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Acquired SJB Assets and FDIC Loss Sharing Asset

6.	ACQUIRED SJB ASSETS AND FDIC LOSS SHARING ASSET

FDIC Assisted Acquisition

On October 16, 2009, the Bank acquired SJB and entered into a loss sharing agreements with the FDIC that is more fully discussed in Note 3 — Summary of Significant Accounting Policies included herein. The acquisition has been accounted for under the purchase method of accounting. The assets and liabilities were recorded at their estimated fair values as of the October 16, 2009 acquisition date. The acquired loans were accounted for as PCI loans.

At December 31, 2017, the remaining discount associated with the PCI loans approximated $2.0 million. The loss sharing agreement for commercial loans expired October 16, 2014 and will expire for single family residential loans on October 16, 2019.

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


	December 31,
	2017		2016
	(Dollars in thousands)

Commercial and industrial	$	934	$	2,309
SBA		1,383		327
Real estate:
Commercial real estate		27,431		67,594
Construction		-		-
SFR mortgage		162		178
Dairy & livestock and agribusiness		770		1,216
Municipal lease finance receivables		-		-
Consumer and other loans		228		1,469

Gross PCI loans		30,908		73,093
Less: Purchase accounting discount		(2,026)		(1,508)

Gross PCI loans, net of discount		28,882		71,585
Less: Allowance for PCI loan losses		(367)		(1,219)

Net PCI loans	$	28,515	$	70,366

Credit Quality Indicators

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


	December 31,
	2017		2016
	(Dollars in thousands)
Pass	$	26,439	$	59,409
Special mention		1,088		1,162
Substandard		3,381		12,522
Doubtful & loss		-		-

Total gross PCI loans	$	30,908	$	73,093

FDIC Loss Sharing Liability

The following table summarizes the activity related to the FDIC loss sharing liability for the periods presented.


	For the Year Ended December 31,
	2017		2016
	(Dollars in thousands)
Balance, beginning of period	$	(502)	$	(229)
FDIC share of recoveries, net of charge-offs		-		(5)
Cash paid to FDIC, net		519		514
Other		(124)		(782)

Balance, end of period	$	(107)	$	(502)

Through December 31, 2017, the Bank has submitted claims to the FDIC for net losses on PCI loans totaling $118.9 million.

Loans and Lease Finance Receivables and Allowance for Loan Losses

12 Months Ended

Dec. 31, 2017

Receivables [Abstract]

Loans and Lease Finance Receivables and Allowance for Loan Losses

7.	LOANS AND LEASE FINANCE RECEIVABLES AND ALLOWANCE FOR LOAN LOSSES

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


	December 31,
	2017		2016
	(Dollars in thousands)

Commercial and industrial	$	513,325	$	485,078
SBA		122,055		97,184
Real estate:
Commercial real estate		3,376,713		2,930,141
Construction		77,982		85,879
SFR mortgage		236,202		250,605
Dairy & livestock and agribusiness		347,289		338,631
Municipal lease finance receivables		70,243		64,639
Consumer and other loans		64,229		78,274

Gross loans, excluding PCI loans		4,808,038		4,330,431
Less: Deferred loan fees, net		(6,289)		(6,952)

Gross loans, excluding PCI loans, net of deferred loan fees		4,801,749		4,323,479
Less: Allowance for loan losses		(59,218)		(60,321)

Net loans, excluding PCI loans		4,742,531		4,263,158

PCI Loans		30,908		73,093
Discount on PCI loans		(2,026)		(1,508)
Less: Allowance for loan losses		(367)		(1,219)

PCI loans, net		28,515		70,366

Total loans and lease finance receivables	$	4,771,046	$	4,333,524

As of December 31, 2017, 76.77% of the total gross loan portfolio (excluding PCI loans) consisted of real estate loans, 70.23% of which consisted of commercial real estate loans. Substantially all of the Company’s real estate loans and construction loans are secured by real properties located in California. As of December 31, 2017, $206.1 million, or 6.10% of the total commercial real estate loans included loans secured by farmland, compared to $180.6 million, or 6.16%, at December 31, 2016. The loans secured by farmland included $118.2 million for loans secured by dairy & livestock land and $87.9 million for loans secured by agricultural land at December 31, 2017, compared to $127.1 million for loans secured by dairy & livestock land and $53.6 million for loans secured by agricultural land at December 31, 2016. As of December 31, 2017, dairy & livestock and agribusiness loans of $347.3 million were comprised of $310.6 million for dairy & livestock loans and $36.7 million for agribusiness loans, compared to $317.9 million for dairy & livestock loans and $20.7 million for agribusiness loans at December 31, 2016.

At December 31, 2017, the Company held approximately $2.17 billion of total fixed rate loans, including PCI loans.

At December 31, 2017 and 2016, loans totaling $3.68 billion and $3.11 billion, respectively, were pledged to secure the borrowings and available lines of credit from the FHLB and the Federal Reserve Bank.

There were no outstanding loans held-for-sale as of December 31, 2017 and 2016.

Credit Quality Indicators

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

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

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

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

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

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

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

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


	December 31, 2017
	Pass		Special Mention		Substandard		Doubtful & Loss		Total
	(Dollars in thousands)
Commercial and industrial	$	483,641	$	19,566	$	10,118	$	-	$	513,325
SBA		112,835		5,358		3,862		-		122,055
Real estate:
Commercial real estate
Owner occupied		1,009,199		76,111		10,970		-		1,096,280
Non-owner occupied		2,257,130		16,434		6,869		-		2,280,433
Construction
Speculative		60,042		-		-		-		60,042
Non-speculative		17,940		-		-		-		17,940
SFR mortgage		229,032		3,124		4,046		-		236,202
Dairy & livestock and agribusiness		321,413		9,047		16,829		-		347,289
Municipal lease finance receivables		69,644		599		-		-		70,243
Consumer and other loans		61,715		1,255		1,259		-		64,229

Total gross loans, excluding PCI loans	$	4,622,591	$	131,494	$	53,953	$	-	$	4,808,038


	December 31, 2016
	Pass		Special Mention		Substandard		Doubtful & Loss		Total
	(Dollars in thousands)
Commercial and industrial	$	449,658	$	21,610	$	13,809	$	1	$	485,078
SBA		80,138		10,553		6,482		11		97,184
Real estate:
Commercial real estate
Owner occupied		842,992		87,781		19,046		-		949,819
Non-owner occupied		1,941,203		23,534		15,585		-		1,980,322
Construction
Speculative		48,841		-		-		-		48,841
Non-speculative		37,038		-		-		-		37,038
SFR mortgage		243,374		4,930		2,301		-		250,605
Dairy & livestock and agribusiness		187,819		114,106		36,706		-		338,631
Municipal lease finance receivables		60,102		4,537		-		-		64,639
Consumer and other loans		74,328		2,123		1,819		4		78,274

Total gross loans, excluding PCI loans	$	3,965,493	$	269,174	$	95,748	$	16	$	4,330,431

Allowance for Loan Losses

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

Our methodology for assessing the appropriateness of the allowance is conducted on a regular basis and considers the Bank’s overall loan portfolio. Refer to Note 3 — Summary of Significant Accounting Policies for a more detailed discussion concerning the allowance for loan losses.

Management believes that the ALLL was appropriate at December 31, 2017 and 2016. No assurance can be given that economic conditions which adversely affect the Company’s service areas or other circumstances will not be reflected in increased provisions for loan losses in the future.

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


	For the Year Ended December 31, 2017
	Ending Balance December 31, 2016		Charge-offs		Recoveries		(Recapture of) Provision for Loan Losses		Ending Balance December 31, 2017
	(Dollars in thousands)
Commercial and industrial		$ 8,154		$ (138)	$	118	$	(854)	$	7,280
SBA		871		-		78		(80)		869
Real estate:
Commercial real estate		37,443		-		154		4,125		41,722
Construction		1,096		-		6,036		(6,148)		984
SFR mortgage		2,287		-		212		(387)		2,112
Dairy & livestock and agribusiness		8,541		-		19		(3,913)		4,647
Municipal lease finance receivables		941		-		-		(90)		851
Consumer and other loans		988		(13)		79		(301)		753
PCI loans		1,219		-		-		(852)		367

Total allowance for loan losses		$ 61,540	$	(151)	$	6,696	$	(8,500)	$	59,585


	For the Year Ended December 31, 2016
	Ending Balance December 31, 2015		Charge-offs		Recoveries		(Recapture of) Provision for Loan Losses		Ending Balance December 31, 2016
	(Dollars in thousands)
Commercial and industrial	$	8,588	$	(120)	$	630	$	(944)	$	8,154
SBA		993		-		40		(162)		871
Real estate:
Commercial real estate		36,995		-		792		(344)		37,443
Construction		2,389		-		7,174		(8,467)		1,096
SFR mortgage		2,103		(102)		-		286		2,287
Dairy & livestock and agribusiness		6,029		-		216		2,296		8,541
Municipal lease finance receivables		1,153		-		-		(212)		941
Consumer and other loans		906		(16)		170		(72)		988
PCI loans		-		-		-		1,219		1,219

Total allowance for loan losses	$	59,156	$	(238)	$	9,022	$	(6,400)	$	61,540


	For the Year Ended December 31, 2015
	Ending Balance December 31, 2014		Charge-offs		Recoveries		(Recapture of) Provision for Loan Losses (1)		Ending Balance December 31, 2015
	(Dollars in thousands)
Commercial and industrial	$	7,074	$	(411)	$	319	$	1,606	$	8,588
SBA		2,557		(37)		41		(1,568)		993
Real estate:
Commercial real estate		33,373		(117)		4,330		(591)		36,995
Construction		988		-		581		820		2,389
SFR mortgage		2,344		(215)		186		(212)		2,103
Dairy & livestock and agribusiness		5,479		-		407		143		6,029
Municipal lease finance receivables		1,412		-		-		(259)		1,153
Consumer and other loans		1,262		(229)		76		(203)		906
Unallocated (1)		5,336		-		-		(5,336)		-

Total allowance for loan losses	$	59,825	$	(1,009)	$	5,940	$	(5,600)	$	59,156

(1)

Based upon changes to our ALLL methodology, as described earlier in this document, beginning with the fourth quarter of 2015 and coinciding with the implementation of the new ALLL methodology, the Bank’s previous “unallocated reserve” was absorbed into the qualitative component of the allowance.

The following tables present the recorded investment in loans held-for-investment and the related allowance for loan losses by loan type, based on the Company’s methodology for determining the allowance for loan losses for the periods presented. The Company’s ALLL methodology for the year ended December 31, 2017 excludes the impact of the recent acquisitions from certain of the Bank’s qualitative factors that are otherwise designed to capture incremental risk in the legacy loan portfolio. The acquired loans are also supported by a credit discount established through the determination of fair value for the acquired loan portfolio.


	December 31, 2017
	Recorded Investment in Loans						Allowance for Loan Losses
	Individually Evaluated for Impairment		Collectively Evaluated for Impairment		Acquired with Deterioriated Credit Quality		Individually Evaluated for Impairment		Collectively Evaluated for Impairment		Acquired with Deterioriated Credit Quality
	(Dollars in thousands)
Commercial and industrial	$	440	$	512,885	$	-	$	-	$	7,280	$	-
SBA		1,531		120,524		-		1		868		-
Real estate:
Commercial real estate		8,133		3,368,580		-		-		41,722		-
Construction		-		77,982		-		-		984		-
SFR mortgage		4,040		232,162		-		-		2,112		-
Dairy & livestock and agribusiness		829		346,460		-		-		4,647		-
Municipal lease finance receivables		-		70,243		-		-		851		-
Consumer and other loans		552		63,677		-		74		679		-
PCI loans		-		-		28,882		-		-		367

Total	$	15,525	$	4,792,513	$	28,882	$	75	$	59,143	$	367


	December 31, 2016
	Recorded Investment in Loans						Allowance for Loan Losses
	Individually Evaluated for Impairment		Collectively Evaluated for Impairment		Acquired with Deterioriated Credit Quality		Individually Evaluated for Impairment		Collectively Evaluated for Impairment		Acquired with Deterioriated Credit Quality
	(Dollars in thousands)
Commercial and industrial	$	901	$	484,177	$	-	$	114	$	8,040	$	-
SBA		3,582		93,602		-		27		844		-
Real estate:
Commercial real estate		15,128		2,915,013		-		-		37,443		-
Construction		-		85,879		-		-		1,096		-
SFR mortgage		5,174		245,431		-		-		2,287		-
Dairy & livestock and agribusiness		747		337,884		-		-		8,541		-
Municipal lease finance receivables		-		64,639		-		-		941		-
Consumer and other loans		853		77,421		-		-		988		-
PCI loans		-		-		71,585		-		-		1,219

Total	$	26,385	$	4,304,046	$	71,585	$	141	$	60,180	$	1,219

Past Due and Nonperforming Loans

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

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

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

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


	December 31, 2017
	30-59 Days Past Due		60-89 Days Past Due		Total Past Due and Accruing		Nonaccrual (1)		Current		Total Loans and Financing Receivables
	(Dollars in thousands)
Commercial and industrial	$	768	$	-	$	768	$	250	$	512,307	$	513,325
SBA		403		-		403		906		120,746		122,055
Real estate:
Commercial real estate
Owner occupied		-		-		-		4,365		1,091,915		1,096,280
Non-owner occupied		-		-		-		2,477		2,277,956		2,280,433
Construction
Speculative (2)		-		-		-		-		60,042		60,042
Non-speculative		-		-		-		-		17,940		17,940
SFR mortgage		-		-		-		1,337		234,865		236,202
Dairy & livestock and agribusiness		-		-		-		829		346,460		347,289
Municipal lease finance receivables		-		-		-		-		70,243		70,243
Consumer and other loans		1		-		1		552		63,676		64,229

Total gross loans, excluding PCI loans	$	1,172	$	-	$	1,172	$	10,716	$	4,796,150	$	4,808,038

(1)

As of December 31, 2017, $3.6 million of nonaccruing loans were current, $376,000 were 60-89 days past due and $6.8 million were 90+ days past due.

