
20
FAIR VALUE INFORMATION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2010 |
|
|
December 31, 2009 |
|
|
|
Carrying |
|
|
Estimated |
|
|
Carrying |
|
|
Estimated |
|
|
|
Amount |
|
|
Fair Value |
|
|
Amount |
|
|
Fair Value |
|
|
|
(amounts in thousands) |
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
281,275 |
|
|
$ |
281,275 |
|
|
$ |
103,254 |
|
|
$ |
103,254 |
|
Interest-bearing balances due from depository
institutions |
|
|
50,193 |
|
|
|
50,193 |
|
|
|
1,226 |
|
|
|
1,226 |
|
FHLB Stock |
|
|
97,582 |
|
|
|
97,582 |
|
|
|
97,582 |
|
|
|
97,582 |
|
Investment securities available-for-sale |
|
|
2,073,975 |
|
|
|
2,073,975 |
|
|
|
2,108,463 |
|
|
|
2,108,463 |
|
Investment securities held-to-maturity |
|
|
3,472 |
|
|
|
3,472 |
|
|
|
3,838 |
|
|
|
3,838 |
|
Total Loans, net of allowance for credit losses |
|
|
3,834,808 |
|
|
|
3,856,043 |
|
|
|
3,970,089 |
|
|
|
3,955,500 |
|
Accrued interest receivable |
|
|
27,423 |
|
|
|
27,423 |
|
|
|
28,672 |
|
|
|
28,672 |
|
Swaps |
|
|
5,034 |
|
|
|
5,034 |
|
|
|
4,334 |
|
|
|
4,334 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest-bearing |
|
$ |
1,598,022 |
|
|
$ |
1,598,022 |
|
|
$ |
1,561,981 |
|
|
$ |
1,561,981 |
|
Interest-bearing |
|
|
2,920,577 |
|
|
|
2,922,736 |
|
|
|
2,876,673 |
|
|
|
2,879,305 |
|
Demand note to U.S. Treasury |
|
|
4,232 |
|
|
|
4,232 |
|
|
|
2,425 |
|
|
|
2,425 |
|
Borrowings |
|
|
1,438,400 |
|
|
|
1,485,479 |
|
|
|
1,488,250 |
|
|
|
1,536,933 |
|
Junior subordinated debentures |
|
|
115,055 |
|
|
|
115,815 |
|
|
|
115,055 |
|
|
|
115,817 |
|
Accrued interest payable |
|
|
6,006 |
|
|
|
6,006 |
|
|
|
6,481 |
|
|
|
6,481 |
|
Swaps |
|
|
5,034 |
|
|
|
5,034 |
|
|
|
4,334 |
|
|
|
4,334 |
|
The fair value estimates presented herein are based on pertinent information available to
management as of March 31, 2010 and December 31, 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 44
Business Financial Centers and 6 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 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.
21
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 months ended March 31, 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2010 |
|
|
|
Business |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Centers |
|
|
Treasury |
|
|
Other |
|
|
Eliminations |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income, including loan fees |
|
$ |
42,752 |
|
|
$ |
22,804 |
|
|
$ |
24,996 |
|
|
$ |
|
|
|
$ |
90,552 |
|
Credit for funds provided (1) |
|
|
16,823 |
|
|
|
|
|
|
|
7,016 |
|
|
|
(23,839 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income |
|
|
59,575 |
|
|
|
22,804 |
|
|
|
32,012 |
|
|
|
(23,839 |
) |
|
|
90,552 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
6,636 |
|
|
|
9,907 |
|
|
|
670 |
|
|
|
|
|
|
|
17,213 |
|
Charge for funds used (1) |
|
|
3,521 |
|
|
|
8,856 |
|
|
|
11,462 |
|
|
|
(23,839 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense |
|
|
10,157 |
|
|
|
18,763 |
|
|
|
12,132 |
|
|
|
(23,839 |
) |
|
|
17,213 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
|
49,418 |
|
|
|
4,041 |
|
|
|
19,880 |
|
|
|
|
|
|
|
73,339 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for credit losses |
|
|
|
|
|
|
|
|
|
|
12,200 |
|
|
|
|
|
|
|
12,200 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income after provision
for credit losses |
|
$ |
49,418 |
|
|
$ |
4,041 |
|
|
$ |
7,680 |
|
|
$ |
|
|
|
$ |
61,139 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest income |
|
|
5,604 |
|
|
|
(685 |
) |
|
|
(7,130 |
) |
|
|
|
|
|
|
(2,211 |
) |
Non-interest expense |
|
|
13,132 |
|
|
|
380 |
|
|
|
22,410 |
|
|
|
|
|
|
|
35,922 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment pretax profit (loss) |
|
$ |
41,890 |
|
|
$ |
2,976 |
|
|
$ |
(21,860 |
) |
|
$ |
|
|
|
$ |
23,006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment assets as of March 31, 2010 |
|
$ |
4,825,482 |
|
|
$ |
2,476,423 |
|
|
$ |
769,487 |
|
|
$ |
(1,282,740 |
) |
|
$ |
6,788,652 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2009 |
|
|
|
Business |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Centers |
|
|
Treasury |
|
|
Other |
|
|
Eliminations |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income, including loan fees |
|
$ |
38,523 |
|
|
$ |
29,459 |
|
|
$ |
10,980 |
|
|
$ |
|
|
|
$ |
78,962 |
|
Credit for funds provided (1) |
|
|
9,932 |
|
|
|
|
|
|
|
4,501 |
|
|
|
(14,433 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income |
|
|
48,455 |
|
|
|
29,459 |
|
|
|
15,481 |
|
|
|
(14,433 |
) |
|
|
78,962 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
7,162 |
|
|
|
14,926 |
|
|
|
1,582 |
|
|
|
|
|
|
|
23,670 |
|
Charge for funds used (1) |
|
|
3,567 |
|
|
|
4,179 |
|
|
|
6,687 |
|
|
|
(14,433 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense |
|
|
10,729 |
|
|
|
19,105 |
|
|
|
8,269 |
|
|
|
(14,433 |
) |
|
|
23,670 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
|
37,726 |
|
|
|
10,354 |
|
|
|
7,212 |
|
|
|
|
|
|
|
55,292 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for credit losses |
|
|
|
|
|
|
|
|
|
|
22,000 |
|
|
|
|
|
|
|
22,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income after provision
for credit losses |
|
$ |
37,726 |
|
|
$ |
10,354 |
|
|
$ |
(14,788 |
) |
|
$ |
|
|
|
$ |
33,292 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest income |
|
|
4,812 |
|
|
|
8,929 |
|
|
|
2,616 |
|
|
|
|
|
|
|
16,357 |
|
Non-interest expense |
|
|
12,340 |
|
|
|
362 |
|
|
|
18,695 |
|
|
|
|
|
|
|
31,397 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment pretax profit (loss) |
|
$ |
30,198 |
|
|
$ |
18,921 |
|
|
$ |
(30,867 |
) |
|
$ |
|
|
|
$ |
18,252 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment assets as of March 31, 2009 |
|
$ |
3,888,600 |
|
|
$ |
2,503,903 |
|
|
$ |
817,868 |
|
|
$ |
(794,282 |
) |
|
$ |
6,416,089 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Credit for funds provided and charge for funds used is eliminated in the consolidated
presentation. |
22
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 March
31, 2010, the Bank entered into 31 interest-rate swap agreements with customers and 31 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.
As of March 31, 2010, the total notional amount of the Banks swaps was $192.9 million. The
following tables present the location of the asset and liability and the amount of gain recognized
as of and for the three months ended March 31, 2010.
Fair Value of Derivative Instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Derivatives |
|
|
Liability Derivatives |
|
|
|
March 31, 2010 |
|
|
March 31, 2010 |
|
|
|
(amounts in thousands) |
|
Derivatives Not Designated as |
|
Balance Sheet |
|
|
|
|
|
Balance Sheet |
|
|
|
Hedging Instruments |
|
Location |
|
Fair Value |
|
|
Location |
|
Fair Value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Rate Swaps |
|
Other Assets |
|
$ |
5,034 |
|
|
Other Liabilities |
|
$ |
5,034 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Derivatives |
|
|
|
$ |
5,034 |
|
|
|
|
$ |
5,034 |
|
|
|
|
|
|
|
|
|
|
|
|
The Effect of Derivative Instruments on the Consolidated Statement of Earnings for
three months ended March 31, 2010
(amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
Amount of Gain |
|
|
|
|
|
Recognized in Income |
|
Derivatives Not Designated as |
|
Location of Gain Recognized in |
|
on Derivative |
|
Hedging Instruments |
|
Income on Derivative |
|
March 31, 2010 |
|
Interest Rate Swaps |
|
Other Income |
|
$ |
141 |
|
|
|
|
|
|
|
|
Total |
|
|
|
$ |
141 |
|
|
|
|
|
|
|
23
|
|
|
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 2009 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 financial reform, 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, 2009. 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 portion of California. Our mission is to offer the
finest financial products and services to professionals and businesses in our market area.
24
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 in our market areas and areas of our marketplace have been significantly
impacted by adverse economic conditions, both nationally and in California. Approximately 22% of
our total loan portfolio of $3.9 billion is located in the Inland Empire region of California. The
balance of the portfolio is from outside of this region. 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 five banks and a leasing company, and we have opened four de novo branches: Bakersfield,
Fresno, Madera, and Stockton, California. We also opened six Commercial Banking Centers since
2008.
Our net income increased to $16.1 million for the first three months of 2010 compared with
$13.2 million for the first three months of 2009, an increase of $2.9 million or 22.42%. Diluted
earnings per common share increased to $0.15 per share for 2010, from $0.13 per share in 2009.