(2)

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


	December 31, 2016
	30-59 Days Past Due		60-89 Days Past Due		Total Past Due and Accruing		Nonaccrual (1)		Current		Total Loans and Financing Receivables
	(Dollars in thousands)
Commercial and industrial	$	-	$	-	$	-	$	156	$	484,922	$	485,078
SBA		352		-		352		2,737		94,095		97,184
Real estate:
Commercial real estate
Owner occupied		-		-		-		635		949,184		949,819
Non-owner occupied		-		-		-		1,048		1,979,274		1,980,322
Construction
Speculative (2)		-		-		-		-		48,841		48,841
Non-speculative		-		-		-		-		37,038		37,038
SFR mortgage		-		-		-		2,207		248,398		250,605
Dairy & livestock and agribusiness		-		-		-		-		338,631		338,631
Municipal lease finance receivables		-		-		-		-		64,639		64,639
Consumer and other loans		84		-		84		369		77,821		78,274

Total gross loans, excluding PCI loans	$	436	$	-	$	436	$	7,152	$	4,322,843	$	4,330,431

(1)

As of December 31, 2016, $4.7 million of nonaccruing loans were current, $514,000 were 30-59 days past due, $435,000 were 60-89 days past due and $1.5 million were 90+ days past due.

(2)

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

Impaired Loans

At December 31, 2017, the Company had impaired loans, excluding PCI loans, of $15.5 million and included $3.7 million of loans acquired from VBB in the first quarter of 2017. Impaired loans included $6.8 million of nonaccrual commercial real estate loans, $1.3 million of nonaccrual SFR mortgage loans, $906,000 million of nonaccrual SBA loans, $829,000 of nonaccrual dairy & livestock and agribusiness loans, $552,000 of nonaccrual consumer and other loans, and $250,000 of nonaccrual commercial and industrial loans. These impaired loans included $9.0 million of loans whose terms were modified in a troubled debt restructuring, of which $4.2 million are classified as nonaccrual. The remaining balance of $4.8 million consisted of 16 loans performing according to the restructured terms. The impaired loans had a specific allowance of $75,000 at December 31, 2017. At December 31, 2016, the Company had classified as impaired, loans, excluding PCI loans, with a balance of $26.4 million with a related allowance of $141,000.

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


	As of and For the Year Ended
	December 31, 2017
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
	(Dollars in thousands)
With no related allowance recorded:
Commercial and industrial	$	440	$	980	$	-	$	548	$	10
SBA		1,530		1,699		-		1,598		47
Real estate:
Commercial real estate
Owner occupied		4,365		4,763		-		4,414		36
Non-owner occupied		3,768		5,107		-		3,951		94
Construction
Speculative		-		-		-		-		-
Non-speculative		-		-		-		-		-
SFR mortgage		4,040		4,692		-		4,119		118
Dairy & livestock and agribusiness		829		1,091		-		988		1
Municipal lease finance receivables		-		-		-		-		-
Consumer and other loans		174		370		-		202		-

Total		15,146		18,702		-		15,820		306

With a related allowance recorded:
Commercial and industrial		-		-		-		-		-
SBA		1		18		1		6		-
Real estate:
Commercial real estate
Owner occupied		-		-		-		-		-
Non-owner occupied		-		-		-		-		-
Construction
Speculative		-		-		-		-		-
Non-speculative		-		-		-		-		-
SFR mortgage		-		-		-		-		-
Dairy & livestock and agribusiness		-		-		-		-		-
Municipal lease finance receivables		-		-		-		-		-
Consumer and other loans		378		391		74		385		-

Total		379		409		75		391		-

Total impaired loans	$	15,525	$	19,111	$	75	$	16,211	$	306


	As of and For the Year Ended
	December 31, 2016
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
	(Dollars in thousands)
With no related allowance recorded:
Commercial and industrial	$	730	$	1,646	$	-	$	832	$	26
SBA		3,386		4,189		-		3,709		50
Real estate:
Commercial real estate
Owner occupied		1,797		2,276		-		1,410		70
Non-owner occupied		13,331		15,842		-		13,517		592
Construction
Speculative		-		-		-		-		-
Non-speculative		-		-		-		-		-
SFR mortgage		5,174		6,075		-		5,327		135
Dairy & livestock and agribusiness		747		747		-		692		47
Municipal lease finance receivables		-		-		-		-		-
Consumer and other loans		853		1,423		-		919		18

Total		26,018		32,198		-		26,406		938

With a related allowance recorded:
Commercial and industrial		171		171		114		233		9
SBA		196		212		27		206		14
Real estate:
Commercial real estate
Owner occupied		-		-		-		-		-
Non-owner occupied		-		-		-		-		-
Construction
Speculative		-		-		-		-		-
Non-speculative		-		-		-		-		-
SFR mortgage		-		-		-		-		-
Dairy & livestock and agribusiness		-		-		-		-		-
Municipal lease finance receivables		-		-		-		-		-
Consumer and other loans		-		-		-		-		-

Total		367		383		141		439		23

Total impaired loans	$	26,385	$	32,581	$	141	$	26,845	$	961


	As of and For the Year Ended
	December 31, 2015
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
	(Dollars in thousands)
With no related allowance recorded:
Commercial and industrial	$	1,017	$	1,894	$	-	$	1,122	$	38
SBA		3,207		3,877		-		3,333		51
Real estate:
Commercial real estate
Owner occupied		6,252		7,445		-		6,718		97
Non-owner occupied		34,041		37,177		-		34,639		1,787
Construction
Speculative		-		-		-		-		-
Non-speculative		-		-		-		-		-
SFR mortgage		5,665		6,453		-		5,771		109
Dairy & livestock and agribusiness		3,685		3,684		-		3,687		177
Municipal lease finance receivables		-		-		-		-		-
Consumer and other loans		890		1,454		-		922		17

Total		54,757		61,984		-		56,192		2,276

With a related allowance recorded:
Commercial and industrial		626		695		626		637		-
SBA		41		47		10		45		-
Real estate:
Commercial real estate
Owner occupied		-		-		-		-		-
Non-owner occupied		-		-		-		-		-
Construction
Speculative		7,651		7,651		13		7,651		388
Non-speculative		-		-		-		-		-
SFR mortgage		588		640		20		607		12
Dairy & livestock and agribusiness		-		-		-		-		-
Municipal lease finance receivables		-		-		-		-		-
Consumer and other loans		43		45		-		45		-

Total		8,949		9,078		669		8,985		400

Total impaired loans	$	63,706	$	71,062	$	669	$	65,177	$	2,676

The Company recognizes the charge-off of the impairment allowance on impaired loans in the period in which a loss is identified for collateral dependent loans. Therefore, the majority of the nonaccrual loans as of December 31, 2017 and 2016 have already been written down to the estimated net realizable value. An allowance is recorded on impaired loans for the following: nonaccrual loans where a charge-off is not yet processed, nonaccrual SFR mortgage loans where there is a potential modification in process, or on smaller balance non-collateral dependent loans.

Reserve for Unfunded Loan Commitments

The allowance for off-balance sheet credit exposure relates to commitments to extend credit, letters of credit and undisbursed funds on lines of credit. The Company evaluates credit risk associated with the off-balance sheet loan commitments at the same time it evaluates credit risk associated with the loan and lease portfolio. The Company recorded a recapture of the reserve for unfunded loan commitments of $400,000 for the year ended December 31, 2017, compared with a recapture of provision for unfunded loan commitments of $450,000 for the year ended December 31, 2016 and a recapture of provision for unfunded loan commitments of $500,000 for the year ended December 31, 2015. As of December 31, 2017 and December 31, 2016, the balance in this reserve was $6.3 million and $6.7 million, respectively, and was included in other liabilities.

Troubled Debt Restructurings

Loans that are reported as TDRs are considered impaired and charge-off amounts are taken on an individual loan basis, as deemed appropriate. The majority of restructured loans are loans for which the terms of repayment have been renegotiated, resulting in a reduction in interest rate or deferral of principal. Refer to Note 3 — Summary of Significant Accounting Policies, Troubled Debt Restructurings, included herein.

As of December 31, 2017, there were $9.0 million of loans classified as a TDR, of which $4.2 million were nonperforming and $4.8 million were performing. TDRs on accrual status are comprised of loans that were accruing interest at the time of restructuring or have demonstrated repayment performance in compliance with the restructured terms for a sustained period and for which the Company anticipates full repayment of both principal and interest. At December 31, 2017, performing TDRs were comprised of 10 SFR mortgage loans of $2.7 million, two commercial real estate loans of $1.3 million, one SBA loan of $625,000, and three commercial and industrial loans of $190,000.

The majority of TDRs have no specific allowance allocated as any impairment amount is normally charged off at the time a probable loss is determined. We have allocated $1,000 and $141,000 of specific allowance to TDRs as of December 31, 2017 and December 31, 2016, respectively.

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


	For the Year Ended December 31,
	2017		2016
	(Dollars in thousands)
Performing TDRs:
Beginning balance	$	19,233	$	42,687
New modifications		3,143		1,996
Payoffs/payments, net and other		(14,752)		(34,001)
TDRs returned to accrual status		329		8,551
TDRs placed on nonaccrual status		(3,144)		-

Ending balance	$	4,809	$	19,233

Nonperforming TDRs:
Beginning balance	$	1,626	$	12,622
New modifications		2,066		102
Charge-offs		-		(38)
Payoffs/payments, net and other		(2,307)		(2,509)
TDRs returned to accrual status		(329)		(8,551)
TDRs placed on nonaccrual status		3,144		-

Ending balance	$	4,200	$	1,626

Total TDRs	$	9,009	$	20,859

The following tables summarize loans modified as troubled debt restructurings for the periods presented.

Modifications (1)


	For the Year Ended December 31, 2017
	Number of Loans		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Outstanding Recorded Investment at December 31, 2017		Financial Effect Resulting From Modifications (2)
	(Dollars in thousands)
Commercial and industrial:
Interest rate reduction		-	$	-	$	-	$	-	$	-
Change in amortization period or maturity		-		-		-		-		-
SBA:
Interest rate reduction		-		-		-		-		-
Change in amortization period or maturity		-		-		-		-		-
Real estate:
Commercial real estate:
Owner occupied
Interest rate reduction		-		-		-		-		-
Change in amortization period or maturity		1		3,143		3,143		3,143		-
Non-owner occupied
Interest rate reduction		-		-		-		-		-
Change in amortization period or maturity		-		-		-		-		-
Dairy & livestock and agribusiness:
Interest rate reduction		-		-		-		-		-
Change in amortization period or maturity		1		1,984		1,984		78		-
Consumer:
Interest rate reduction		-		-		-		-		-
Change in amortization period or maturity		-		-		-		-		-

Total loans		2	$	5,127	$	5,127	$	3,221	$	-


	For the Year Ended December 31, 2016
	Number of Loans		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Outstanding Recorded Investment at December 31, 2016		Financial Effect Resulting From Modifications (2)
	(Dollars in thousands)
Commercial and industrial:
Interest rate reduction		1	$	112	$	112	$	103	$	-
Change in amortization period or maturity		-		-		-		-		-
SBA:
Interest rate reduction		-		-		-		-		-
Change in amortization period or maturity		2		214		214		196		28
Real estate:
Commercial real estate:
Owner occupied
Interest rate reduction		-		-		-		-		-
Change in amortization period or maturity		-		-		-		-		-
Non-owner occupied
Interest rate reduction		1		759		759		756		-
Change in amortization period or maturity		-		-		-		-		-
Dairy & livestock and agribusiness:
Interest rate reduction		-		-		-		-		-
Change in amortization period or maturity		-		-		-		-		-
Consumer:
Interest rate reduction		-		-		-		-		-
Change in amortization period or maturity		3		201		201		185		-

Total loans		7	$	1,286	$	1,286	$	1,240	$	28


	For the Year Ended December 31, 2015
	Number of Loans		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Outstanding Recorded Investment at December 31, 2015		Financial Effect Resulting From Modifications (2)
	(Dollars in thousands)
Commercial and industrial:
Interest rate reduction		-	$	-	$	-	$	-	$	-
Change in amortization period or maturity		1		203		203		203		203
SBA:
Interest rate reduction		-		-		-		-		-
Change in amortization period or maturity		1		330		330		320		-
Real estate:
Commercial real estate:
Owner occupied
Interest rate reduction		-		-		-		-		-
Change in amortization period or maturity		2		823		823		821		-
Non-owner occupied
Interest rate reduction		1		2,376		2,376		2,316		-
Change in amortization period or maturity		1		280		280		280		-
Dairy & livestock and agribusiness:
Interest rate reduction		-		-		-		-		-
Change in amortization period or maturity		-		-		-		-		-
SFR mortgage:
Interest rate reduction		1		322		322		326		-
Change in amortization period or maturity		-		-		-		-		-

Total loans		7	$	4,334	$	4,334	$	4,266	$	203

(1)

The tables above exclude modified loans that were paid off prior to the end of the period.

(2)

Financial effects resulting from modifications represent charge-offs and specific allowance recorded at modification date.

As of December 31, 2017, there was one commercial real estate loan with an outstanding balance of $3.1 million that was modified as a TDR within the previous 12 months that subsequently defaulted. As of December 31, 2016 and 2015, there were no loans that were previously modified as a troubled debt restructuring within the previous 12 months that subsequently defaulted during each of the years ended December 31, 2016 and 2015, respectively.

Other Real Estate Owned

12 Months Ended

Dec. 31, 2017

Goodwill and Intangible Assets Disclosure [Abstract]

Other Real Estate Owned

8.	OTHER REAL ESTATE OWNED

The following table summarizes the activity related to total OREO for the periods presented.


	For the Year Ended December 31,
	2017		2016
	(Dollars in thousands)
Balance, beginning of period	$	4,527	$	6,993
Additions		-		-
Dispositions		-		(2,129)
Valuation adjustments		-		(337)

Balance, end of period	$	4,527	$	4,527

Goodwill and Other Intangible Assets

12 Months Ended

Dec. 31, 2017

Goodwill and Other Intangible Assets

9.	GOODWILL AND OTHER INTANGIBLE ASSETS

The following table presents the changes in the carrying amount of goodwill for the periods presented.


	As of and for the Year Ended December 31,
	2017		2016
	(Dollars in thousands)
Balance, beginning of period	$	89,533	$	74,244
Additions due to acquisitions		27,031		15,289

Balance, end of period	$	116,564	$	89,533

The following summarizes activity of amortizable core deposit intangible (“CDI”) assets for the periods presented.


	As of and For the Year Ended December 31,
	2017						2016
	Gross CDI		Accumulated		Net CDI		Gross CDI		Accumulated		Net CDI
	Amount		Amortization		Amount		Amount		Amortization		Amount
	(Dollars in thousands)
Balance of intangible assets, beginning of period	$	37,940	$	(32,930)	$	5,010	$	34,089	$	(31,824)	$	2,265
Additions due to acquisitions		3,157						3,851

Balance of intangible assets, end of period	$	41,097	$	(34,259)	$	6,838	$	37,940	$	(32,930)	$	5,010

Aggregate amortization expense:
For year ended December 31,	$	1,329					$	1,106
Estimated Amortization Expense:
For the year ending December 31, 2018		1,304
For the year ending December 31, 2019		1,067
For the year ending December 31, 2020		718
For the year ending December 31, 2021		703
Thereafter		3,046

At December 31, 2017 the weighted average remaining life of intangible assets is approximately 3.80 years.

Property, Plant and Equipment [Abstract]

The entire disclosure for the aggregate amount of goodwill and a description of intangible assets, which may include (a) for amortizable intangible assets (also referred to as finite-lived intangible assets), the carrying amount, the amount of any significant residual value, and the weighted-average amortization period, (b) for intangible assets not subject to amortization (also referred to as indefinite-lived intangible assets), the carrying amount, and (c) the amount of research and development assets acquired and written off in the period, including the line item in the income statement in which the amounts written off are aggregated, if not readily apparent from the income statement. Also discloses (a) for amortizable intangibles assets in total and by major class, the gross carrying amount and accumulated amortization, the total amortization expense for the period, and the estimated aggregate amortization expense for each of the five succeeding fiscal years, (b) for intangible assets not subject to amortization the carrying amount in total and by major class, and (c) for goodwill, in total and for each reportable segment, the changes in the carrying amount of goodwill during the period (including the aggregate amount of goodwill acquired, the aggregate amount of impairment losses recognized, and the amount of goodwill included in the gain (loss) on disposal of a reporting unit). If any part of goodwill has not been allocated to a reportable segment, discloses the unallocated amount and the reasons for not allocating. For each impairment loss recognized related to an intangible asset (excluding goodwill), discloses: (a) a description of the impaired intangible asset and the facts and circumstances leading to the impairment, (b) the amount of the impairment loss and the method for determining fair value, (c) the caption in the income statement or the statement of activities in which the impairment loss is aggregated, and (d) the segment in which the impaired intangible asset is reported. For each goodwill impairment loss recognized, discloses: (a) a description of the facts and circumstances leading to the impairment, (b) the amount of the impairment loss and the method of determining the fair value of the associated reporting unit, and (c) if a recognized impairment loss is an estimate not finalized and the reasons why the estimate is not final. May also disclose the nature and amount of any significant adjustments made to a previous estimate of an impairment loss.

+ References + Details

Premises and Equipment

12 Months Ended

Dec. 31, 2017

Premises and Equipment

10.

PREMISES AND EQUIPMENT

Premises and equipment were comprised of the following for the periods presented.


	As of December 31,
	2017		2016
	(Dollars in thousands)
Land	$	14,489	$	13,119
Bank premises		65,215		62,154
Furniture and equipment		25,610		28,759

Premises and equipment, gross		105,314		104,032
Accumulated depreciation and amortization		(59,148)		(61,946)

Premises and equipment, net	$	46,166	$	42,086

In 2016, a decision was made to relocate our operations and technology center to a new location to allow for future growth. A new location was identified and acquired in 2016 with a plan of relocation in the second quarter of 2017. In conjunction with the purchase of this new building, management pursued a plan to sell the existing building. In accordance with GAAP, this building was transferred from our long-lived asset portfolio to held-for-sale which resulted in an impairment loss of $2.6 million for the year ended December 31, 2016. At December 31, 2016, the fair value, net of selling costs, of this held-for-sale asset was $3.4 million. This asset was sold in the third quarter of 2017, which resulted in a net gain of $542,000. 2017 also included a $2.9 million net gain from an eminent domain condemnation of one of our banking center buildings that had a net book value of $450,000 at the time of the condemnation.

Leases

The Company leases land and buildings under operating leases for varying periods extending to 2026, at which time the Company can exercise options that could extend certain leases through 2036. The future minimum annual rental payments required for leases that have initial or remaining noncancelable lease terms in excess of one year as of December 31, 2017, excluding property taxes and insurance, are as follows:


	As of December 31, 2017
Year:	(Dollars in thousands)
2018	$	4,958
2019		3,307
2020		1,758
2021		1,204
2022		971
Thereafter		299

Total	$	12,497

Total rental expense for the Company was approximately $5.9 million, $5.6 million and $5.5 million for the years ended December 31, 2017, 2016 and 2015, respectively.

Other Assets

12 Months Ended

Dec. 31, 2017

Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract]

Other Assets

11.

OTHER ASSETS

Other assets were comprised of the following for the periods presented.


	As of December 31,
	2017		2016
	(Dollars in thousands)
Prepaid expenses	$	4,538	$	4,338
Interest rate swaps		3,211		5,783
Other investments		6,778		7,221
Other assets		10,790		6,490

Total	$	25,317	$	23,832

Income Taxes

12 Months Ended

Dec. 31, 2017

Income Tax Disclosure [Abstract]

Income Taxes

12.

INCOME TAXES

New tax legislation, referred to as the Tax Reform Act, was enacted on December 22, 2017. ASC 740, Accounting for Income Taxes, requires companies to recognize the effect of tax law changes in the period of enactment. Beginning in 2018, the Tax Reform Act reduces the federal tax rate for corporations from 35% to 21% and changes or limits certain tax deductions. During the fourth quarter of 2017, a $13.2 million one-time charge to income tax expense was recorded due to the tax rate reduction and re-measurement of our deferred taxes assets (“DTA”).

The current and deferred amounts of income tax expense (benefit) consist of the following.


	For the Year Ended December 31,
	2017		2016		2015
	(Dollars in thousands)
Current provision:
Federal	$	44,153	$	41,195	$	40,021
State		17,151		17,944		17,040

		61,304		59,139		57,061

Deferred provision/(benefit):
Federal		20,926		1,208		(3,443)
State		2,154		510		(1,397)

		23,080		1,718		(4,840)

Total	$	84,384	$	60,857	$	52,221

Income tax asset consists of the following.


	As of December 31,
	2017		2016
	(Dollars in thousands)
Current:
Federal	$	11,713	$	4,399
State		2,946		538

		14,659		4,937

Deferred:
Federal		16,557		31,566
State		8,830		8,926

		25,387		40,492

Total	$	40,046	$	45,429

Temporary differences between the amounts reported in the financial statements and the tax bases of assets and liabilities resulted in deferred taxes. The components of the net deferred tax asset are as follows.


	As of December 31,
	2017		2016
		(Dollars in thousands)

Deferred tax assets:
Bad debt and credit loss deduction	$	19,911	$	31,284
Net operating loss carryforward		207		453
Deferred compensation		5,501		5,296
PCI loans		3,098		12,147
California franchise tax		1,618		3,269
Accrued expense		1,365		5,299
Other, net		3,353		2,110

Gross deferred tax asset		35,053		59,858


Deferred tax liabilities:
Depreciation		975		2,168
Intangibles - acquisitions		3,404		3,543
FHLB Stock		2,400		3,421
Deferred income		2,112		4,099
Unrealized gain on investment securities, net		775		6,135

Gross deferred tax liability		9,666		19,366

Net deferred tax asset	$	25,387	$	40,492

Annual Effective Tax Rate

The annual consolidated effective tax rate for the periods presented, is reconciled to the U.S. statutory income rate as follows.


	For the Year Ended December 31,
	2017				2016				2015
	Amount		Percent		Amount		Percent		Amount		Percent
	(Dollars in thousands)
Federal income tax at statutory rate	$	66,078		35.0%	$	56,800		35.0%	$	52,978		35.0%
State franchise taxes, net of federal benefit		12,903		6.9%		11,299		7.0%		10,457		6.9%
Tax-exempt income		(4,450)		(2.4%)		(5,848)		(3.6%)		(7,619)		(5.0%)
Tax credits		(1,096)		(0.6%)		(846)		(0.5%)		(1,014)		(0.7%)
Deferred tax asset revalution adjustment		13,208		7.0%		-		0.0%		-		0.0%
Other, net		(2,259)		(1.2%)		(548)		(0.4%)		(2,581)		(1.7%)

Provision for income taxes	$	84,384		44.7%	$	60,857		37.5%	$	52,221		34.5%

The change in unrecognized tax benefits in 2017 and 2016 follows.


	For the Year Ended December 31,
	2017		2016
	(Dollars in thousands)
Balance, beginning of period	$	1,675	$	1,675
Additions for tax positions related to prior years		-		-
Reductions due to lapse of statue of limitations		(716)		-
Settlement with tax authorities		(959)		-

Balance, end of period	$	-	$	1,675

There were no unrecognized tax benefits at December 31, 2017. The Company records interest and penalties related to uncertain tax positions as part of other operating expense. We do not expect the total amount of unrecognized tax benefits to significantly increase or decrease within the next twelve months.

The Company is subject to federal income tax and franchise tax of the state of California. Our federal income tax returns for the years ended December 31, 2014 through 2016 are open to audit by the federal authorities and our California state tax returns for the years ended December 31, 2012 through 2016 are open to audit by state authorities.

Deposits

12 Months Ended

Dec. 31, 2017

Commitments and Contingencies Disclosure [Abstract]

Deposits

13.

DEPOSITS

The composition of deposits is summarized for the periods presented in the table below.


	As of December 31,
	2017				2016
	Amount		Percent		Amount		Percent
	(Dollars in thousands)
Noninterest-bearing deposits	$	3,846,436		58.75%	$	3,673,541		58.22%
Interest-bearing deposits:
Investment checking		433,971		6.63%		407,058		6.45%
Money market		1,517,050		23.17%		1,504,021		23.84%
Savings		364,049		5.56%		342,236		5.42%
Time deposits		385,347		5.89%		382,824		6.07%

Total deposits	$	6,546,853		100.00%	$	6,309,680		100.00%

Time deposits with balances of $250,000 or more amounted to approximately $108.5 million and $104.7 million at December 31, 2017 and 2016, respectively. Interest expense on such deposits amounted to approximately $545,000, $444,000 and $787,000, for the years ended December 31, 2017, 2016 and 2015, respectively.

At December 31, 2017, the scheduled maturities of time certificates of deposit are as follows.


	December 31, 2017
Year of maturity:	(Dollars in thousands)
2018	$	354,055
2019		14,173
2020		7,196
2021		1,562
2022 and thereafter		8,361

Total	$	385,347

Borrowings

12 Months Ended

Dec. 31, 2017

Debt Disclosure [Abstract]

Borrowings

14.

BORROWINGS

Customer Repurchase Agreements

In November 2006, the Bank began a repurchase agreement product with its customers. This product, known as Citizens Sweep Manager, sells the Bank’s securities overnight to its customers under an agreement to repurchase them the next day. As of December 31, 2017, total funds borrowed under these agreements were $553.8 million with a weighted average interest rate of 0.30%, compared to $603.0 million with a weighted average rate of 0.26%.