First quarter operating results include a $12.2 million provision for credit losses and were
impacted by the accounting treatment of credit-related transactions from the San Joaquin Bank
(SJB) loan portfolio. For further discussion, see Analysis of the Results of Operations
section of this Managements Discussion and Analysis of Financial Condition and Results of
Operations.
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.
25
Investment Portfolio: The investment portfolio is an integral part of our financial
performance. We invest primarily in fixed income securities. Accounting estimates are used in the
presentation of the investment portfolio and these estimates do impact the presentation of our
financial condition and results of operations. We classify securities 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. At each reporting
date, securities are assessed to determine whether there is an other-than-temporary impairment.
Such impairment, if any, is required to be recognized in current earnings rather than 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. Our investment in Federal Home Loan Bank (FHLB) stock is carried at
cost.
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 arrived at by use of internal and external valuation techniques. The excess
purchase price is allocated to assets and liabilities respectively, resulting in 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.
Acquired Loans: Loans acquired from SJB were recorded at fair value as of the acquisition
date. In estimating the fair value, the portfolio was segregated into two groups: credit-impaired
covered loans and other covered loans. Credit-impaired loans are those loans showing evidence of
credit deterioration since origination and it is probable, at the date of acquisition, that the
Company will not collect all contractually required principal and interest payments. For the
credit-impaired loans, the fair value was estimated by using observable market data for similar
types of loans. For the other covered loans, the fair value was estimated by calculating the
undiscounted expected cash flows based on estimated levels of prepayments, default factors, and
loss severities and discounting the expected cash flows at a market rate. Significant estimates are
used in calculating the fair value of acquired loans; as a result, actual results may be different
than estimates.
Fair Value of Financial Instruments: We use fair value measurements to record fair value
adjustments to certain financial instruments and to determine fair value disclosures. Investments
securities available-for-sale and interest-rate swaps are financial instruments recorded at fair
value on a recurring basis. Additionally, from time to time, we may be required to record at fair
value other financial assets on a non-recurring basis, such as impaired loans and OREO. These
nonrecurring fair value adjustments typically involve application of lower-of-cost-or-market
accounting or write-downs of individual assets. Further, we include in the Notes to Financial
Statements information about the extent to which fair value is used to measure assets and
liabilities, the valuation methodologies used and its impact to earnings. Additionally, for
financial instruments not recorded at fair value we disclose the estimate of their fair value.
26
ANALYSIS OF THE RESULTS OF OPERATIONS
Earnings
We reported net earnings of $16.1 million for the three months ended March 31, 2010. This
represented an increase of $2.9 million or 22.42%, from net earnings of $13.2 million for the three
months ended March 31, 2009. Basic and diluted earnings per common share for the three-month
period increased to $0.15 per common share for 2010, compared to $0.13 per common share for 2009.
The annualized return on average assets was 0.96% for the three months of 2010 compared to an
annualized return on average assets of 0.81% for the three months of 2009. The annualized return
on average equity was 10.07% for the three months ended March 31, 2010, compared to an annualized
return of 8.56% for the three months ended March 31, 2009.
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 $73.3 million for the
three months ended March 31, 2010. This represented an increase of $18.0 million, or 32.64%, over
net interest income, before provision for credit losses, of $55.3 million for the same period in
2009. The increase in net interest income of $18.0 million resulted from an $11.6 million increase
in interest income and a $6.4 million decrease in interest expense.
Interest income totaled $90.6 million for the first three months of 2010. This represented an
increase of $11.6 million, or 14.68%, compared to total interest income of $79.0 million for the
same period last year. The increase in interest income is primarily due to a $13.4 million discount
accretion on covered loans acquired from SJB. This amount represents the discount recognized from
the sale of two loans and principal payments on other loans and is recorded as a yield adjustment
to interest income on loans. As a result, average yield on earning assets increased to 6.06% for
the three months of 2010 from 5.26% for the same period of 2009, or 80 basis points. Average
earning assets decreased by $63.4 million, or 1.01%, from $6.28 billion to $6.21 billion.
Interest expense totaled $17.2 million for the first three months of 2010. This represented a
decrease of $6.4 million, or 27.28%, from total interest expense of $23.7 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 1.52% for the first three months of 2010 from
2.07% for the same period in 2009, or 55 basis points. The decrease in rates paid on deposits and
borrowings was offset by an increase in average interest-bearing deposits of $644.5 million, or
28.5%, from $2.26 billion to $2.91 billion.
27
Table 1 shows the average balances of assets, liabilities, and stockholders equity and the
related interest income, expense, and yields/rates for the three-month period ended March 31, 2010
and 2009. 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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
Average |
|
|
|
|
|
|
Average |
|
|
Average |
|
|
|
|
|
|
Average |
|
|
|
Balance |
|
|
Interest |
|
|
Rate |
|
|
Balance |
|
|
Interest |
|
|
Rate |
|
|
|
(amounts in thousands) |
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment Securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable |
|
$ |
1,428,338 |
|
|
$ |
16,084 |
|
|
|
4.50 |
% |
|
$ |
1,822,843 |
|
|
$ |
22,436 |
|
|
|
4.93 |
% |
Tax preferenced (1) |
|
|
659,980 |
|
|
|
6,532 |
|
|
|
5.59 |
% |
|
|
680,439 |
|
|
|
6,996 |
|
|
|
5.80 |
% |
Investment in FHLB stock |
|
|
97,582 |
|
|
|
66 |
|
|
|
0.27 |
% |
|
|
93,240 |
|
|
|
|
|
|
|
0.00 |
% |
Federal Funds Sold & Interest Bearing
Deposits with other institutions |
|
|
13,749 |
|
|
|
102 |
|
|
|
2.97 |
% |
|
|
285 |
|
|
|
4 |
|
|
|
5.61 |
% |
Loans HFS |
|
|
2,143 |
|
|
|
18 |
|
|
|
3.41 |
% |
|
|
|
|
|
|
|
|
|
#DIV/0! |
Loans (2) (3) |
|
|
4,011,896 |
|
|
|
67,750 |
|
|
|
6.85 |
% |
|
|
3,680,258 |
|
|
|
49,526 |
|
|
|
5.46 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Earning Assets |
|
|
6,213,688 |
|
|
|
90,552 |
|
|
|
6.06 |
% |
|
|
6,277,065 |
|
|
|
78,962 |
|
|
|
5.26 |
% |
Total Non Earning Assets |
|
|
624,039 |
|
|
|
|
|
|
|
|
|
|
|
333,623 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets |
|
$ |
6,837,727 |
|
|
|
|
|
|
|
|
|
|
$ |
6,610,688 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings Deposits (4) |
|
$ |
1,664,774 |
|
|
$ |
2,730 |
|
|
|
0.67 |
% |
|
$ |
1,184,519 |
|
|
$ |
2,565 |
|
|
|
0.88 |
% |
Time Deposits |
|
|
1,240,528 |
|
|
|
2,558 |
|
|
|
0.84 |
% |
|
|
1,076,331 |
|
|
|
4,025 |
|
|
|
1.52 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Deposits |
|
|
2,905,302 |
|
|
|
5,288 |
|
|
|
0.74 |
% |
|
|
2,260,850 |
|
|
|
6,590 |
|
|
|
1.18 |
% |
Other Borrowings |
|
|
1,655,551 |
|
|
|
11,925 |
|
|
|
2.88 |
% |
|
|
2,324,734 |
|
|
|
17,080 |
|
|
|
2.94 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Bearing Liabilities |
|
|
4,560,853 |
|
|
|
17,213 |
|
|
|
1.52 |
% |
|
|
4,585,584 |
|
|
|
23,670 |
|
|
|
2.07 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest bearing deposits |
|
|
1,574,633 |
|
|
|
|
|
|
|
|
|
|
|
1,342,229 |
|
|
|
|
|
|
|
|
|
Other Liabilities |
|
|
53,150 |
|
|
|
|
|
|
|
|
|
|
|
59,156 |
|
|
|
|
|
|
|
|
|
Stockholders Equity |
|
|
649,091 |
|
|
|
|
|
|
|
|
|
|
|
623,719 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Stockholders Equity |
|
$ |
6,837,727 |
|
|
|
|
|
|
|
|
|
|
$ |
6,610,688 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
|
|
|
|
$ |
73,339 |
|
|
|
|
|
|
|
|
|
|
$ |
55,292 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest spread tax equivalent |
|
|
|
|
|
|
|
|
|
|
4.54 |
% |
|
|
|
|
|
|
|
|
|
|
3.19 |
% |
Net interest margin |
|
|
|
|
|
|
|
|
|
|
4.78 |
% |
|
|
|
|
|
|
|
|
|
|
3.56 |
% |
Net interest margin tax equivalent |
|
|
|
|
|
|
|
|
|
|
4.95 |
% |
|
|
|
|
|
|
|
|
|
|
3.74 |
% |
Net interest margin excluding loan fees |
|
|
|
|
|
|
|
|
|
|
4.73 |
% |
|
|
|
|
|
|
|
|
|
|
3.52 |
% |
Net interest margin excluding
loan fees tax equivalent |
|
|
|
|
|
|
|
|
|
|
4.90 |
% |
|
|
|
|
|
|
|
|
|
|
3.70 |
% |
|
|
|
(1) |
|
Non tax equivalent rate was 3.96% for 2010 and 4.12% for 2009. |
|
(2) |
|
Loan fees are included in total interest income as follows, (000)s omitted: 2010, $752; 2009,
$714 |
|
(3) |
|
Non performing loans are included in net loans as follows, (000)s
omitted: 2010, $76.8 million; 2009, $48.0 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 4.95% for the three months of
2010, compared to 3.74% for the first three months of 2009. The increase in the net interest
margin over the same period last year is primarily the result of the $13.4 million discount
accretion on covered SJB loans which impacted interest income on loans. 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 4.54% for
the three months of 2010 and 3.19% for the same period last year. The increase in the net interest
spread for the three months ended March 31, 2010 resulted from a 80 basis point increase in the
yield on earning assets and a 55 basis point decrease in the cost of interest-bearing liabilities,
thus generating a 135 basis point increase in the net interest spread from the same period last
year. The net interest spread was positively impacted by the $13.4 million discount accretion on
covered SJB loans recognized as a yield adjustment to interest income during the first quarter of
2010.
28
The yield (TE) on earning assets increased to 6.06% for the three months of 2010, from 5.26%
for the same period last year. Average loans as a percent of earning assets increased to 64.57% in
the three months of 2010 over 58.63% for the same period in 2009. Average investments as a percent
of earning assets decreased to 33.61% in the three months of 2010 from 39.88% for the same period
in 2009. The yield on loans for the first three months of 2010 increased to 6.85% as compared to
5.46% for the same period in 2009 as a result of $13.4 million discount accretion on SJB covered
loans. The yield on loans decline at a slower rate than general interest rates as approximately
57% of the Companys loans are fixed-rate loans or hybrid adjustable loans with interest rates that
are typically fixed for the first five years of the loans and reset at fixed rates for the
remaining 5-year terms. The yield (TE) on investments for the first three months of 2010 decreased
to 4.85% compared to 5.17% for the same period in 2009.
The cost of average interest-bearing liabilities decreased to 1.52% for the first three months
of 2010 as compared to 2.07% for the same period in 2009, reflecting a decrease in interest rates
and change in the mix of interest-bearing liabilities. Average borrowings as a percent of average
interest-bearing liabilities decreased to 36.30% during the first three months of 2010 as compared
to 50.70% for the same period in 2009. Average borrowings were $1.66 billion as of March 31, 2010.
This represents a decrease of $669.2 million or 28.79%, from average borrowings of $2.32 billion
as of March 31, 2009. The cost of borrowings for the first three months of 2010 decreased to
2.88% as compared to 2.94% for the same period in 2009. Borrowings typically have a higher cost
than interest-bearing deposits. The cost of interest-bearing deposits for the first three months of
2010 decreased to 0.74% as compared to 1.18% for the same period in 2009, while average deposits
increased $644.5 million or 28.50% over the same periods. 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.
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.
29
|
|
|
TABLE 2 |
|
Rate and Volume Analysis for Changes in Interest Income,
Interest Expense and Net Interest Income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comparison of quarters ended March 31, |
|
|
|
2010 Compared to 2009 |
|
|
|
Increase (Decrease) Due to |
|
|
|
|
|
|
|
|
|
|
|
Rate/ |
|
|
|
|
|
|
Volume |
|
|
Rate |
|
|
Volume |
|
|
Total |
|
|
|
(amounts in thousands) |
|
Interest Income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable investment securities |
|
$ |
(4,825 |
) |
|
$ |
(1,956 |
) |
|
$ |
429 |
|
|
$ |
(6,352 |
) |
Tax-advantaged securities |
|
|
(275 |
) |
|
|
(194 |
) |
|
|
5 |
|
|
|
(464 |
) |
Fed funds sold & interest-bearing
deposits with other institutions |
|
|
189 |
|
|
|
(2 |
) |
|
|
(89 |
) |
|
|
98 |
|
Investment in FHLB stock |
|
|
|
|
|
|
63 |
|
|
|
3 |
|
|
|
66 |
|
Loans HFS |
|
|
|
|
|
|
|
|
|
|
18 |
|
|
|
18 |
|
Loans |
|
|
4,465 |
|
|
|
12,614 |
|
|
|
1,145 |
|
|
|
18,224 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest on earning assets |
|
|
(446 |
) |
|
|
10,525 |
|
|
|
1,511 |
|
|
|
11,590 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings deposits |
|
|
1,042 |
|
|
|
(613 |
) |
|
|
(266 |
) |
|
|
163 |
|
Time deposits |
|
|
615 |
|
|
|
(1,805 |
) |
|
|
(275 |
) |
|
|
(1,465 |
) |
Other borrowings |
|
|
(4,918 |
) |
|
|
(349 |
) |
|
|
112 |
|
|
|
(5,155 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest on interest-bearing liabilities |
|
|
(3,261 |
) |
|
|
(2,767 |
) |
|
|
(429 |
) |
|
|
(6,457 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Interest Income |
|
$ |
2,815 |
|
|
$ |
13,292 |
|
|
$ |
1,940 |
|
|
$ |
18,047 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 $67.8 million for the first three months of 2010. This
represented an increase of $18.2 million, or 36.84%, from interest and fees on loans of $49.5
million for the same period in 2009. The increase in interest on loans was primarily due to the
$13.4 million discount accretion on covered loans acquired from SJB. This amount represents the
discount recognized from the sale of two loans and principal payments on other loans. As a result,
the yield on loans increased to 6.85% for the first three months of 2010, compared to 5.46% for the
same period in 2009. Average loans increased $331.6 million, or 9.01%, from $3.68 billion for the
first three months of 2009 to $4.01 billion for the first three months of 2010 due to the
acquisition of SJB.
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 March 31, 2010 and 2009.
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 $752,000 for the first three months of
2010, as compared to $714,000 for the same period in 2009, an increase of $38,000 or 5.32%.
30
Interest on Investments
The second most important component of interest income is interest on investments, which
totaled $22.8 million for the first three months of 2010. This represented a decrease of $6.7
million, or 22.60%, from interest on investments of $29.4 million for the same period in 2009. The
decrease in interest on investments for the three months of 2010 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 4.85% for the first three months of 2010 compared to 5.17%
for the first three months of 2009. Average investment balances for the first three months for
2010 decreased $397.2 million, or 15.29% from the same period last year.
Interest on Deposits
Interest on deposits totaled $5.3 million for the first three months of 2010. This
represented a decrease of $1.3 million, or 19.76%, from interest on deposits of $6.6 million for
the first three months of 2009. 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 0.74% for the first three months of 2010 from 1.18% for the first three
months of 2009. Average interest-bearing deposits increased $644.5 million, or 28.50%, over the
same period last year.
Interest on Borrowings
Interest on borrowings totaled $11.1 million for the first three months of 2010. This
represented a decrease of $4.8 million, or 30.02%, from interest on borrowings of $15.9 million for
the same period of 2008. The decrease is due to the decrease in average borrowings of $669.2
million, or 30.28%, compared to the same period last year. Interest rates on borrowings remained
constant at 2.89% and 2.88% for the first three months of 2010 and 2009, respectively.
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 $12.2 million during the first three months of 2010
and $22.0 million during the same period in 2009. The decrease in the provision for credit losses
during the first three months of 2010 was primarily due to the decrease in incremental classified
assets from December 31, 2009 to March 31, 2010 compared to the same period last year. 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. We anticipate future provisions will
be required to account for probable credit losses. The ratio of the allowance for credit losses to
total loans as of March 31, 2010 and 2009 was 3.20% and 1.80%, 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 $8.8 million for the
first three months of 2010 and $10.2 million during the same period of 2009. See Risk Management
Credit Risk herein.
31
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.
We reported other operating income of ($2.2 million) for the first three months of 2010,
compared to other operating income of $16.4 million during the same period of 2009. This represents
a decrease of $18.6 million, or 113.52% due to a $10.6 million reduction in the FDIC loss sharing
asset during the first three months of 2010 and a gain on sale of securities of $8.9 million during
the first three months of 2009. This was partially offset by increases in service charge fee
income, trust and investment services income, BOLI income and bankcard services income.
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 $35.9 million for the first three months of
2010. This represents an increase of $4.5 million, or 14.41% over other operating expenses of $31.4
million for the same period in 2009. The increase was primarily due increases in salaries and
employee expenses of $2.2 million, or 14.25%, as a result of the acquisition of SJB. In addition,
professional services expenses were up $1.1 million, or 65.60%, compared to the same period last
year, primarily due to increases in acquisition costs, as well as, legal expenses for the
management of non-accrual and OREO loans.
At March 31, 2010, we employed 740 full time equivalent employees, compared to 700 full time
equivalent employees at March 31, 2009.
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 2.13% and 1.93% for the first three months of 2010
and 2009, 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 three months of 2010, the
efficiency ratio was 60.96%, compared to a ratio of 63.24% for the same period in 2009. The
efficiency ratio, before the provision for credit losses, was 50.50% for the first three months of
2010 and 50.06% for the first three months of 2009.
Income Taxes
The Companys effective tax rate for the three months of 2010 was 29.93% compared to 27.85%
for the same period in 2009. 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.
32
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 months ended March 31, 2010 and 2009.
The table also provides additional significant segment measures useful to understanding the
performance of this segment.
|
|
|
|
|
|
|
|
|
|
|
Three
months ended March 31, |
|
Key Measures: |
|
2010 |
|
|
2009 |
|
|
|
(amounts in thousands) |
|
Statement of Operations |
|
|
|
|
|
|
|
|
Interest income |
|
$ |
59,575 |
|
|
$ |
48,455 |
|
Interest expense |
|
|
10,157 |
|
|
|
10,729 |
|
|
|
|
|
|
|
|
Net Interest Income |
|
$ |
49,418 |
|
|
$ |
37,726 |
|
|
|
|
|
|
|
|
Non-interest income |
|
|
5,604 |
|
|
|
4,812 |
|
Non-interest expense |
|
|
13,132 |
|
|
|
12,340 |
|
|
|
|
|
|
|
|
Segment pretax profit (loss) |
|
$ |
41,890 |
|
|
$ |
30,198 |
|
|
|
|
|
|
|
|
Balance Sheet |
|
|
|
|
|
|
|
|
Average loans |
|
$ |
4,200,708 |
|
|
$ |
3,680,258 |
|
Average non-interest bearing deposits |
|
$ |
1,574,633 |
|
|
$ |
1,342,229 |
|
Average interest-bearing deposits |
|
$ |
2,905,302 |
|
|
$ |
2,260,850 |
|
Yield on loans |
|
|
5.25 |
% |
|
|
5.46 |
% |
Rate paid on deposits |
|
|
0.74 |
% |
|
|
1.18 |
% |
For the three months ended March 31, 2010, segment profit increased by $11.7 million, or
38.72%, compared to the same period last year. This was primarily due to the increase in interest
income of $11.1 million, or 22.95%, due to increases in loan balances as a result of the SJB
acquisition. Average loan balances increased $520.5 million or 14.14%, from the same period last
year. This increase was offset by a decrease in loan yield of 21 basis points. Rates paid on
deposits decreased 44 basis points, while average interest-bearing deposits increased $644.4
million, or 28.50%. Non-interest income increased by $792,000, or 16.46%, compared to the first
three months of 2009. Non-interest expense increased $792,000, or 6.42%, compared to the same
period last year.