Federal Home Loan Bank Advances

On February 23, 2015 we repaid our last outstanding FHLB advance which carried a fixed interest rate of 4.52%.

At December 31, 2017, $3.68 billion of loans and $1.91 billion of investment securities, at carrying value, were pledged to secure public deposits, short and long-term borrowings, and for other purposes as required or permitted by law.

There were no prepayment penalties on borrowings in 2017, compared to $16,000 for 2016 and $13.9 million for 2015.

Other Borrowings

At December 31, 2017, the Bank had no short-term borrowings, compared to $53.0 million in short-term borrowings with the FHLB at a cost of 55 basis points at December 31, 2016.

Junior Subordinated Debentures

On January 31, 2006, CVB Statutory Trust III completed a $25,000,000 offering of Trust Preferred Securities and used the gross proceeds from the offering and other cash totaling $25,774,000 to purchase a like amount of junior subordinated debentures of the Company. The junior subordinated debentures were issued concurrent with the issuance of the Trust Preferred Securities. The interest on junior subordinated debentures, paid by the Company to CVB Statutory Trust III, represents the sole revenues of CVB Statutory Trust III and the sole source of dividend distributions to the holders of the Trust Preferred Securities. The Company has fully and conditionally guaranteed all of CVB Statutory Trust III’s obligations under the Trust Preferred Securities. The Company has the right, assuming no default has occurred, to defer payments of interest on the junior subordinated debenture at any time for a period not to exceed 20 consecutive quarters. The Trust Preferred Securities will mature on March 15, 2036, but became callable in part or in total on March 15, 2011 by CVB Statutory Trust III. The Trust Preferred Securities have a variable per annum rate equal to LIBOR (as defined in the indenture dated as of January 31, 2006 (“Indenture”) between the Company and U.S. Bank National Association, as debenture trustee) plus 1.38% (the “Variable Rate”). As of December 31, 2017, these securities continue to be outstanding.

Commitments and Contingencies

12 Months Ended

Dec. 31, 2017

Commitments and Contingencies

15.

COMMITMENTS AND CONTINGENCIES

Commitments

At December 31, 2017 and 2016, the Bank had commitments to extend credit of approximately $924.5 million and $844.3 million, respectively, and obligations under letters of credit of $37.6 million and $36.5 million, respectively. 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 Bank had a reserve for unfunded loan commitments of $6.3 million as of December 31, 2017 and $6.7 million as of December 31, 2016 included in other liabilities.

Standby letters of credit are conditional commitments issued by the Bank to guarantee the financial performance of a customer to a third party. Those guarantees are primarily issued to support private borrowing or purchase arrangements. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. When deemed necessary, the Bank holds appropriate collateral supporting those commitments. Management does not anticipate any material losses as a result of these transactions.

At December 31, 2017, the Bank has available lines of credit totaling $3.35 billion from correspondent banks, FHLB and Federal Reserve Bank of which $3.02 billion were secured.

Other Contingencies

The Company and its subsidiaries are parties to various lawsuits and threatened lawsuits in the ordinary and non-ordinary course of business. From time to time, such lawsuits and threatened lawsuits may include, but are not limited to, actions involving employment, wage-hour and labor law claims, consumer, lender liability claims and negligence claims, some of which may be styled as “class action” or representative cases. Some of these lawsuits may be similar in nature to other lawsuits pending against the Company’s competitors.

The Company has been involved in several related actions entitled Glenda Morgan v. Citizens Business Bank, et al., Case No. BC568004, in the Superior Court for Los Angeles County, and Jessica Osuna v. Citizens Business Bank, et al., Case No. CIVDS1501781, in the Superior Court for San Bernardino County, alleging wage and hour claims on behalf of the Company’s “exempt” and “non-exempt” hourly employees. These cases, which were consolidated in Los Angeles County Superior Court in April 2015, are styled as putative class action lawsuits and allege, among other things, that (i) the Company misclassified certain employees and managers as “exempt” employees, (ii) the Company violated California’s wage and hour, overtime, meal break and rest break rules and regulations, (iii) certain employees did not receive proper expense reimbursements, (iv) the Company did not maintain accurate and complete payroll records, and (v) the Company engaged in unfair business practices. Subsequently, related cases were filed by the same law firm representing Morgan and Osuna in the Superior Court for San Bernardino County, alleging (1) violations of the California Labor Code and seeking penalties under the California Private Attorney General Act of 2004 and (2) seeking a declaratory judgment that certain releases and arbitration agreements previously signed by CBB employees were invalid.

On November 28, 2016, the parties reached an agreement in principle to settle all of the related wage and hour class action lawsuits (“Wage-Hour Settlement”). Plaintiffs will dismiss all their lawsuits with prejudice in exchange for the payment of $1.5 million to the putative class members, including attorneys’ fees and costs, but not including credit for monies previously paid to certain employees in exchange for releases and arbitration agreements. The Wage-Hour Settlement received preliminary Court approval at a hearing on September 28, 2017, and the hearing for final Court approval is presently scheduled to take place on March 6, 2018. In the interim, a settlement administrator is handling certain administrative matters related to the settlement, including notification to eligible class members, the filing of claims and any objections, and the reconciliation of amounts to be paid to individual claimants. We anticipate that the Wage-Hour Settlement will be finally concluded sometime in the second or third quarter of 2018. As of December 31, 2017, the Company maintained a litigation accrual of $1.5 million for the Wage-Hour Settlement, and at this time no further accrual is expected to be necessary.

For lawsuits where the Company has determined that a loss is both probable and reasonably estimable, a liability representing the best estimate of the Company’s financial exposure based on known facts has been recorded in accordance with FASB guidance over loss contingencies (ASC 450). However, as a result of ambiguities and inconsistencies in the myriad laws applicable to the Company’s business, and the unique, complex factual issues presented in any given lawsuit, the Company often cannot determine the probability of loss or estimate the amount of damages which a plaintiff might successfully prove if the Company were found to be liable. For lawsuits or threatened lawsuits where a claim has been asserted or the Company has determined that it is probable that a claim will be asserted, and there is a reasonable possibility that the outcome will be unfavorable, the Company will disclose the existence of the loss contingency, even if the Company is not able to make an estimate of the possible loss or range of possible loss with respect to the action or potential action in question, unless the Company believes that the nature, potential magnitude or potential timing (if known) of the loss contingency is not reasonably likely to be material to the Company’s liquidity, consolidated financial position, and/or results of operations.

Our accruals and disclosures for loss contingencies are reviewed quarterly and adjusted as additional information becomes available. We disclose the loss contingency and/or the amount accrued if we believe it is reasonably likely to be material or if we believe such disclosure is necessary for our financial statements to not be misleading. If we determine that an exposure to loss exists in excess of an amount previously accrued or disclosed, we assess whether there is at least a reasonable possibility that a loss, or additional loss, may have been incurred, and we adjust our accruals and disclosures accordingly.

Employee Benefit Plans

12 Months Ended

Dec. 31, 2017

Postemployment Benefits [Abstract]

Employee Benefit Plans

16.

EMPLOYEE BENEFIT PLANS

Deferred Compensation Plans

As of December 31, 2017, the Company has various deferred compensation plans, and severance arrangements it assumed through the acquisition of other banks in prior years. These plans require the Company to make periodic payments to former employees upon retirement, upon a change in control, and in certain instances, to beneficiaries of former employees upon death. Payments made by the Company under these agreements totaled approximately $1.6 million, $610,000 and $751,000 for each of the years ended December 31, 2017, 2016 and 2015, respectively. The total expense recorded by the Company for these deferred compensation agreements was approximately $1.2 million, $684,000 and $600,000 for each of the years ended December 31, 2017, 2016 and 2015, respectively.

On December 22, 2006, the Company approved a deferred compensation plan for its President and Chief Executive Officer, Christopher D. Myers. Under the plan, which became effective on January 1, 2007, Mr. Myers may defer up to 75% of his base salary and up to 100% of his bonus for each calendar year in which the Plan is effective. The Company has the discretion to make additional contributions to the Plan for the benefit of Mr. Myers. No discretionary payments were made by the Company during the years ended December 31, 2017, 2016 and 2015.

On March 31, 2007, the Company approved the Executive Non-qualified Excess Plan, a deferred compensation plan for certain management employees to provide a means by which they may elect to defer receipt of compensation in order to provide retirement benefits. The plan is intended to be unfunded and primarily serve the purpose of providing deferred compensation benefits for a select group of employees. The Bank, however, does fund the cost of these plans through the purchase of life insurance policies, which are recorded in other assets of the consolidated balance sheets. At December 31, 2017 and 2016, the amount of deferred compensation liability was $2.1 million and $2.9 million, respectively.

401(k) and Profit Sharing Plan

The Bank sponsors a 401(k) and profit-sharing plan for the benefit of its employees. Employees are eligible to participate in the plan immediately upon hire. Employees may make contributions to the plan under the plan’s 401(k) component. The Bank contributes 3%, non-matching, to the plan to comply with ERISA’s safe harbor provisions. The Bank may make additional contributions under the plan’s profit-sharing component, subject to certain limitations. The Bank’s total contributions are determined by the Board of Directors and amounted to approximately $3.2 million for 2017, $2.8 million for 2016 and $2.8 million for 2015.

Earnings Per Share Reconciliation

12 Months Ended

Dec. 31, 2017

Earnings Per Share [Abstract]

Earnings Per Share Reconciliation

17.

EARNINGS PER SHARE RECONCILIATION

Basic earnings per common share are computed by dividing income allocated to common stockholders by the weighted-average number of common shares outstanding during each period. The computation of diluted earnings per common share considers the number of shares issuable upon the assumed exercise of outstanding common stock options. Antidilutive common shares are not included in the calculation of diluted earnings per common share. For the years ended December 31, 2017, 2016 and 2015, shares deemed to be antidilutive, and thus excluded from the computation of earnings per common share were 9,000, 291,000 and 238,000, respectively.

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


	For the Year Ended December 31,
	2017		2016		2015
	(In thousands, except per share amounts)
Earnings per common share:
Net earnings	$	104,411	$	101,429	$	99,145
Less: Net earnings allocated to restricted stock		382		421		515

Net earnings allocated to common shareholders	$	104,029	$	101,008	$	98,630

Weighted average shares outstanding		109,409		107,282		105,715
Basic earnings per common share	$	0.95	$	0.94	$	0.93


Diluted earnings per common share:
Net income allocated to common shareholders	$	104,029	$	101,008	$	98,630

Weighted average shares outstanding		109,409		107,282		105,715
Incremental shares from assumed exercise of outstanding options		398		405		477

Diluted weighted average shares outstanding		109,807		107,687		106,192
Diluted earnings per common share	$	0.95	$	0.94	$	0.93

Stock Option Plans and Restricted Stock Awards

12 Months Ended

Dec. 31, 2017

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Stock Option Plans and Restricted Stock Awards

18.

STOCK OPTION PLANS AND RESTRICTED STOCK AWARDS

In May 2008, the shareholders approved the 2008 Equity Incentive Plan which authorizes the issuance of up to 3,949,891 shares of Company common stock for grants of stock options and restricted stock to employees, officers, consultants and directors of the Company and its subsidiaries, and expires in 2018. The plan authorizes the issuance of incentive and non-qualified stock options, as well as, restricted stock awards. The 2008 Equity Incentive Plan replaced the 2000 Stock Option Plan. No further grants will be made under the 2000 Stock Option Plan, but shares may continue to be issued under such plan pursuant to grants previously made. As of December 31, 2017, we have no outstanding options under our 2000 Stock Option Plan.

Stock Options

The Company expensed $399,000, $485,000, and $549,000, for the years ended December 31, 2017, 2016 and 2015, respectively.

The estimated fair value of the options granted during 2017 and prior years was calculated using the Black-Scholes options pricing model. There were 11,500, 121,500 and 83,000 options granted during 2017, 2016 and 2015, respectively. The options will vest, in equal installments, over a five-year period. The fair value of each stock option granted in 2017, 2016 and 2015, was estimated on the date of grant using the following weighted-average assumptions.


	For the Year Ended December 31,
	2017		2016		2015
Dividend yield		2.2%		2.9%		2.5%
Volatility		29.6%		33.1%		47.7%
Risk-free interest rate		1.8%		1.2%		1.5%
Expected life		5.6 years		5.6 years		6.1 years
Weighted average grant date fair value		$5.17		$3.96		$5.83

The expected volatility is solely based on the daily historical stock price volatility over the expected option life. The expected life of options granted is derived from the output of the option valuation model and represents the period of time an optionee will hold an option before exercising it. The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury five-year constant maturity yield curve in effect at the time of the grant. In connection with the adoption of ASU 2016-09, the Company elected to account for forfeitures as they occur, rather than to estimate forfeitures over the vesting period.

The following table presents option activity under the Company’s stock option plans as of and for the year ended December 31, 2017.


	Number of Stock Options Outstanding		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term		Aggregate Intrinsic Value
	(In thousands)				(In years)		(In thousands)
Outstanding at January 1, 2017		876		$ 11.88
Granted		12		21.99
Exercised		(283)		9.48
Forfeited or expired		(17)		15.69

Outstanding at December 31, 2017		588		$ 13.12		5.17		$ 6,137

Vested or expected to vest at December 31, 2017		560		$ 12.96		5.03		$ 5,942
Exercisable at December 31, 2017		383		$ 11.46		3.90		$ 4,640

The total intrinsic value of options exercised during the years ended December 31, 2017, 2016 and 2015 was $3.8 million, $3.9 million and $2.1 million, respectively.