33
Treasury
Key measures we use to evaluate the Treasurys performance are included in the following table
for the three months ended March 31, 2010 and 2009. The table also provides additional significant
segment measures useful to understanding the performance of this segment.
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, |
|
Key Measures: |
|
2010 |
|
|
2009 |
|
|
|
(amounts in thousands) |
|
Statement of Operations |
|
|
|
|
|
|
|
|
Interest income |
|
$ |
22,804 |
|
|
$ |
29,459 |
|
Interest expense |
|
|
18,763 |
|
|
|
19,105 |
|
|
|
|
|
|
|
|
Net Interest Income |
|
$ |
4,041 |
|
|
$ |
10,354 |
|
|
|
|
|
|
|
|
Non-interest income (expense) |
|
|
(685 |
) |
|
|
8,929 |
|
Non-interest expense |
|
|
380 |
|
|
|
362 |
|
|
|
|
|
|
|
|
Segment pretax profit (loss) |
|
$ |
2,976 |
|
|
$ |
18,921 |
|
|
|
|
|
|
|
|
Balance Sheet |
|
|
|
|
|
|
|
|
Average investments |
|
$ |
2,199,650 |
|
|
$ |
2,596,807 |
|
Average borrowings |
|
$ |
1,540,496 |
|
|
$ |
2,209,679 |
|
Yield on investments-TE |
|
|
4.85 |
% |
|
|
5.17 |
% |
Non-tax equivalent yield |
|
|
3.96 |
% |
|
|
4.12 |
% |
Rate paid on borrowings |
|
|
2.89 |
% |
|
|
2.88 |
% |
For the three months ended March 31, 2010, segment profits decreased by $15.9 million from the
same period last year. The decrease is primarily due to the $8.9 million gain on sale of
securities recognized during the first three months of 2009 and the decrease in net interest income
of $6.3 million year over year. The decrease in net interest income is due to the decrease in
average investments of $397.2 million, or 15.29%, and a decrease in yield on investments of 32
basis points from the three months ended March 31, 2009.
There are no provisions for credit losses or taxes in the segments as these are accounted for
at the corporate level.
Other
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, |
|
Key Measures: |
|
2010 |
|
|
2009 |
|
|
|
(amounts in thousands) |
|
Statement of Operations |
|
|
|
|
|
|
|
|
Interest income |
|
$ |
32,012 |
|
|
$ |
15,481 |
|
Interest expense |
|
|
12,132 |
|
|
|
8,269 |
|
|
|
|
|
|
|
|
Net interest income |
|
$ |
19,880 |
|
|
$ |
7,212 |
|
|
|
|
|
|
|
|
Provision for Credit Losses |
|
|
12,200 |
|
|
|
22,000 |
|
Non-interest income (expense) |
|
|
(7,130 |
) |
|
|
2,616 |
|
Non-interest expense |
|
|
22,410 |
|
|
|
18,695 |
|
|
|
|
|
|
|
|
Pre-tax loss |
|
$ |
(21,860 |
) |
|
$ |
(30,867 |
) |
|
|
|
|
|
|
|
The Companys administration and other operating departments reported pre-tax loss of $21.8
million for the first three months of 2010. This represents an increase of $9.0 million or 29.18%,
from a pre-tax loss of $30.9 million for the same period in 2009. The decrease in pre-tax loss is
primarily attributed to the decrease in provision for credit losses of $9.8 million. The increase
in net interest income of $12.7 million is primarily due to the $13.4 million discount accretion on
SJB loans. This is offset by a decrease in non-interest income (expense) of $9.7 million which is
primarily due to the reduction in the FDIC loss sharing asset of $10.6 million.
34
ANALYSIS OF FINANCIAL CONDITION
The Company reported total assets of $6.79 billion at March 31, 2010. This represented an
increase of $48.9 million, or 0.73%, from total assets of $6.74 billion at December 31, 2009
primarily due to an increase in cash and due from banks of $178.0 million, or 172.41%, offset by a
decrease in earning assets. Earning assets totaled $6.07 billion at March 31, 2010. This
represented a decrease of $117.5 million, or 1.90%, from total earning assets of $6.18 billion at
December 31, 2009, primarily due to a decrease in loans. Total liabilities were $6.14 billion at
March 31, 2010, up $34.3 million, or 0.56%, from total liabilities of $6.10 billion at December 31,
2009. Total equity increased $14.5 million, or 2.28%, to $652.8 million at March 31, 2010, compared
with total equity of $638.2 million at December 31, 2009.
Investment Securities
The Company reported total investment securities of $2.08 billion at March 31, 2010. This
represented a decrease of $34.9 million, or 1.65%, from total investment securities of $2.11
billion at December 31, 2009. Investment securities comprise 34.25% of the Companys total earning
assets at March 31, 2010.
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 March 31, 2010, securities held as available-for-sale had a fair value of
$2.07 billion, representing 99.8% of total investment securities, with an amortized cost of $2.02
billion. At March 31, 2010, the net unrealized holding gain on securities available-for-sale was
$58.2 million and that resulted in accumulated other comprehensive income of $33.1 million (net of
$25.1 million in deferred taxes). At December 31, 2009, the Company reported net unrealized gain on
investment securities available-for-sale of $47.2 million and accumulated other comprehensive
income of $26.4 million (net of deferred taxes of $20.8 million).
Table 3 sets forth investment securities available-for-sale at March 31, 2010 and December 31,
2009.
Table 3 Composition of Investment Securities
(amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2010 |
|
|
December 31, 2009 |
|
|
|
|
|
|
Total |
|
|
|
|
|
|
Total |
|
|
|
Fair Value |
|
|
Percent |
|
|
Fair Value |
|
|
Percent |
|
Investment Securities Available-for-Sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury securities |
|
$ |
503 |
|
|
|
0.02 |
% |
|
$ |
507 |
|
|
|
0.02 |
% |
Mortgage-backed securities |
|
|
608,895 |
|
|
|
29.37 |
% |
|
|
647,168 |
|
|
|
30.70 |
% |
CMOs / REMICs |
|
|
750,420 |
|
|
|
36.18 |
% |
|
|
773,165 |
|
|
|
36.67 |
% |
Government agency |
|
|
55,593 |
|
|
|
2.68 |
% |
|
|
21,713 |
|
|
|
1.03 |
% |
Municipal bonds |
|
|
656,043 |
|
|
|
31.63 |
% |
|
|
663,426 |
|
|
|
31.46 |
% |
Other securities |
|
|
2,521 |
|
|
|
0.12 |
% |
|
|
2,484 |
|
|
|
0.12 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Investment Securities |
|
$ |
2,073,975 |
|
|
|
100.00 |
% |
|
$ |
2,108,463 |
|
|
|
100.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
The weighted-average yield (TE) on the investment portfolio at March 31, 2010 was 4.35% with a
weighted-average life of 4.7 years. This compares to a yield of 4.41% at December 31, 2009 with a
weighted-average life of 4.7 years and a yield of 4.66% at March 31, 2009 with a weighted-average
life of 4.8 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.
Approximately 67% 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.
35
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 March 31, 2010 and December 31, 2009.
Composition of the Fair Value and Gross Unrealized Losses of Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2010 |
|
|
|
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 |
|
$ |
|
|
|
$ |
|
|
|
$ |
3,472 |
|
|
$ |
1,068 |
|
|
$ |
3,472 |
|
|
$ |
1,068 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-Sale |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government agency |
|
$ |
19,963 |
|
|
$ |
94 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
19,963 |
|
|
$ |
94 |
|
Mortgage-backed securities |
|
|
57,242 |
|
|
|
125 |
|
|
|
|
|
|
|
|
|
|
|
57,242 |
|
|
|
125 |
|
CMO/REMICs |
|
|
23,738 |
|
|
|
62 |
|
|
|
8,432 |
|
|
|
178 |
|
|
|
32,170 |
|
|
|
240 |
|
Municipal bonds |
|
|
98,811 |
|
|
|
2,359 |
|
|
|
1,771 |
|
|
|
312 |
|
|
|
100,582 |
|
|
|
2,671 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
199,754 |
|
|
$ |
2,640 |
|
|
$ |
10,203 |
|
|
$ |
490 |
|
|
$ |
209,957 |
|
|
$ |
3,130 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 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) |
|
$ |
|
|
|
$ |
|
|
|
$ |
3,838 |
|
|
$ |
1,671 |
|
|
$ |
3,838 |
|
|
$ |
1,671 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-Sale |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government agency |
|
$ |
5,022 |
|
|
$ |
1 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
5,022 |
|
|
$ |
1 |
|
Mortgage-backed securities |
|
|
73,086 |
|
|
|
968 |
|
|
|
|
|
|
|
|
|
|
|
73,086 |
|
|
|
968 |
|
CMO/REMICs |
|
|
179,391 |
|
|
|
3,025 |
|
|
|
9,640 |
|
|
|
286 |
|
|
|
189,031 |
|
|
|
3,311 |
|
Municipal bonds |
|
|
80,403 |
|
|
|
2,122 |
|
|
|
1,785 |
|
|
|
298 |
|
|
|
82,188 |
|
|
|
2,420 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
337,902 |
|
|
$ |
6,116 |
|
|
$ |
11,425 |
|
|
$ |
584 |
|
|
$ |
349,327 |
|
|
$ |
6,700 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
For the twelve months ended December 31, 2009, the Company recorded $1.7 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. |
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 March 31, 2010 and December 31, 2009. 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 first quarter of 2010, the Company recognized an other-than-temporary impairment on
the held-to-maturity investment security. The credit-impairment loss of $685,000 was recognized as
an offset to other operating income.
Loans
At March 31, 2010, we reported total loans, net of deferred loan fees, of $3.9 billion. This
represents a decrease of $131.9 million, or 3.23%, from total loans, net of deferred loan fees, of
$4.08 billion at December 31, 2009. Total loans, net of deferred loan fees, comprise 65.08% of our
total earning assets.
36
The following tables present our loan portfolio, segregated into covered
versus non-covered loans, by category as of March 31, 2010 and December 31, 2009.
Table 4 Distribution of Loan Portfolio by Type (Dollar amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2010 |
|
|
|
Non-Covered |
|
|
|
|
|
|
|
|
|
Loans |
|
|
Covered Loans |
|
|
Total |
|
Commercial and Industrial |
|
$ |
407,888 |
|
|
$ |
63,183 |
|
|
$ |
471,071 |
|
Real Estate: |
|
|
|
|
|
|
|
|
|
|
|
|
Construction |
|
|
221,130 |
|
|
|
127,916 |
|
|
|
349,046 |
|
Commercial Real Estate |
|
|
1,994,422 |
|
|
|
324,483 |
|
|
|
2,318,905 |
|
SFR Mortgage |
|
|
253,310 |
|
|
|
8,366 |
|
|
|
261,676 |
|
Consumer |
|
|
62,479 |
|
|
|
11,829 |
|
|
|
74,308 |
|
Municipal lease finance receivables |
|
|
155,511 |
|
|
|
881 |
|
|
|
156,392 |
|
Auto and equipment leases, net of unearned discount |
|
|
27,546 |
|
|
|
|
|
|
|
27,546 |
|
Dairy and Livestock/Agribusiness |
|
|
392,334 |
|
|
|
65,723 |
|
|
|
458,057 |
|
|
|
|
|
|
|
|
|
|
|
Gross Loans |
|
$ |
3,514,620 |
|
|
$ |
602,381 |
|
|
$ |
4,117,001 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Purchase Accounting Discount |
|
|
|
|
|
|
(163,842 |
) |
|
|
(163,842 |
) |
Less: Deferred net loan fees |
|
|
(6,030 |
) |
|
|
|
|
|
|
(6,030 |
) |
|
|
|
|
|
|
|
|
|
|
Gross loans, net of deferred loan fees |
|
$ |
3,508,590 |
|
|
$ |
438,539 |
|
|
$ |
3,947,129 |
|
Less: Allowance for credit losses |
|
|
(112,321 |
) |
|
|
|
|
|
|
(112,321 |
) |
|
|
|
|
|
|
|
|
|
|
Net Loans |
|
$ |
3,396,269 |
|
|
$ |
438,539 |
|
|
$ |
3,834,808 |
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for Credit Losses as a % of Loans, net of
deferred loan fees |
|
|
3.20 |
% |
|
|
|
|
|
|
2.85 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009 |
|
|
|
Non-Covered |
|
|
|
|
|
|
|
|
|
Loans |
|
|
Covered Loans |
|
|
Total |
|
Commercial and Industrial |
|
$ |
413,715 |
|
|
$ |
61,802 |
|
|
$ |
475,517 |
|
Real Estate: |
|
|
|
|
|
|
|
|
|
|
|
|
Construction |
|
|
265,444 |
|
|
|
136,065 |
|
|
|
401,509 |
|
Commercial Real Estate |
|
|
1,989,644 |
|
|
|
357,140 |
|
|
|
2,346,784 |
|
SFR Mortgage |
|
|
265,543 |
|
|
|
17,510 |
|
|
|
283,053 |
|
Consumer |
|
|
67,693 |
|
|
|
11,066 |
|
|
|
78,759 |
|
Municipal lease finance receivables |
|
|
159,582 |
|
|
|
983 |
|
|
|
160,565 |
|
Auto and equipment leases, net of unearned discount |
|
|
30,337 |
|
|
|
|
|
|
|
30,337 |
|
Dairy and Livestock/Agribusiness |
|
|
422,958 |
|
|
|
70,493 |
|
|
|
493,451 |
|
|
|
|
|
|
|
|
|
|
|
Gross Loans |
|
$ |
3,614,916 |
|
|
$ |
655,059 |
|
|
$ |
4,269,975 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Purchase Accounting Discount |
|
|
|
|
|
|
(184,419 |
) |
|
|
(184,419 |
) |
Less: Deferred net loan fees |
|
|
(6,537 |
) |
|
|
(6 |
) |
|
|
(6,543 |
) |
|
|
|
|
|
|
|
|
|
|
Gross loans, net of deferred loan fees |
|
$ |
3,608,379 |
|
|
$ |
470,634 |
|
|
$ |
4,079,013 |
|
Less: Allowance for credit losses |
|
|
(108,924 |
) |
|
|
|
|
|
|
(108,924 |
) |
|
|
|
|
|
|
|
|
|
|
Net Loans |
|
$ |
3,499,455 |
|
|
$ |
470,634 |
|
|
$ |
3,970,089 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for Credit Losses as a % of Loans, net of
deferred loan fees |
|
|
3.02 |
% |
|
|
|
|
|
|
2.67 |
% |
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.
37
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 as of March 31, 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2010 |
|
|
|
|
|
|
|
|
|
|
|
Non-Covered |
|
Non-Covered |
|
|
|
|
|
|
|
|
|
Commercial |
|
Loans by Market Area |
|
Total Non-Covered Loans |
|
|
Real Estate Loans |
|
|
|
(amounts in thousands) |
|
Los Angeles County |
|
$ |
1,148,558 |
|
|
|
32.7 |
% |
|
$ |
799,707 |
|
|
|
40.0 |
% |
Inland Empire |
|
|
764,922 |
|
|
|
21.8 |
% |
|
|
474,206 |
|
|
|
23.8 |
% |
Central Valley |
|
|
612,110 |
|
|
|
17.4 |
% |
|
|
284,422 |
|
|
|
14.3 |
% |
Orange County |
|
|
514,543 |
|
|
|
14.6 |
% |
|
|
323,176 |
|
|
|
16.2 |
% |
Other Areas |
|
|
474,487 |
|
|
|
13.5 |
% |
|
|
112,911 |
|
|
|
5.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
3,514,620 |
|
|
|
100.0 |
% |
|
$ |
1,994,422 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2010 |
|
Covered Loans |
|
|
|
|
|
|
|
|
|
Covered Commercial |
|
Loans by Market Area |
|
Total Covered Loans |
|
|
Real Estate Loans |
|
|
|
(amounts in thousands) |
|
Los Angeles County |
|
$ |
20,480 |
|
|
|
3.4 |
% |
|
$ |
3,042 |
|
|
|
0.9 |
% |
Inland Empire |
|
|
3,199 |
|
|
|
0.5 |
% |
|
|
240 |
|
|
|
0.1 |
% |
Central Valley |
|
|
466,589 |
|
|
|
77.5 |
% |
|
|
276,426 |
|
|
|
85.2 |
% |
Orange County |
|
|
7,294 |
|
|
|
1.2 |
% |
|
|
3,597 |
|
|
|
1.1 |
% |
Other Areas (1) |
|
|
104,819 |
|
|
|
17.4 |
% |
|
|
41,178 |
|
|
|
12.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
602,381 |
|
|
|
100.0 |
% |
|
$ |
324,483 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Other areas include church and hotel loans that are out-of-state or in other areas of
California |
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%. This table breaks down our real estate portfolio, with the exception of
construction loans, which are discussed in greater detail below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2010 |
|
|
|
|
|
|
|
|
|
|
|
Percent |
|
|
Average |
|
Non-Covered Real Estate Loans |
|
|
|
|
|
|
|
|
|
Owner- |
|
|
Loan |
|
(amounts in thousands) |
|
Loan Balance |
|
|
Percent |
|
|
Occupied (1) |
|
|
Balance |
|
Single Family-Direct |
|
$ |
53,584 |
|
|
|
2.4 |
% |
|
|
100.0 |
% |
|
$ |
457 |
|
Single Family-Mortgage Pools |
|
|
199,726 |
|
|
|
8.9 |
% |
|
|
100.0 |
% |
|
|
337 |
|
Multifamily |
|
|
107,765 |
|
|
|
4.8 |
% |
|
|
0.0 |
% |
|
|
876 |
|
Industrial |
|
|
655,761 |
|
|
|
29.1 |
% |
|
|
37.2 |
% |
|
|
866 |
|
Office |
|
|
387,922 |
|
|
|
17.3 |
% |
|
|
24.2 |
% |
|
|
1,018 |
|
Retail |
|
|
239,986 |
|
|
|
10.7 |
% |
|
|
15.0 |
% |
|
|
1,062 |
|
Medical |
|
|
134,324 |
|
|
|
6.0 |
% |
|
|
42.6 |
% |
|
|
1,840 |
|
Secured by Farmland |
|
|
158,427 |
|
|
|
7.0 |
% |
|
|
100.0 |
% |
|
|
2,112 |
|
Other |
|
|
310,237 |
|
|
|
13.8 |
% |
|
|
48.8 |
% |
|
|
1,189 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
2,247,732 |
|
|
|
100.0 |
% |
|
|
44.5 |
% |
|
|
1,047 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Represents percentage of owner-occupied in each real estate loan category |
38
In the table above, Single Family-Direct represents those single-family residence loans that
we have made directly to our customers. These loans total $53.6 million. In addition, we have
purchased pools of owner-occupied single-family loans from real estate lenders, Single
Family-Mortgage Pools, totaling $199.7 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.