As of December 31, 2017, there was a total of $736,000 in unrecognized compensation cost related to nonvested options granted under the Plan. That cost is expected to be recognized over a weighted-average period of approximately 2.6 years. The total fair value of options vested was $505,000, $489,000 and $524,000 during 2017, 2016 and 2015, respectively. Cash received from stock option exercises was $2.7 million, $5.2 million and $5.1 million, in 2017, 2016 and 2015, respectively.

At December 31, 2017, options for the purchase of 587,915 shares of the Company’s common stock were outstanding under the above plans, of which options to purchase 383,315 shares were exercisable at prices ranging from $7.68 to $18.14.

The Company has a policy of issuing new shares to satisfy share option exercises.

Restricted Stock

Under the 2008 Equity Incentive Plan, the Company granted 73,000, 166,500 and 97,000 restricted stock awards during 2017, 2016 and 2015 respectively. The weighted average grant date fair value of restricted stock awards granted in 2017, 2016 and 2015 was $21.59 per share, $16.89 per share and $16.07 per share, respectively. These awards will vest, in equal installments, over a period of three or five years.

Compensation cost is recognized over the requisite service period, which is five years, and amounted to $2.6 million, $2.3 million and $2.2 million during the years ended December 31, 2017, 2016 and 2015, respectively. Total unrecognized compensation cost related to restricted stock awards was $4.6 million at December 31, 2017.

The table below summarizes activity related to the Company’s non-vested restricted shares for the year ended December 31, 2017.


	Shares		Weighted Average Fair Value
	(In thousands)

Nonvested at January 1, 2017		460		$ 15.43
Granted		73		21.59
Vested		(150)		14.98
Forfeited		(7)		14.49

Nonvested at December 31, 2017		376		$ 16.82

Under the 2008 Equity Incentive Plan, 583,192 shares of common stock were available for the granting of future options and restricted stock awards as of December 31, 2017.

Regulatory Matters

12 Months Ended

Dec. 31, 2017

Regulatory Matters

19.

REGULATORY MATTERS

The Company (on a consolidated basis) and the Bank are subject to various regulatory capital requirements administered by the federal banking regulatory agencies. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary, actions by regulators that, if undertaken, could have a direct, material effect on the Company’s and the Bank’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and Bank must meet specific capital guidelines that involve quantitative measures of assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgment by the regulators about components, risk-weightings, and other factors. Prompt corrective action provisions are not applicable to bank holding companies.

Effective January 1, 2015, the Company and the Bank became subject to a new regulatory capital measure called Common Equity Tier 1 (“CET1”) to risk-weighted assets which was implemented as a result of the “Basel III” regulatory capital reforms and changes required by the Dodd-Frank Act.

Basel III also introduces a new “capital conservation buffer,” composed entirely of CET1, on top of minimum risk-weighted asset ratios. The capital conservation buffer is designed to absorb losses during periods of economic stress. Banking institutions with a ratio of CET1 to risk-weighted assets above the minimum requirement but below the capital conservation buffer will face constraints on dividends, equity repurchases and payment of discretionary bonuses based on the amount of the shortfall. The implementation of the capital conservation buffer began on January 1, 2016 at 0.625% and will be phased in over a four-year period (increasing by that amount on each subsequent January 1, until it reaches 2.5% on January 1, 2019). Thus, when fully phased in on January 1, 2019, the Bank will be required to maintain this additional capital conservation buffer of 2.5% of CET1.

Quantitative measures established by regulation to ensure capital adequacy require the Company and the Bank to maintain minimum amounts and ratios (set forth in the table below) of total capital, Tier 1 capital and CET1 capital to risk-weighted assets, and of Tier 1 capital to average assets. Management believes that, as of December 31, 2017 and 2016, the Company and the Bank meet all capital adequacy requirements to which they are subject.

As of December 31, 2017 and 2016, the most recent notifications from the FDIC categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, the minimum total risk-based, Tier 1 risk-based, CET1 risk-based, and Tier 1 leverage (tangible Tier 1 capital divided by average total assets) ratios as set forth in the table below must be maintained. There are no conditions or events since said notification that management believes have changed the Bank’s category.

As of December 31, 2017 and 2016, the Company had $25.0 million of trust-preferred securities, which were included in Tier 1 capital for regulatory purposes, respectively. The following table summarizes regulatory capital amounts and ratios for the Company and the Bank as of December 31, 2017 and 2016.


	Actual				For Capital Adequacy Purposes					To Be Well Capitalized under Prompt Corrective Action Provisions
	Amount		Ratio		Amount			Ratio		Amount			Ratio
	(Dollars in thousands)
As of December 31, 2017:
Total Capital (to Risk-Weighted Assets)
Company	$	1,039,060		18.01%	$	461,574	³		8.00%					N/A
Bank	$	1,029,126		17.86%	$	461,037	³		8.00%	$	576,296	³		10.00%
Tier 1 Capital (to Risk-Weighted Assets)
Company	$	973,169		16.87%	$	346,180	³		6.00%					N/A
Bank	$	963,235		16.71%	$	345,778	³		6.00%	$	461,037	³		8.00%
Common equity Tier 1 capital ratio
Company	$	948,210		16.43%	$	259,635	³		4.50%					N/A
Bank	$	963,235		16.71%	$	259,333	³		4.50%	$	374,592	³		6.50%
Tier 1 Capital (to Average-Assets)
Company	$	973,169		11.88%	$	327,680	³		4.00%					N/A
Bank	$	963,235		11.77%	$	327,397	³		4.00%	$	409,246	³		5.00%
As of December 31, 2016:
Total Capital (to Risk-Weighted Assets)
Company	$	982,461		18.19%	$	432,081	³		8.00%					N/A
Bank	$	971,681		18.01%	$	431,576	³		8.00%	$	539,471	³		10.00%
Tier 1 Capital (to Risk-Weighted Assets)
Company	$	914,937		16.94%	$	324,061	³		6.00%					N/A
Bank	$	904,236		16.76%	$	323,682	³		6.00%	$	431,576	³		8.00%
Common equity Tier 1 capital ratio
Company	$	890,118		16.48%	$	243,046	³		4.50%					N/A
Bank	$	904,236		16.76%	$	242,762	³		4.50%	$	350,656	³		6.50%
Tier 1 Capital (to Average-Assets)
Company	$	914,937		11.49%	$	318,552	³		4.00%					N/A
Bank	$	904,236		11.36%	$	318,305	³		4.00%	$	397,882	³		5.00%

In addition, California Banking Law limits the amount of dividends a bank can pay without obtaining prior approval from bank regulators. Under this law, the Bank could, as of December 31, 2017, declare and pay additional dividends of approximately $158.7 million.

The entire disclosure for banks, savings institutions, and credit unions, for regulatory capital requirements imposed by the Federal Reserve System (FRB), the Federal Deposit Insurance Corporation (FDIC), the Office of Thrift Supervision (OTS) or for any state imposed capital requirements, as applicable. The disclosure may include (1) a description of regulatory capital requirements (a) for capital adequacy purposes and (b) established by the prompt corrective action provisions of Section 38 of the Federal Depository Insurance Act; (2) the actual or possible material effects of noncompliance with such requirements; (3) whether the entity is in compliance with the regulatory capital requirements including (a) required and actual ratios and amounts of Tier 1 leverage, Tier 1 risk-based, and total risk-based capital, tangible capital (for savings institutions), and Tier 3 capital for market risk (for certain banks and bank holding companies), (b) factors that may significantly affect capital adequacy; (4) the prompt corrective action category in which the entity was classified as of its most recent notification; (5) whether management believes any conditions or events since notification have changed the entity's category. Also may include additional information that might be disclosed in situations where substantial doubt about the entity's ability to continue as a going concern for a reasonable period of time.

+ References

Reference 1: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 942
-SubTopic 505
-Section 50
-Paragraph 1G
-URI http://asc.fasb.org/extlink&oid=84167132&loc=SL5958577-112826

Reference 2: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
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-Section 50
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Reference 3: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 942
-SubTopic 505
-Section 50
-Paragraph 1E
-URI http://asc.fasb.org/extlink&oid=84167132&loc=SL5958574-112826

Reference 4: http://www.xbrl.org/2003/role/presentationRef
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-Paragraph 1H
-URI http://asc.fasb.org/extlink&oid=84167132&loc=d3e65071-112826

Reference 5: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
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-Section 50
-Paragraph 1A
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Reference 6: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 942
-SubTopic 505
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-Paragraph 1B
-URI http://asc.fasb.org/extlink&oid=84167132&loc=SL5958570-112826

Reference 7: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 942
-SubTopic 505
-Section 50
-Paragraph 1F
-URI http://asc.fasb.org/extlink&oid=84167132&loc=SL5958575-112826

Reference 8: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 942
-SubTopic 505
-Section 50
-Paragraph 1
-URI http://asc.fasb.org/extlink&oid=84167132&loc=SL5958568-112826

Reference 9: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 942
-SubTopic 505
-Section 50
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-URI http://asc.fasb.org/extlink&oid=84167132&loc=SL5958573-112826

+ Details

Fair Value Information

12 Months Ended

Dec. 31, 2017

Fair Value Disclosures [Abstract]

Fair Value Information

20.

FAIR VALUE INFORMATION

Fair Value Hierarchy

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

The following disclosure provides the fair value information for financial assets and liabilities as of December 31, 2017. 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 — includes assets and liabilities that have an active market that provides an objective quoted value for each unit. Here the active market quoted value is used to measure the fair value. Level 1 has the most objective measurement of fair value. Level 2 is less objective and Level 3 is the least objective (most subjective) in estimating fair value.

•

Level 2 — assets and liabilities are ones where there is no active market in the same assets, but where there are parallel markets or alternative means to estimate fair value using observable information inputs such as the value placed on similar assets or liability that were recently traded.

•

Level 3 — fair values are based on information from the entity that reports these values in their financial statements. Such data are referred to as unobservable, in that the valuations are not based on data available to parties outside the entity.

Observable and unobservable inputs are the key elements that separate the levels in the fair value hierarchy. Inputs here refer explicitly to the types of information used to obtain the fair value of the asset or liability.

Observable inputs include data sources and market prices available and visible outside of the entity. While there will continue to be judgments required when an active market price is not available, these inputs are external to the entity and observable outside the entity; they are consequently considered more objective than internal unobservable inputs used for Level 3 fair value.

Unobservable inputs are data and analyses that are developed within the entity to assess the fair value, such as management estimates of future benefits from use of assets.

There were no transfers in and out of Level 1 and Level 2 during the years ended December 31, 2017 and 2016.

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 and Cash Equivalents — The carrying amount of cash and cash equivalents is considered to approximate fair value due to the liquidity of these instruments.

Interest-Bearing Balances Due from Depository Institutions — The carrying value of due from depository institutions is considered to approximate fair value due to the short-term nature of these deposits.

FHLB Stock — The carrying amount of FHLB stock approximates fair value, as the stock may be sold back to the FHLB at carrying value.

Investment Securities (Available-for-sale and Held-to-Maturity) — Investment securities are generally valued based upon quotes obtained from an independent third-party pricing service, which uses evaluated pricing applications and model processes. Observable 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. The Company reviews the market prices provided by the third-party pricing service for reasonableness based on the Company’s understanding of the market place and credit issues related to the securities. The Company has not made any adjustments to the market quotes provided by them and, accordingly, the Company categorized its investment portfolio within Level 2 of the fair value hierarchy.

Loans — The carrying amount of loans and lease finance receivables is their contractual amounts outstanding, reduced by deferred net loan origination fees, purchase price discounts and the allocable portion of the allowance for loan losses.

The fair value of loans, other than loans on nonaccrual 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 loan losses. Accordingly, in determining the estimated current rate for discounting purposes, no adjustment has been made for any change in borrowers’ specific credit risks since the origination or purchase of such loans. Rather, the allocable portion of the allowance for loan losses and the purchase price discounts are 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. These loans are included within Level 3 of the fair value hierarchy.

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 and OREO fall within Level 3 of the fair value hierarchy.

The majority of our commitments to extend credit carry current market interest rates if converted to loans. Because these commitments are generally unassignable by either the borrower or us, they only have value to the borrower and us. The estimated fair value approximates the recorded deferred fee amounts and is excluded from the following table because it is not material.

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, each swap is categorized as a Level 2 valuation.

Asset held-for-sale — The carrying amount of asset held-for-sale reflects the lower cost of market, less costs to sell. The fair value of asset held-for-sale is primarily based on independent third-party appraisal information. Appraised values may be adjusted based on factors such as the changes in market conditions from the time of valuation. As such, asset held-for-sale is categorized as a Level 3 of the fair value hierarchy.