The table below provides a breakdown of our covered real estate loans.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2010 |
|
Covered Real Estate Loans |
|
|
|
|
|
|
|
|
|
Average Loan |
|
(amounts in thousands) |
|
Loan Balance |
|
|
Percent |
|
|
Balance |
|
Single Family-Direct |
|
$ |
8,366 |
|
|
|
2.5 |
% |
|
$ |
279 |
|
Multifamily |
|
|
21,664 |
|
|
|
6.5 |
% |
|
|
505 |
|
Industrial |
|
|
42,110 |
|
|
|
12.7 |
% |
|
|
546 |
|
Office |
|
|
32,263 |
|
|
|
9.7 |
% |
|
|
560 |
|
Retail |
|
|
40,336 |
|
|
|
12.1 |
% |
|
|
706 |
|
Medical |
|
|
28,659 |
|
|
|
8.6 |
% |
|
|
653 |
|
Secured by Farmland |
|
|
6,487 |
|
|
|
1.9 |
% |
|
|
1,274 |
|
Secured by Hotels |
|
|
61,777 |
|
|
|
18.6 |
% |
|
|
3,634 |
|
Church Loans |
|
|
46,220 |
|
|
|
13.9 |
% |
|
|
1,778 |
|
Other |
|
|
44,967 |
|
|
|
13.5 |
% |
|
|
678 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
332,849 |
|
|
|
100.0 |
% |
|
$ |
1,343 |
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2010, the Company had $349.0 million in construction loans. This represents
8.5% of gross loans outstanding of $4.1 billion. The following table presents a break-down of our
non-covered construction loans by county and type.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2010 |
|
Non-Covered |
|
SFR & Multifamily |
|
Construction Loans |
|
Land |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(amounts in thousands) |
|
Development |
|
|
|
|
|
|
Construction |
|
|
|
|
|
|
Total |
|
|
|
|
|
Inland Empire |
|
$ |
3,352 |
|
|
|
64.4 |
% |
|
$ |
15,500 |
|
|
|
34.8 |
% |
|
$ |
18,852 |
|
|
|
37.8 |
% |
Los Angeles |
|
|
|
|
|
|
0.0 |
% |
|
|
24,848 |
|
|
|
55.6 |
% |
|
|
24,848 |
|
|
|
49.9 |
% |
Central Valley |
|
|
1,849 |
|
|
|
35.6 |
% |
|
|
264 |
|
|
|
0.6 |
% |
|
|
2,113 |
|
|
|
4.2 |
% |
San Diego |
|
|
|
|
|
|
0.0 |
% |
|
|
4,039 |
|
|
|
9.0 |
% |
|
|
4,039 |
|
|
|
8.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
5,201 |
|
|
|
100.0 |
% |
|
$ |
44,651 |
|
|
|
100.0 |
% |
|
$ |
49,852 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
|
|
Land |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Development |
|
|
|
|
|
|
Construction |
|
|
|
|
|
|
Total |
|
|
|
|
|
Inland Empire |
|
$ |
12,960 |
|
|
|
36.7 |
% |
|
$ |
50,893 |
|
|
|
37.4 |
% |
|
$ |
63,853 |
|
|
|
37.3 |
% |
Orange |
|
|
|
|
|
|
0.0 |
% |
|
|
3,357 |
|
|
|
2.5 |
% |
|
|
3,357 |
|
|
|
2.0 |
% |
Los Angeles |
|
|
4,700 |
|
|
|
13.3 |
% |
|
|
38,139 |
|
|
|
28.1 |
% |
|
|
42,839 |
|
|
|
25.0 |
% |
Central Valley |
|
|
10,723 |
|
|
|
30.3 |
% |
|
|
14,844 |
|
|
|
10.9 |
% |
|
|
25,567 |
|
|
|
14.9 |
% |
Other (includes out-of-state) |
|
|
6,977 |
|
|
|
19.7 |
% |
|
|
28,685 |
|
|
|
21.1 |
% |
|
|
35,662 |
|
|
|
20.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
35,360 |
|
|
|
100.0 |
% |
|
$ |
135,918 |
|
|
|
100.0 |
% |
|
$ |
171,278 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39
Of this $223.7 million in non-covered construction loans, approximately 23%, or $52.4 million,
were for single-family residences, residential land loans, and multi-family land development loans.
The remaining construction loans, totaling $171.3 million, were related to commercial construction.
The average balance of any single construction loan is approximately $3.4 million. Our
construction loans are located throughout our marketplace as can be seen in the table above. Of
the total SFR and multifamily loans, $33.3 million are for multifamily and the remainder represents
single-family loans.
The following table presents a break-down of our covered construction loans by county and
type.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2010 |
|
Covered |
|
SFR & Multifamily |
|
Construction Loans |
|
Land |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(amounts in thousands) |
|
Development |
|
|
|
|
|
|
Construction |
|
|
|
|
|
|
Total |
|
|
|
|
|
Central Valley |
|
|
47,981 |
|
|
|
84.1 |
% |
|
|
12,618 |
|
|
|
85.6 |
% |
|
|
60,599 |
|
|
|
84.4 |
% |
Other (includes out-of-state) |
|
|
9,074 |
|
|
|
15.9 |
% |
|
|
2,120 |
|
|
|
14.4 |
% |
|
|
11,194 |
|
|
|
15.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
57,055 |
|
|
|
100.0 |
% |
|
$ |
14,738 |
|
|
|
100.0 |
% |
|
$ |
71,793 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
|
|
Land |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Development |
|
|
|
|
|
|
Construction |
|
|
|
|
|
|
Total |
|
|
|
|
|
Central Valley |
|
|
14,214 |
|
|
|
100.0 |
% |
|
|
33,909 |
|
|
|
80.9 |
% |
|
|
48,123 |
|
|
|
85.7 |
% |
Other (includes out-of-state) |
|
|
|
|
|
|
0.0 |
% |
|
|
8,000 |
|
|
|
19.1 |
% |
|
|
8,000 |
|
|
|
14.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
14,214 |
|
|
|
100.0 |
% |
|
$ |
41,909 |
|
|
|
100.0 |
% |
|
$ |
56,123 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for Credit Losses
The allowance for credit losses was $112.3 million as of March 31, 2010. This represents an
increase of $3.4 million, or 3.12%, compared to allowance for credit losses of $108.9 million as of
December 31, 2009. Activity in the allowance for credit losses was as follows for the first three
months of 2010 and for the year ended December 31, 2009.
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
(amounts in thousands) |
|
|
Balance, beginning of year |
|
$ |
108,924 |
|
|
$ |
53,960 |
|
Provision charged to operations |
|
|
12,200 |
|
|
|
80,500 |
|
Loans charged-off |
|
|
(8,931 |
) |
|
|
(26,339 |
) |
Recoveries on loans previously charged-off |
|
|
128 |
|
|
|
803 |
|
|
|
|
|
|
|
|
Balance, end of the period |
|
$ |
112,321 |
|
|
$ |
108,924 |
|
|
|
|
|
|
|
|
Non-performing Assets (Non-Covered)
We had non-covered non-performing assets of $92.0 million at March 31, 2010. Non-performing
assets represent 2.61% of total loans and OREO and 1.36% of total assets at March 31, 2010. We had
non-performing assets of $73.7 million at December 31, 2009. Non-performing assets include
non-accrual loans plus other real estate owned (foreclosed property).
40
TABLE 5 Non-Performing Assets
(Non-Covered)
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
(amounts in thousands) |
|
Non-accrual loans |
|
$ |
62,410 |
|
|
$ |
68,762 |
|
Restructured loans (non-performing) |
|
|
14,430 |
|
|
|
1,017 |
|
Other real estate owned (OREO) |
|
|
15,178 |
|
|
|
3,936 |
|
|
|
|
|
|
|
|
Total nonperforming assets |
|
$ |
92,018 |
|
|
$ |
73,715 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructured loans (performing) |
|
$ |
9,477 |
|
|
$ |
2,500 |
|
|
|
|
|
|
|
|
Percentage of nonperforming assets
to total loans outstanding & OREO |
|
|
2.61 |
% |
|
|
2.04 |
% |
|
|
|
|
|
|
|
Percentage of nonperforming assets
to total assets |
|
|
1.36 |
% |
|
|
1.09 |
% |
|
|
|
|
|
|
|
We
had loans with a balance of $86.3 million classified as impaired at March 31, 2010. This
balance includes the non-performing loans of $76.8 million and loans which were restructured
in a troubled debt restructuring with a balance of $23.9 million
as of March 31, 2010, of which $14.4
million are also non-performing. At December 31, 2009, we had impaired loans with a balance of
$72.3 million. Impaired loans measured 2.26% of total non-covered loans as of March 31, 2010.
As of March 31, 2010, we had $15.2 million in non-covered OREO compared to $3.9 million as of
December 31, 2009, an increase of $11.3 million. This was primarily due to the sales of existing
OREO properties of $1.2 million, offset by the transfer of $12.5 million from non-performing loans
during the first three months of 2010. During the first three months of 2010, the Bank incurred
expenses of $13,000 related to the holding of OREO.
The table below provides trends in our non-covered non-performing assets and delinquencies
over the past year.
41
Non-Performing Assets & Delinquency Trends
(Non-Covered Loans)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
|
September 30, |
|
|
June 30, |
|
|
March 31, |
|
|
|
2010 |
|
|
2009 |
|
|
2009 |
|
|
2009 |
|
|
2009 |
|
Non-Performing Loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential Construction and Land |
|
$ |
2,855 |
|
|
$ |
13,843 |
|
|
$ |
15,729 |
|
|
$ |
17,348 |
|
|
$ |
20,943 |
|
Commercial Construction |
|
|
31,216 |
|
|
|
23,832 |
|
|
|
19,636 |
|
|
|
21,270 |
|
|
|
22,102 |
|
Residential Mortgage |
|
|
13,726 |
|
|
|
11,787 |
|
|
|
8,102 |
|
|
|
4,632 |
|
|
|
2,203 |
|
Commercial Real Estate |
|
|
22,041 |
|
|
|
17,129 |
|
|
|
13,522 |
|
|
|
7,041 |
|
|
|
1,661 |
|
Commercial and Industrial |
|
|
6,879 |
|
|
|
3,173 |
|
|
|
1,045 |
|
|
|
859 |
|
|
|
792 |
|
Consumer |
|
|
123 |
|
|
|
15 |
|
|
|
100 |
|
|
|
115 |
|
|
|
336 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
76,840 |
|
|
$ |
69,779 |
|
|
$ |
58,134 |
|
|
$ |
51,265 |
|
|
$ |
48,037 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of Total Loans |
|
|
2.19 |
% |
|
|
1.93 |
% |
|
|
1.61 |
% |
|
|
1.42 |
% |
|
|
1.31 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Past Due 30-89 Days |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential Construction and Land |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Commercial Construction |
|
|
8,143 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential Mortgage |
|
|
3,746 |
|
|
|
4,921 |
|
|
|
1,510 |
|
|
|
2,069 |
|
|
|
3,814 |
|
Commercial Real Estate |
|
|
3,286 |
|
|
|
2,407 |
|
|
|
190 |
|
|
|
1,074 |
|
|
|
8,341 |
|
Commercial and Industrial |
|
|
2,714 |
|
|
|
2,973 |
|
|
|
5,094 |
|
|
|
590 |
|
|
|
1,720 |
|
Dairy & Livestock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,551 |
|
|
|
|
|
Consumer |
|
|
28 |
|
|
|
239 |
|
|
|
87 |
|
|
|
8 |
|
|
|
62 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
17,917 |
|
|
$ |
10,540 |
|
|
$ |
6,881 |
|
|
$ |
7,292 |
|
|
$ |
13,937 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of Total Loans |
|
|
0.51 |
% |
|
|
0.29 |
% |
|
|
0.19 |
% |
|
|
0.20 |
% |
|
|
0.38 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OREO |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential Construction and Land |
|
$ |
11,113 |
|
|
$ |
|
|
|
$ |
1,137 |
|
|
$ |
1,789 |
|
|
$ |
2,416 |
|
Commercial Construction |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Real Estate |
|
|
3,746 |
|
|
|
3,936 |
|
|
|
|
|
|
|
1,187 |
|
|
|
4,612 |
|
Commercial and Industrial |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
893 |
|
|
|
893 |
|
Residential Mortgage |
|
|
319 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
745 |
|
Consumer |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
166 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
15,178 |
|
|
$ |
3,936 |
|
|
$ |
1,137 |
|
|
$ |
4,035 |
|
|
$ |
8,666 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Non-Performing, Past Due & OREO |
|
$ |
109,935 |
|
|
$ |
84,255 |
|
|
$ |
66,152 |
|
|
$ |
62,592 |
|
|
$ |
70,640 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of Total Loans |
|
|
3.13 |
% |
|
|
2.33 |
% |
|
|
1.84 |
% |
|
|
1.73 |
% |
|
|
1.93 |
% |
We had $76.8 million in non-covered non-performing loans at March 31, 2010, or 2.19% of total
non-covered loans. This compares to $69.8 million in non-performing loans at December 31, 2009 and
$48.0 million in non-performing loans at March 31, 2009. Non-performing loans consist of $2.9
million in residential real estate construction and land loans, $31.2 million in commercial
construction loans, $13.7 million in single-family mortgage loans, $22.0 million in commercial real
estate loans, $6.9 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 March 31, 2010
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 anticipate that there
will be some additional 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.
42
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 March 31, 2010, total deposits were $4.52 billion, representing an increase of $79.9
million, or 1.80%, over total deposits of $4.44 billion at December 31, 2009. The composition of
deposits is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2010 |
|
|
December 31, 2009 |
|
|
|
(Amounts in thousands) |
|
Non-interest bearing deposits |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits |
|
$ |
1,598,022 |
|
|
|
35.4 |
% |
|
$ |
1,561,981 |
|
|
|
35.2 |
% |
Interest bearing deposits |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings Deposits |
|
|
1,696,504 |
|
|
|
37.5 |
% |
|
|
1,682,415 |
|
|
|
37.9 |
% |
Time deposits |
|
|
1,224,073 |
|
|
|
27.1 |
% |
|
|
1,194,258 |
|
|
|
26.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deposits |
|
$ |
4,518,599 |
|
|
|
100.0 |
% |
|
$ |
4,438,654 |
|
|
|
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 $1.60 billion at March
31, 2010, representing an increase of $36.0 million, or 2.31%, over total demand deposits of $1.56
billion at December 31, 2009. Non-interest-bearing demand deposits represented 35.4% of total
deposits as of March 31, 2010 and 35.2% of total deposits as of December 31, 2009.
Savings deposits, which include savings, interest-bearing demand, and money market accounts,
totaled $1.70 billion at March 31, 2010, representing an increase of $14.1 million, or 0.84%, over
savings deposits of $1.68 billion at December 31, 2009.
Time deposits totaled $1.22 billion at March 31, 2010. This represented an increase of $29.8
million, or 2.50%, over total time deposits of $1.19 billion at December 31, 2009.
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 25.59% as of March 31, 2010, as compared to 31.23% as of December
31, 2009.
We enter 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 March 31, 2010 and December 31, 2009. As a result of the
increase in our deposits and customer repurchases, it is possible for us to reduce our reliance on
borrowings.
In June 2006, the Company purchased securities totaling $250.0 million. This purchase was
funded by a repurchase agreement with J.P. Morgan 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 March 31, 2010 and December 31,
2009, total customer repurchases were $535.2 million and $485.1 million, respectively, with
weighted average annual interest rates of 0.84% and 0.95%. As of March 31, 2010 and December 31,
2009, total funds borrowed under these agreements were $785.2 million and $735.1 million,
respectively.
43
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 $650.0 million and $750.0 million
under these agreements at March 31, 2010 and December 31, 2009, respectively. The weighted average
annual interest rate was 3.63% and 3.81% at March 31, 2010 and December 31, 2009, 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 March 31, 2010 and December 31, 2009 the amounts held by the
Bank in the TT&L Note Option Program were $4.2 million and $2.4 million, collateralized by
securities, respectively. Amounts are payable on demand.
At March 31, 2010, borrowed funds totaled $1.44 billion, representing a decrease of $48.0
million, or 3.22%, from total borrowed funds of $1.49 billion at December 31, 2009.
Aggregate Contractual Obligations
The following table summarizes our contractual commitments as of March 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
$ |
4,518,598 |
|
|
$ |
4,499,701 |
|
|
$ |
10,310 |
|
|
$ |
5,386 |
|
|
$ |
3,201 |
|
Repurchase Agreements |
|
|
785,214 |
|
|
|
535,214 |
|
|
|
250,000 |
|
|
|
|
|
|
|
|
|
FHLB and Other Borrowings |
|
|
659,232 |
|
|
|
4,232 |
|
|
|
100,000 |
|
|
|
100,000 |
|
|
|
455,000 |
|
Junior Subordinated Debentures |
|
|
115,055 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
115,055 |
|
Deferred Compensation |
|
|
9,558 |
|
|
|
635 |
|
|
|
1,613 |
|
|
|
1,591 |
|
|
|
5,719 |
|
Operating Leases |
|
|
24,300 |
|
|
|
4,144 |
|
|
|
9,139 |
|
|
|
4,892 |
|
|
|
6,125 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
6,111,957 |
|
|
$ |
5,043,926 |
|
|
$ |
371,062 |
|
|
$ |
111,869 |
|
|
$ |
585,100 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits represent non-interest bearing, money market, savings, NOW, certificates of deposits,
brokered and all other deposits held by the Company.
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
March 31, 2010.
Deferred compensation primarily represents the amounts that are due to former employees
salary continuation agreements as a result of acquisitions.
Operating leases represent the total minimum lease payments under noncancelable operating
leases.
44
Off-Balance Sheet Arrangements
At March 31, 2010, we had commitments to extend credit of approximately $653.5 million and
obligations under letters of credit of $68.5 million and available lines of credit totaling $1.06
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 $9.2 million as of March 31, 2010 and $7.9 million as of December 31,
2009.
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 March 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturity by Period |
|
|
|
|
|
|
|
Less Than |
|
|
One Year |
|
|
Four Year |
|
|
After |
|
|
|
|
|
|
|
One |
|
|
to Three |
|
|
to Five |
|
|
Five |
|
|
|
Total |
|
|
Year |
|
|
Years |
|
|
Years |
|
|
Years |
|
|
|
|
|
|
|
(Amounts in thousands) |
|
2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitment to extend credit |
|
|
653,526 |
|
|
|
208,965 |
|
|
|
68,247 |
|
|
|
56,126 |
|
|
|
320,188 |
|
Obligations under letters of credit |
|
|
68,541 |
|
|
|
52,940 |
|
|
|
9,715 |
|
|
|
5,886 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
722,067 |
|
|
$ |
261,905 |
|
|
$ |
77,962 |
|
|
$ |
62,012 |
|
|
$ |
320,188 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 three months
of 2010, the Banks loan to deposit ratio averaged 89.55%, compared to an average ratio of 102.14%
for the same period in 2009. The Banks ratio of loans to deposits and customer repurchases
averaged 79.46% for the first three months of 2010 and 92.24% for the same period in 2009.