Deposits & Borrowings — The amounts payable to depositors for demand, savings, and money market accounts, and short-term borrowings are considered to approximate 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. Interest-bearing deposits and borrowings are included within Level 2 of the fair value hierarchy.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

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


	Carrying Value at December 31, 2017		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(Dollars in thousands)
Description of assets
Investment securities - AFS:
Government agency/GSE	$	-	$	-	$	-	$	-
Residential mortgage-backed securities		1,750,909		-		1,750,909		-
CMO/REMIC - residential		273,829		-		273,829		-
Municipal bonds		55,496		-		55,496		-
Other securities		751		-		751		-

Total investment securities - AFS		2,080,985		-		2,080,985		-
Interest rate swaps		3,211		-		3,211		-

Total assets	$	2,084,196	$	-	$	2,084,196	$	-

Description of liability
Interest rate swaps	$	3,211	$	-	$	3,211	$	-

Total liabilities	$	3,211	$	-	$	3,211	$	-


	Carrying Value at December 31, 2016		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(Dollars in thousands)
Description of assets
Investment securities - AFS:
Government agency/GSE	$	2,752	$	-	$	2,752	$	-
Residential mortgage-backed securities		1,834,748		-		1,834,748		-
CMO/REMIC - residential		347,189		-		347,189		-
Municipal bonds		80,071		-		80,071		-
Other securities		5,706		-		5,706		-

Total investment securities - AFS		2,270,466		-		2,270,466		-
Interest rate swaps		5,783		-		5,783		-

Total assets	$	2,276,249	$	-	$	2,276,249	$	-

Description of liability
Interest rate swaps	$	5,783	$	-	$	5,783	$	-

Total liabilities	$	5,783	$	-	$	5,783	$	-

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

We may be required to measure certain assets at fair value on a non-recurring basis in accordance with GAAP. These adjustments to fair value usually result from application of lower of cost or fair value accounting or write-downs of individual assets. For assets measured at fair value on a non-recurring basis that were held on the balance sheet at December 31, 2017 and 2016, respectively, the following tables provide the level of valuation assumptions used to determine each adjustment and the carrying value of the related assets that had losses during the period.


	Carrying Value at December 31, 2017		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Losses For the Year Ended December 31, 2017
	(Dollars in thousands)
Description of assets
Impaired loans, excluding PCI loans:
Commercial and industrial	$	-	$	-	$	-	$	-	$	-
SBA		-		-		-		-		-
Real estate:
Commercial real estate		-		-		-		-		-
Construction		-		-		-		-		-
SFR mortgage		-		-		-		-		-
Dairy & livestock and agribusiness		-		-		-		-		-
Consumer and other loans		378		-		-		378		74
Other real estate owned		-		-		-		-		-
Asset held-for-sale		-						-		-

Total assets	$	378	$	-	$	-	$	378	$	74


	Carrying Value at December 31, 2016		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Losses For the Year Ended December 31, 2016
	(Dollars in thousands)
Description of assets
Impaired loans, excluding PCI loans:
Commercial and industrial	$	65	$	-	$	-	$	65	$	8
SBA		196		-		-		196		27
Real estate:
Commercial real estate		-		-		-		-		-
Construction		-		-		-		-		-
SFR mortgage		-		-		-		-		-
Dairy & livestock and agribusiness		-		-		-		-		-
Consumer and other loans		-		-		-		-		-
Other real estate owned		-		-		-		-		-
Asset held-for-sale		3,411						3,411		2,558

Total assets	$	3,672	$	-	$	-	$	3,672	$	2,593

Fair Value of Financial Instruments

The following disclosure 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 may realize in a current market exchange as of December 31, 2017 and 2016, respectively. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.


	December 31, 2017
			Estimated Fair Value
	Carrying Amount		Level 1		Level 2		Level 3		Total
	(Dollars in thousands)
Assets
Total cash and cash equivalents	$	144,377	$	144,377	$	-	$	-	$	144,377
Interest-earning balances due from depository institutions		17,952		-		17,951		-		17,951
FHLB stock		17,688		-		17,688		-		17,688
Investment securities available-for-sale		2,080,985		-		2,080,985		-		2,080,985
Investment securities held-to-maturity		829,890		-		819,215		-		819,215
Total loans, net of allowance for loan losses		4,771,046		-		-		4,678,402		4,678,402
Swaps		3,211		-		3,211		-		3,211
Liabilities
Deposits:
Noninterest-bearing	$	3,846,436	$	3,846,436	$	-	$	-	$	3,846,436
Interest-bearing		2,700,417		-		2,697,781		-		2,697,781
Borrowings		553,773		-		553,416		-		553,416
Junior subordinated debentures		25,774		-		-		18,070		18,070
Swaps		3,211		-		3,211		-		3,211

	December 31, 2016
			Estimated Fair Value
	Carrying Amount		Level 1		Level 2		Level 3		Total
	(Dollars in thousands)
Assets
Total cash and due from banks	$	121,633	$	121,633	$	-	$	-	$	121,633
Interest-earning balances due from depository institutions		47,848		-		47,848		-		47,848
FHLB stock		17,688		-		17,688		-		17,688
Investment securities available-for-sale		2,270,466		-		2,270,466		-		2,270,466
Investment securities held-to-maturity		911,676		-		897,374		-		897,374
Total loans, net of allowance for loan losses		4,333,524		-		-		4,306,225		4,306,225
Swaps		5,783		-		5,783		-		5,783
Liabilities
Deposits:
Noninterest-bearing	$	3,673,541	$	3,673,541	$	-	$	-	$	3,673,541
Interest-bearing		2,636,139		-		2,634,443		-		2,634,443
Borrowings		656,028		-		655,820		-		655,820
Junior subordinated debentures		25,774		-		-		18,463		18,463
Swaps		5,783		-		5,783		-		5,783

The fair value estimates presented herein are based on pertinent information available to management as of December 31, 2017 and 2016. 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.

Derivative Instruments and Hedging Activities Disclosure [Abstract]

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

+ References + Details

Business Segments

12 Months Ended

Dec. 31, 2017

Segment Reporting [Abstract]

Business Segments

21.

BUSINESS SEGMENTS

The Company has identified two principal reportable segments: Banking Centers (“Centers”) and Dairy & Livestock and Agribusiness. All other operations have been aggregated in “Other”. The Bank has 50 Banking Centers organized in 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 departments within the Bank which is the basis for determining the Bank’s reportable segments. The chief operating decision maker (currently our CEO) regularly reviews the financial information of these two segments in deciding how to allocate resources and to assess performance. Our two principal reporting segments, Centers and Dairy & Livestock and Agribusiness, are aggregated into separate operating segments 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. All other operating departments have been aggregated and included in “Other” for reporting purposes. Recapture of provision for loan losses was allocated by segment based on loan type. In addition, the Company allocates internal funds 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 the ”Other” category.

The following tables present the selected financial information for these two business segments. GAAP does 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 disclosed in Note 3 — Summary of Significant Accounting Policies, included herein. The income numbers represent the actual income and expenses of each business unit. In addition, each segment has allocated income and expenses based on management’s internal reporting system, which allows management to determine the performance of each of its business units. Loan fees included in the “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 condensed consolidated financial statements. All income and expense items not directly associated with the Centers’ business segment are grouped in the “Other” category. Future changes in the Company’s 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 operating segments for the periods presented.


	For the Year Ended December 31, 2017
	Centers		Dairy & livestock and agribusiness		Other (1)		Total
	(Dollars in thousands)
Net interest income	$	195,377	$	10,798	$	72,755	$	278,930
(Recapture of) provision for loan losses		1,712		(3,913)		(6,299)		(8,500)

Net interest income after (recapture of) provision for loan losses		193,665		14,711		79,054		287,430

Noninterest income		21,674		232		20,212		42,118
Noninterest expense		51,337		1,963		87,453		140,753

Segment pre-tax profit	$	164,002	$	12,980	$	11,813	$	188,795

Goodwill	$	116,564	$	-	$	-	$	116,564

Segment assets as of December 31, 2017	$	7,235,549	$	474,292	$	560,745	$	8,270,586

(1)

Includes the elimination of certain items that are included in more than one department, most of which represents products and services for Centers’ customers.


	For the Year Ended December 31, 2016
	Centers		Dairy & livestock and agribusiness		Other (1)		Total
	(Dollars in thousands)
Net interest income	$	178,183	$	7,973	$	70,918	$	257,074
(Recapture of) provision for loan losses		(172)		2,296		(8,524)		(6,400)

Net interest income after (recapture of) provision for loan losses		178,355		5,677		79,442		263,474

Noninterest income		20,179		223		15,150		35,552
Noninterest expense		50,110		1,958		84,656		136,724
Debt termination expense		-		-		16		16

Segment pre-tax profit	$	148,424	$	3,942	$	9,920	$	162,286

Goodwill	$	89,533	$	-	$	-	$	89,533

Segment assets as of December 31, 2016	$	7,024,986	$	473,670	$	575,051	$	8,073,707

(1)

Includes the elimination of certain items that are included in more than one department, most of which represents products and services for Centers’ customers.


	For the Year Ended December 31, 2015
	Centers		Dairy & livestock and agribusiness		Other (1)		Total
	(Dollars in thousands)
Net interest income	$	167,633	$	7,558	$	77,751	$	252,942
(Recapture of) provision for loan losses		(6,711)		143		968		(5,600)

Net interest income after (recapture of) provision for loan losses		174,344		7,415		76,783		258,542

Noninterest income		20,677		261		12,545		33,483
Noninterest expense		48,568		1,844		76,377		126,789
Debt termination expense		-		-		13,870		13,870

Segment pre-tax profit (loss)	$	146,453	$	5,832	$	(919)	$	151,366

Goodwill	$	74,244	$	-	$	-	$	74,244

Segment assets as of December 31, 2015	$	6,441,751	$	458,214	$	771,235	$	7,671,200

(1)

Includes the elimination of certain items that are included in more than one department, most of which represents products and services for Centers’ customers.

Derivative Financial Instruments

12 Months Ended

Dec. 31, 2017

Derivative Financial Instruments

22.

DERIVATIVE FINANCIAL INSTRUMENTS

The Bank is exposed to certain risks relating to its ongoing business operations and utilizes interest rate swap agreements (“swaps”) as part of its asset/liability management strategy to help manage its interest rate risk position. As of December 31, 2017, the Bank has entered into 77 interest-rate swap agreements with customers. The Bank then entered into identical offsetting swaps with a counterparty bank. The swap agreements 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 to provide the customer the financial effects of a fixed-rate loan without creating significant volatility in the Bank’s 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 fair value of the swaps primarily offset each other and therefore should not have a significant impact on the Company’s results of operations, although the Company does incur credit and counterparty risk with respect to performance on the swap agreements by the Bank’s customer and counterparty, respectively. Our interest rate swap derivatives are subject to a master netting arrangement with one counterparty bank. None of our derivative assets and liabilities are offset in the balance sheet.

We believe our risk of loss associated with our counterparty borrowers related to interest rate swaps is mitigated as the loans with swaps are underwritten to take into account potential additional exposure, although there can be no assurances in this regard since the performance of our swaps is subject to market and counterparty risk.

Balance Sheet Classification of Derivative Financial Instruments

As of December 31, 2017 and 2016, the total notional amount of the Company’s swaps was $198.5 million and $202.7 million, respectively. The location of the asset and liability, and their respective fair values are summarized in the tables below.

December 31, 2017

Asset Derivatives

Liability Derivatives

Balance Sheet
Location

Fair
Value

Balance Sheet
Location

Fair
Value

(Dollars in thousands)

Derivatives not designated as hedging instruments:

Interest rate swaps

Other assets

3,211

Other liabilities

3,211

Total derivatives

3,211

December 31, 2016

Asset Derivatives

Liability Derivatives

Balance Sheet
Location

Fair
Value

Balance Sheet
Location

Fair
Value

(Dollars in thousands)

Derivatives not designated as hedging instruments:

Interest rate swaps

Other assets

5,783

Other liabilities

5,783

Total derivatives

5,783

The Effect of Derivative Financial Instruments on the Consolidated Statements of Earnings

The following table summarizes the effect of derivative financial instruments on the consolidated statements of earnings for the periods presented.


Derivatives Not Designated as Hedging Instruments	Location of Gain Recognized in Income on Derivative Instruments	Amount of Gain Recognized in Income on Derivative Instruments
		For the Year Ended December 31,
		2017		2016		2015
		(Dollars in thousands)
Interest rate swaps	Other income	$	615	$	691	$	333

Total		$	615	$	691	$	333

Other Comprehensive Income (Loss)

12 Months Ended

Dec. 31, 2017

Equity [Abstract]

Other Comprehensive Income (Loss)

23.

OTHER COMPREHENSIVE INCOME (LOSS)

The tables below provide a summary of the components of OCI for the periods presented.


	For the Year Ended December 31,
	2017						2016						2015
	Before-tax		Tax effect		After-tax		Before-tax		Tax effect		After-tax		Before-tax		Tax effect		After-tax
	(Dollars in thousands)
Investment securities:
Net change in fair value recorded in accumulated OCI	$	(11,336)	$	(4,760)	$	(6,576)	$	(15,792)	$	(6,633)	$	(9,159)	$	(22,667)	$	(9,519)	$	(13,148)
Cumulative-effect adjustment for unrealized gains on securities transferred from available-for-sale to held-to-maturity		-		-		-		-		-		-		6,690		2,808		3,882
Amortization of unrealized (gains)/losses on securities transferred from available-for-sale to held-to-maturity		(3,293)		(1,383)		(1,910)		(2,174)		(913)		(1,261)		(1,573)		(660)		(913)
Net realized (gain)/loss reclassified into earnings (1)		(402)		(169)		(233)		(548)		(230)		(318)		22		9		13

Net change	$	(15,031)	$	(6,312)	$	(8,719)	$	(18,514)	$	(7,776)	$	(10,738)	$	(17,528)	$	(7,362)	$	(10,166)

(1)

Included in other noninterest income.