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. 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
March 31, 2010, approximately $107.4 million of the Banks equity was unrestricted and available to
be paid as dividends to CVB. Management of CVB believes that such restrictions will not have an
impact on the ability of CVB to meet its ongoing cash obligations.
45
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 $41.9 million for the first three months of
2010, compared to $34.4 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 $162.0 million for the first three months of
2010, compared to net cash provided by investing activities of $235.4 million for the same period
in 2009. The cash provided by investing activities was primarily the result of a decrease in loans
during the first three months of 2010, offset by purchases, repayments and maturities of investment
securities.
Net cash provided by financing activities totaled $23.1 million for the first three months of
2010, compared to net cash used in financing activities of $263.8 million for the same period last
year. The cash provided by financing activities during the first three months of 2010 was
primarily due to an increase in deposits and customer repurchases, offset by repayment of advances
from FHLB. The increase in cash used during the first three months of 2009 was primarily due to
repayment of FHLB advances, offset by increases in deposits.
At
March 31, 2010, cash and cash equivalents totaled $331.5 million. This represented an
increase of $230.3 million, or 227.5%, over a total of $101.2 million at March 31, 2009 and an
increase of $227.0 million, or 217.3%, over a total of $104.5 million at December 31, 2009.
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. Based on the Board of Directors analysis of our capital needs (including any capital
needs arising out of our financial condition and results of operations or from any acquisitions we
may make) and the input of our regulators, we could determine or, our regulators could require us,
to raise additional capital.
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 March 31, 2010, the Bank and the Company exceeded
the minimum risk-based capital ratios and leverage ratios required to be considered
well-capitalized for regulatory purposes.
The Companys equity capital was $652.8 million at March 31, 2010. This represented an
increase of $14.5 million, or 2.28%, over equity capital of $638.2 million at December 31, 2009.
The Companys 2009 Annual Report on Form 10-K (Managements Discussion and Analysis and Note 17 of
the accompanying financial statements) describes the regulatory capital requirements of the Company
and the Bank.
During the first three months of 2010, the Board of Directors of the Company declared
quarterly common stock cash dividends that totaled $0.085 per share. Dividends are payable at the
discretion of the Board of Directors and there can be no assurance that the Board of Directors will
continue to pay dividends at the same rate, or at all, in the future. CVBs ability to pay cash
dividends to its shareholders is subject to restrictions under federal and California law,
including restrictions imposed by the FRB and covenants set forth in various agreements we are a
party to including covenants set forth in our junior subordinated debentures.
46
The table below presents the Companys and the Banks risk-based and leverage capital ratios
as of March 31, 2010, and December 31, 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Required |
|
|
|
|
|
|
|
|
|
Minimum |
|
|
March 31, 2010 |
|
|
December 31, 2009 |
|
Capital Ratios |
|
Ratios |
|
|
Company |
|
|
Bank |
|
|
Company |
|
|
Bank |
|
Risk-based capital ratios: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier I |
|
|
4.00 |
% |
|
|
15.5 |
% |
|
|
15.4 |
% |
|
|
14.9 |
% |
|
|
14.9 |
% |
Total |
|
|
8.00 |
% |
|
|
16.8 |
% |
|
|
16.7 |
% |
|
|
16.3 |
% |
|
|
16.2 |
% |
Leverage ratio |
|
|
4.00 |
% |
|
|
9.9 |
% |
|
|
9.8 |
% |
|
|
9.6 |
% |
|
|
9.6 |
% |
Tangible Capital Ratio |
|
|
|
|
|
|
8.7 |
% |
|
|
10.3 |
% |
|
|
8.4 |
% |
|
|
10.0 |
% |
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.
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.
47
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 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.
48
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 three
months ended March 31, 2010 and 2009.
49
TABLE 7 Summary of Credit Loss Experience
(Non-Covered Loans)
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
(amounts in thousands) |
|
Amount of Total Loans at End of Period (1) |
|
$ |
3,508,590 |
|
|
$ |
3,658,859 |
|
|
|
|
|
|
|
|
Average Total Loans Outstanding (1) |
|
$ |
3,557,310 |
|
|
$ |
3,680,258 |
|
|
|
|
|
|
|
|
Allowance for Credit Losses: |
|
|
|
|
|
|
|
|
Beginning of Period |
|
$ |
108,924 |
|
|
$ |
53,960 |
|
Loans Charged-Off: |
|
|
|
|
|
|
|
|
Construction Loans |
|
|
4,684 |
|
|
|
7,643 |
|
Real Estate Loans |
|
|
565 |
|
|
|
188 |
|
Commercial and Industrial |
|
|
3,611 |
|
|
|
2,212 |
|
Lease Financing Receivables |
|
|
|
|
|
|
144 |
|
Consumer Loans |
|
|
71 |
|
|
|
117 |
|
|
|
|
|
|
|
|
Total Loans Charged-Off |
|
|
8,931 |
|
|
|
10,304 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recoveries: |
|
|
|
|
|
|
|
|
Real Estate Loans |
|
|
|
|
|
|
|
|
Commercial and Industrial |
|
|
120 |
|
|
|
13 |
|
Lease Financing Receivables |
|
|
|
|
|
|
73 |
|
Consumer Loans |
|
|
8 |
|
|
|
13 |
|
|
|
|
|
|
|
|
Total Loans Recovered |
|
|
128 |
|
|
|
99 |
|
|
|
Net Loans Charged-Off |
|
|
8,803 |
|
|
|
10,205 |
|
|
|
|
|
|
|
|
Provision Charged to Operating Expense |
|
|
12,200 |
|
|
|
22,000 |
|
|
|
|
|
|
|
|
Allowance for Credit Losses at End of period |
|
$ |
112,321 |
|
|
$ |
65,755 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Net of deferred loan fees |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loans Charged-Off to Average Total Loans |
|
|
0.25 |
% |
|
|
0.28 |
% |
Net Loans Charged-Off to Total Loans at End of Period |
|
|
0.25 |
% |
|
|
0.28 |
% |
Allowance for Credit Losses to Average Total Loans |
|
|
3.16 |
% |
|
|
1.79 |
% |
Allowance for Credit Losses to Total Loans at End of Period |
|
|
3.20 |
% |
|
|
1.80 |
% |
Net Loans Charged-Off to Allowance for Credit Losses |
|
|
7.84 |
% |
|
|
15.52 |
% |
Net Loans Charged-Off to Provision for Credit Losses |
|
|
72.16 |
% |
|
|
46.39 |
% |
While we believe that the allowance at March 31, 2010, was adequate to absorb losses from any
known or inherent risks in the portfolio, no assurance can be given that economic conditions,
conditions of our borrowers, 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.
50
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. This
transaction was conducted 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. |
|
|
|
Most of our investments 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 all
of the insurance companies carry an AM Best rating of A or greater. |
|
|
|
We have $295.0 million in Fed Funds lines of credit with other banks. All of these
banks are major U.S. banks, with over $20.0 billion in assets. We rely on these funds for
overnight borrowings. We currently have no outstanding Fed Funds balance. |
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, a negative gap indicates that interest-bearing
liabilities will reprice faster than earning assets. This 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.
51
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 $1.4 billion, or 65%, of the total investment portfolio at March 31, 2010
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 March 31,
2010:
|
|
|
|
|
|
|
Estimated Net |
|
Simulated |
|
Interest Income |
|
Rate Changes |
|
Sensitivity |
|
+ 200 basis points |
|
|
(3.85% |
) |
- 100 basis points |
|
|
0.70 |
% |
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.
52
Liquidity Risk
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-depth audits performed by an independent external firm and the other is periodic monitoring
performed by the Risk Management Division.
53
The Bank utilizes an independent external firm to conduct compliance audits as a means of
identifying weaknesses in the compliance program itself. The independent 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.
54
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.
55
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not Applicable
ITEM 1A. RISK FACTORS
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, 2009. 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.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
We did not repurchase any common stock during the three months ended March 31, 2010.
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 March 31, 2010.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable
ITEM 4. OTHER INFORMATION
Not Applicable
56
ITEM 5. EXHIBITS
|
|
|
|
|
Exhibit No. |
|
Description of Exhibits |
|
|
|
|
|
|
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. |
57
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: May 10, 2010 |
/s/ Edward J. Biebrich Jr.
|
|
|
Edward J. Biebrich Jr. |
|
|
Chief Financial Officer |
|
58
Exhibit 31.1
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.
|
|
|
|
|
|
|
|
Date: May 10, 2010 |
/s/ Christopher D. Myers
|
|
|
Christopher D. Myers |
|
|
Chief Executive Officer |
|
Exhibit 31.2
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.
|
|
|
|
|
|
|
|
Date: May 10, 2010 |
/s/ Edward J. Biebrich, Jr.
|
|
|
Edward J. Biebrich, Jr. |
|
|
Chief Financial Officer |
|
Exhibit 32.1
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 March 31, 2010, 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:
|
(1) |
|
The Report fully complies with the requirements of section 13(a) or 15(d) of the
Securities Exchange Act of 1934; and |
|
(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: May 10, 2010 |
/s/ Christopher D. Myers
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Christopher D. Myers |
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Chief Executive Officer |
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Exhibit 32.2
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 March 31, 2010, 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:
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(1) |
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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: May 10, 2010 |
/s/ Edward J. Biebrich Jr.
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Edward J. Biebrich Jr. |
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Chief Financial Officer |
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