Balance Sheet Offsetting

12 Months Ended

Dec. 31, 2017

Condensed Financial Information of Parent Company Only Disclosure [Abstract]

Balance Sheet Offsetting

24.

BALANCE SHEET OFFSETTING

Assets and liabilities relating to certain financial instruments, including, derivatives and securities sold under repurchase agreements (“repurchase agreements”), may be eligible for offset in the consolidated balance sheets as permitted under accounting guidance. As noted above, our interest rate swap derivatives are subject to a master netting arrangement with one counterparty bank. Our interest rate swap derivatives require the Company to pledge investment securities as collateral based on certain risk thresholds. Investment securities that have been pledged by the Company to the counterparty bank continue to be reported in the Company’s consolidated balance sheets unless the Company defaults. We offer a repurchase agreement product to our customers, which include master netting agreements that allow for the netting of collateral positions. This product, known as Citizens Sweep Manager, sells certain of our securities overnight to our customers under an agreement to repurchase them the next day. The repurchase agreements are not offset in the consolidated balances.


	Gross Amounts Recognized in the Consolidated Balance Sheets		Gross Amounts Offset in the Consolidated Balance Sheets		Net Amounts of Assets Presented in the Consolidated Balance Sheets		Gross Amounts Not Offset in the Consolidated Balance Sheets				Net Amount
	Gross Amounts Recognized in the Consolidated Balance Sheets		Gross Amounts Offset in the Consolidated Balance Sheets				Financial Instruments		Collateral Pledged		Net Amount
	(Dollars in thousands)
December 31, 2017
Financial assets:
Derivatives not designated as hedging instruments	$	3,211	$	-	$	-	$	3,211	$	-	$	3,211

Total	$	3,211	$	-	$	-	$	3,211	$	-	$	3,211

Financial liabilities:
Derivatives not designated as hedging instruments	$	4,495	$	(1,284)	$	3,211	$	1,284	$	(12,760)	$	(8,265)
Repurchase agreements		553,773		-		553,773		-		(573,759)		(19,986)

Total	$	558,268	$	(1,284)	$	556,984	$	1,284	$	(586,519)	$	(28,251)


December 31, 2016
Financial assets:
Derivatives not designated as hedging instruments	$	5,783	$	-	$	-	$	5,783	$	-	$	5,783

Total	$	5,783	$	-	$	-	$	5,783	$	-	$	5,783

Financial liabilities:
Derivatives not designated as hedging instruments	$	6,855	$	(1,072)	$	5,783	$	1,072	$	(12,800)	$	(5,945)
Repurchase agreements		603,028		-		603,028		-		(683,413)		(80,385)

Total	$	609,883	$	(1,072)	$	608,811	$	1,072	$	(696,213)	$	(86,330)

Condensed Financial Information of Parent Company

12 Months Ended

Dec. 31, 2017

Condensed Financial Information of Parent Company

25.

CONDENSED FINANCIAL INFORMATION OF PARENT COMPANY

The following tables provide the parent company only condensed balance sheets, condensed statements of earnings and condensed statements of cash flows for the periods presented.

CVB FINANCIAL CORP.

CONDENSED BALANCE SHEETS


	As of December 31,
	2017		2016
	(Dollars in thousands)
Assets
Investment in subsidiaries	$	1,084,332	$	1,005,160
Other assets, net		26,703		24,754

Total assets	$	1,111,035	$	1,029,914


Liabilities	$	41,769	$	39,052
Stockholders’ equity		1,069,266		990,862

Total liabilities and stockholders’ equity	$	1,111,035	$	1,029,914

CVB FINANCIAL CORP.

CONDENSED STATEMENTS OF EARNINGS


	For the Year Ended December 31,
	2017		2016		2015
	(Dollars in thousands)
Excess in net earnings of subsidiaries	$	50,253	$	55,192	$	53,259
Dividends from the Bank		57,000		49,000		49,000
Other expense, net		(2,842)		(2,763)		(3,114)

Net earnings	$	104,411	$	101,429	$	99,145

CVB FINANCIAL CORP.

CONDENSED STATEMENTS OF CASH FLOWS


	For the Year Ended December 31,
	2017		2016		2015
	(Dollars in thousands)
Cash Flows from Operating Activities
Net earnings	$	104,411	$	101,429	$	99,145

Adjustments to reconcile net earnings to cash used in operating activities:
Earnings of subsidiaries		(107,253)		(104,192)		(102,259)
Tax settlement received from the Bank		1,577		2,557		1,233
Stock-based compensation		2,953		2,803		2,733
Other operating activities, net		(1,725)		(3,362)		(2,180)

Total adjustments		(104,448)		(102,194)		(100,473)

Net cash used in operating activities		(37)		(765)		(1,328)

Cash Flows from Investing Activities
Dividends received from the Bank		57,000		49,000		49,000

Net cash provided by investing activities		57,000		49,000		49,000

Cash Flows from Financing Activities
Cash dividends on common stock		(57,047)		(51,625)		(48,862)
Proceeds from exercise of stock options		2,683		5,151		5,144
Tax benefit related to exercise of stock options		-		932		308
Repurchase of common stock		(1,128)		(1,907)		(834)

Net cash used in financing activities		(55,492)		(47,449)		(44,244)

Net increase in cash and cash equivalents		1,471		786		3,428
Cash and cash equivalents, beginning of period		17,746		16,960		13,532

Cash and cash equivalents, end of period	$	19,217	$	17,746	$	16,960

Quarterly Financial Information Disclosure [Abstract]

The entire disclosure for condensed financial information, including the financial position, cash flows, and the results of operations of the registrant (parent company) as of the same dates or for the same periods for which audited consolidated financial statements are being presented. Alternatively, the details of this disclosure can be reported by the specific parent company taxonomy elements, indicating the appropriate date and period contexts in an instance document.

+ References + Details

Quarterly Financial Data

12 Months Ended

Dec. 31, 2017

Quarterly Financial Data

26.

QUARTERLY FINANCIAL DATA (UNAUDITED)

The following table sets forth our unaudited, quarterly results for the periods indicated.


	For the Three Months Ended
	December 31,		September 30,		June 30,		March 31,
	(Dollars in thousands, except per share amounts)
2017
Net interest income	$	71,275	$	71,739	$	70,483	$	65,433
Recapture of provision for loan losses		(1,500)		(1,500)		(1,000)		(4,500)
Net earnings		17,851		29,683		28,373		28,504
Basic earnings per common share		0.16		0.27		0.26		0.26
Diluted earnings per common share		0.16		0.27		0.26		0.26

2016
Net interest income	$	65,441	$	63,161	$	65,956	$	62,516
Recapture of provision for loan losses		(4,400)		(2,000)		-		-
Net earnings		27,076		25,448		25,514		23,391
Basic earnings per common share		0.25		0.23		0.23		0.22
Diluted earnings per common share		0.25		0.23		0.23		0.22

Subsequent Event

12 Months Ended

Dec. 31, 2017

Subsequent Events [Abstract]

Subsequent Event

27.

SUBSEQUENT EVENT

On February 26, 2018, we entered into a definitive agreement to merge Community Bank with and into Citizens Business Bank. As of December 31, 2017, Community Bank had approximately $3.75 billion in total assets, $2.74 billion in gross loans and $2.86 billion in total deposits. Under the terms of the merger, Community Bank shareholders will have the right to receive, in respect of each share of common stock of Community Bank, 9.4595 shares of CVB common stock and $56.00 per share in cash, subject to any adjustments set forth in the Merger Agreement. The merger transaction is valued at approximately $878.3 million based on CVB’s closing stock price of $23.37 on February 23, 2018. Consummation of the merger is subject to customary closing conditions, including, among others, shareholder and regulatory approval. The merger is expected to close in the third quarter of 2018.

Basis of Presentation (Policies)

12 Months Ended

Dec. 31, 2017

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Reclassification

Segments

Cash and cash equivalents

Investment Securities

Loans Held-for-Sale

Loans and Lease Finance Receivables

Loans and Lease Finance Receivables — Loans and lease finance receivables that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at the principal balance outstanding, less deferred net loan origination fees and purchase price discounts. Purchase Credit Impaired (“PCI”) loans are those loans that when we acquired them were deemed to be impaired. PCI loans are included in total loans and lease finance receivables as of December 31, 2017. Refer to Note 7 — Loans and Lease Finance Receivables and Allowance for Loan Losses for total loans, excluding PCI loans, by type and to Note 6 — Acquired SJB Assets and FDIC Loss Sharing Asset for PCI loans by type.

Troubled Debt Restructurings

The delay is insignificant relative to any of the following:

•

The frequency of payments due;

•

The debt’s original contractual maturity; or

•

The debt’s original expected duration.

Most modified loans not classified and accounted for as a TDR were performing and paying as agreed under their original terms in the six-month period immediately preceding a request for modification. Subsequently, these modified loans have continued to perform under the modified terms and deferrals that amounted to insignificant delays, which in turn is supported by the facts and circumstances of each individual customer and loan as described above. Payment performance continues to be monitored once modifications are made. The Company’s favorable experience regarding “re-defaults” under modified terms, or upon return of the loan to its original terms, indicates that such relief may improve ultimate collection and reduces the Company’s risk of loss.

Impaired Loans

The Company’s policy is to record a specific valuation allowance, which is included in the allowance for loan losses, or to charge off that portion of an impaired loan that represents the impairment or shortfall amount as determined utilizing one of the three methods described in ASC 310-10-35-22. Impairment on non-collateral dependent restructured loans is measured by comparing the present value of expected future cash flows on the restructured loans discounted at the interest rate of the original loan agreement to the loan’s carrying value. The impairment amount, if any, is generally charged off and recorded against the allowance for loan losses at the time impairment is measurable and a probable loss is determined. As a result, most of the TDRs have no specific allowance allocated because, consistent with the Company’s stated practice, any impairment is typically charged off in the period in which it is identified. The Company measures impairment based on the present value of expected future cash flows discounted at the loan’s effective interest rate, except that as a practical expedient, the Company may also measure impairment based on an observable market price for the loan, or the value of the collateral, for collateral dependent loans. Impairment on collateral dependent restructured loans is measured by determining the amount by which our recorded investment in the impaired loan exceeds the fair value of the collateral less estimated selling costs. The fair value is generally determined by one or more appraisals of the collateral, performed by a Company-approved third-party independent appraiser. The majority of impaired loans that are collateral dependent are charged off down to their estimated fair value of the collateral (less selling costs) at each reporting date based on current appraised value.

Provision and Allowance for Loan Losses

Purchase Credit Impaired Loans

FDIC Loss Sharing Asset

Other Real Estate Owned

Premises and Equipment


		Bank premises		15 – 39 years
		Leasehold improvements		Shorter of estimated economic lives of 15 years or term of the lease.
		Computer equipment		3 – 5 years
		Furniture, fixtures and equipment		5 – 7 years

•

Management, having the authority to approve the action, commits to a plan to sell the asset.

•

The asset is available for immediate sale, an active program to locate a buyer and other actions required to complete the plan to sell the asset have been initiated.

•

The sale of the asset is probable, and transfer of the asset is expected to qualify for recognition as a completed sale, within one year.

•

The asset is being actively marketed for sale at a price that is reasonable in relation to its current fair value.

•

Actions required to complete the plan indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn.

Goodwill and Intangible Assets

Other intangible assets consist of core deposit intangible assets arising from business combinations and are amortized using an accelerated method over their estimated useful lives.

Use of Fair Value

Bank Owned Life Insurance

Income Taxes

Earnings per Common Share

Stock-Based Compensation

The grant date fair value of restricted stock awards is measured at the fair value of the Company’s common stock as if the restricted share was vested and issued on the date of grant.

Additional information is included in Note 18 — Stock Option Plans and Restricted Stock Awards of the consolidated financial statements included herein.

Derivative Financial Instruments

Statement of Cash Flows

CitizensTrust

Use of Estimates in the Preparation of Financial Statements

Other Contingencies

Adoption of New Accounting Standard and Recent Accounting Pronouncements

In August 2016, the FASB issued ASU No. 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments.” The new guidance clarifies the classification within the statement of cash flows for certain transactions, including debt extinguishment costs, zero-coupon debt, contingent consideration related to business combinations, insurance proceeds, equity method distributions and beneficial interests in securitizations. The guidance also clarifies that cash flows with aspects of multiple classes of cash flows or that cannot be separated by source or use should be classified based on the activity that is likely to be the predominant source or use of cash flows for the item. This guidance is effective for fiscal years beginning after December 15, 2017 and will require application using a retrospective transition method. The Company is currently evaluating the impact of adoption of this ASU on its consolidated financial statements, and does not expect this ASU to have a material impact on the Company’s consolidated financial statements.

Fair Value Hierarchy

Fair Value Hierarchy

•

Summary of Significant Accounting Policies (Tables)

12 Months Ended

Dec. 31, 2017

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Summary of Useful Lives of Principal Classes of Assets

The ranges of useful lives of the principal classes of assets are as follows:


		Bank premises		15 – 39 years
		Leasehold improvements		Shorter of estimated economic lives of 15 years or term of the lease.
		Computer equipment		3 – 5 years
		Furniture, fixtures and equipment		5 – 7 years

Investment Securities (Tables)

12 Months Ended

Dec. 31, 2017

Investments, Debt and Equity Securities [Abstract]

Summary of Amortized Cost and Estimated Fair Value of Investment Securities


	December 31, 2017
	Amortized Cost		Gross Unrealized Holding Gain		Gross Unrealized Holding Loss		Fair Value		Total Percent
	(Dollars in thousands)
Investment securities available-for-sale:
Residential mortgage-backed securities	$	1,747,780	$	11,231	$	(8,102)	$	1,750,909		84.14%
CMO/REMIC - residential		274,634		1,277		(2,082)		273,829		13.16%
Municipal bonds		54,966		774		(244)		55,496		2.66%
Other securities		751		-		-		751		0.04%

Total available-for-sale securities	$	2,078,131	$	13,282	$	(10,428)	$	2,080,985		100.00%

Investment securities held-to-maturity:
Government agency/GSE	$	159,716	$	854	$	(2,134)	$	158,436		19.25%
Residential mortgage-backed securities		176,427		667		(382)		176,712		21.26%
CMO		225,072		-		(8,641)		216,431		27.12%
Municipal bonds		268,675		2,751		(3,790)		267,636		32.37%

Total held-to-maturity securities	$	829,890	$	4,272	$	(14,947)	$	819,215		100.00%


	December 31, 2016
	Amortized Cost		Gross Unrealized Holding Gain		Gross Unrealized Holding Loss		Fair Value		Total Percent
	(Dollars in thousands)
Investment securities available-for-sale:
Government agency/GSE	$	2,750	$	2	$	-	$	2,752		0.12%
Residential mortgage-backed securities		1,822,168		18,812		(6,232)		1,834,748		80.81%
CMO/REMIC - residential		345,313		3,361		(1,485)		347,189		15.29%
Municipal bonds		80,137		889		(955)		80,071		3.53%
Other securities		5,506		200		-		5,706		0.25%

Total available-for-sale securities	$	2,255,874	$	23,264	$	(8,672)	$	2,270,466		100.00%

Investment securities held-to-maturity:
Government agency/GSE	$	182,648	$	362	$	(1,972)	$	181,038		20.03%
Residential mortgage-backed securities		193,699		-		(1,892)		191,807		21.25%
CMO		244,419		-		(6,808)		237,611		26.81%
Municipal bonds		290,910		776		(4,768)		286,918		31.91%

Total held-to-maturity securities	$	911,676	$	1,138	$	(15,440)	$	897,374		100.00%

Summary of Interest Income Earned on Investment Securities

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


	For the Year Ended December 31,
	2017		2016		2015
	(Dollars in thousands)
Investment securities available-for-sale:
Taxable	$	47,596	$	43,538	$	48,854
Tax-advantaged		2,182		4,164		14,336

Total interest income from available-for-sale securities		49,778		47,702		63,190

Investment securities held-to-maturity:
Taxable		12,558		10,183		4,451
Tax-advantaged		8,457		10,044		4,567

Total interest income from held-to-maturity securities		21,015		20,227		9,018

Total interest income from investment securities	$	70,793	$	67,929	$	72,208

Summary of Continuous Unrealized Loss Position of Securities


	December 31, 2017
	Less Than 12 Months				12 Months or Longer				Total
	Fair Value		Gross Unrealized Holding Losses		Fair Value		Gross Unrealized Holding Losses		Fair Value		Gross Unrealized Holding Losses
	(Dollars in thousands)
Investment securities available-for-sale:
Residential mortgage-backed securities	$	414,091	$	(1,828)	$	303,746	$	(6,274)	$	717,837	$	(8,102)
CMO/REMIC - residential		95,137		(487)		71,223		(1,595)		166,360		(2,082)
Municipal bonds		946		(4)		13,956		(240)		14,902		(244)

Total available-for-sale securities	$	510,174	$	(2,319)	$	388,925	$	(8,109)	$	899,099	$	(10,428)

Investment securities held-to-maturity:
Government agency/GSE	$	18,950	$	(27)	$	43,495	$	(2,107)	$	62,445	$	(2,134)
Residential mortgage-backed securities		51,297		(188)		55,306		(194)		106,603		(382)
CMO		-		-		216,431		(8,641)		216,431		(8,641)
Municipal bonds		32,069		(492)		66,217		(3,298)		98,286		(3,790)

Total held-to-maturity securities	$	102,316	$	(707)	$	381,449	$	(14,240)	$	483,765	$	(14,947)


	December 31, 2016
	Less Than 12 Months				12 Months or Longer				Total
	Fair Value		Gross Unrealized Holding Losses		Fair Value		Gross Unrealized Holding Losses		Fair Value		Gross Unrealized Holding Losses
	(Dollars in thousands)
Investment securities available-for-sale:
Residential mortgage-backed securities	$	583,143	$	(6,232)	$	-	$	-	$	583,143	$	(6,232)
CMO/REMIC - residential		128,595		(1,485)		-		-		128,595		(1,485)
Municipal bonds		23,255		(954)		5,981		(1)		29,236		(955)

Total available-for-sale securities	$	734,993	$	(8,671)	$	5,981	$	(1)	$	740,974	$	(8,672)

Investment securities held-to-maturity:
Government agency/GSE	$	76,854	$	(1,972)	$	-	$	-	$	76,854	$	(1,972)
Residential mortgage-backed securities		191,807		(1,892)		-		-		191,807		(1,892)
CMO		237,611		(6,808)		-		-		237,611		(6,808)
Municipal bonds		145,804		(3,711)		36,971		(1,057)		182,775		(4,768)

Total held-to-maturity securities	$	652,076	$	(14,383)	$	36,971	$	(1,057)	$	689,047	$	(15,440)

Summary of Amortized Cost and Fair Value of Debt Securities by Contractual Maturity

Mortgage-backed and CMO/REMIC securities are included in maturity categories based upon estimated average lives which incorporate estimated prepayment speeds.


	December 31, 2017
	Available-for-sale				Held-to-maturity
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(Dollars in thousands)
Due in one year or less	$	17,864	$	18,089	$	885	$	882
Due after one year through five years		1,929,815		1,932,602		175,899		173,251
Due after five years through ten years		96,678		96,200		271,579		268,426
Due after ten years		33,774		34,094		381,527		376,656

Total investment securities	$	2,078,131	$	2,080,985	$	829,890	$	819,215

Acquired SJB Assets and FDIC Loss Sharing Asset (Tables)

12 Months Ended

Dec. 31, 2017

Summary of PCI Loans and Lease Finance Receivables

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


	December 31,
	2017		2016
	(Dollars in thousands)

Commercial and industrial	$	934	$	2,309
SBA		1,383		327
Real estate:
Commercial real estate		27,431		67,594
Construction		-		-
SFR mortgage		162		178
Dairy & livestock and agribusiness		770		1,216
Municipal lease finance receivables		-		-
Consumer and other loans		228		1,469

Gross PCI loans		30,908		73,093
Less: Purchase accounting discount		(2,026)		(1,508)

Gross PCI loans, net of discount		28,882		71,585
Less: Allowance for PCI loan losses		(367)		(1,219)

Net PCI loans	$	28,515	$	70,366

Summary of Gross PCI Loans by Internal Risk Ratings by Loans

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


	December 31,
	2017		2016
	(Dollars in thousands)
Pass	$	26,439	$	59,409
Special mention		1,088		1,162
Substandard		3,381		12,522
Doubtful & loss		-		-

Total gross PCI loans	$	30,908	$	73,093

Summary of Activity Related to FDIC Loss Sharing Liability

The following table summarizes the activity related to the FDIC loss sharing liability for the periods presented.


	For the Year Ended December 31,
	2017		2016
	(Dollars in thousands)
Balance, beginning of period	$	(502)	$	(229)
FDIC share of recoveries, net of charge-offs		-		(5)
Cash paid to FDIC, net		519		514
Other		(124)		(782)

Balance, end of period	$	(107)	$	(502)

Loans and Lease Finance Receivables and Allowance for Loan Losses (Tables)

12 Months Ended

Dec. 31, 2017

Receivables [Abstract]

Summary of Components of Loans and Lease Finance Receivables, Excluding PCI Loans

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


	December 31,
	2017		2016
	(Dollars in thousands)

Commercial and industrial	$	513,325	$	485,078
SBA		122,055		97,184
Real estate:
Commercial real estate		3,376,713		2,930,141
Construction		77,982		85,879
SFR mortgage		236,202		250,605
Dairy & livestock and agribusiness		347,289		338,631
Municipal lease finance receivables		70,243		64,639
Consumer and other loans		64,229		78,274

Gross loans, excluding PCI loans		4,808,038		4,330,431
Less: Deferred loan fees, net		(6,289)		(6,952)

Gross loans, excluding PCI loans, net of deferred loan fees		4,801,749		4,323,479
Less: Allowance for loan losses		(59,218)		(60,321)

Net loans, excluding PCI loans		4,742,531		4,263,158

PCI Loans		30,908		73,093
Discount on PCI loans		(2,026)		(1,508)
Less: Allowance for loan losses		(367)		(1,219)

PCI loans, net		28,515		70,366

Total loans and lease finance receivables	$	4,771,046	$	4,333,524

Summary of Loan, Excluding PCI Loans by Internal Risk Ratings

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


	December 31, 2017
	Pass		Special Mention		Substandard		Doubtful & Loss		Total
	(Dollars in thousands)
Commercial and industrial	$	483,641	$	19,566	$	10,118	$	-	$	513,325
SBA		112,835		5,358		3,862		-		122,055
Real estate:
Commercial real estate
Owner occupied		1,009,199		76,111		10,970		-		1,096,280
Non-owner occupied		2,257,130		16,434		6,869		-		2,280,433
Construction
Speculative		60,042		-		-		-		60,042
Non-speculative		17,940		-		-		-		17,940
SFR mortgage		229,032		3,124		4,046		-		236,202
Dairy & livestock and agribusiness		321,413		9,047		16,829		-		347,289
Municipal lease finance receivables		69,644		599		-		-		70,243
Consumer and other loans		61,715		1,255		1,259		-		64,229

Total gross loans, excluding PCI loans	$	4,622,591	$	131,494	$	53,953	$	-	$	4,808,038


	December 31, 2016
	Pass		Special Mention		Substandard		Doubtful & Loss		Total
	(Dollars in thousands)
Commercial and industrial	$	449,658	$	21,610	$	13,809	$	1	$	485,078
SBA		80,138		10,553		6,482		11		97,184
Real estate:
Commercial real estate
Owner occupied		842,992		87,781		19,046		-		949,819
Non-owner occupied		1,941,203		23,534		15,585		-		1,980,322
Construction
Speculative		48,841		-		-		-		48,841
Non-speculative		37,038		-		-		-		37,038
SFR mortgage		243,374		4,930		2,301		-		250,605
Dairy & livestock and agribusiness		187,819		114,106		36,706		-		338,631
Municipal lease finance receivables		60,102		4,537		-		-		64,639
Consumer and other loans		74,328		2,123		1,819		4		78,274

Total gross loans, excluding PCI loans	$	3,965,493	$	269,174	$	95,748	$	16	$	4,330,431

Schedule of Balance and Activity Related to Allowance for Loan Losses for Held-for-Investment Loans by Type

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


	For the Year Ended December 31, 2017
	Ending Balance December 31, 2016		Charge-offs		Recoveries		(Recapture of) Provision for Loan Losses		Ending Balance December 31, 2017
	(Dollars in thousands)
Commercial and industrial		$ 8,154		$ (138)	$	118	$	(854)	$	7,280
SBA		871		-		78		(80)		869
Real estate:
Commercial real estate		37,443		-		154		4,125		41,722
Construction		1,096		-		6,036		(6,148)		984
SFR mortgage		2,287		-		212		(387)		2,112
Dairy & livestock and agribusiness		8,541		-		19		(3,913)		4,647
Municipal lease finance receivables		941		-		-		(90)		851
Consumer and other loans		988		(13)		79		(301)		753
PCI loans		1,219		-		-		(852)		367

Total allowance for loan losses		$ 61,540	$	(151)	$	6,696	$	(8,500)	$	59,585


	For the Year Ended December 31, 2016
	Ending Balance December 31, 2015		Charge-offs		Recoveries		(Recapture of) Provision for Loan Losses		Ending Balance December 31, 2016
	(Dollars in thousands)
Commercial and industrial	$	8,588	$	(120)	$	630	$	(944)	$	8,154
SBA		993		-		40		(162)		871
Real estate:
Commercial real estate		36,995		-		792		(344)		37,443
Construction		2,389		-		7,174		(8,467)		1,096
SFR mortgage		2,103		(102)		-		286		2,287
Dairy & livestock and agribusiness		6,029		-		216		2,296		8,541
Municipal lease finance receivables		1,153		-		-		(212)		941
Consumer and other loans		906		(16)		170		(72)		988
PCI loans		-		-		-		1,219		1,219

Total allowance for loan losses	$	59,156	$	(238)	$	9,022	$	(6,400)	$	61,540


	For the Year Ended December 31, 2015
	Ending Balance December 31, 2014		Charge-offs		Recoveries		(Recapture of) Provision for Loan Losses (1)		Ending Balance December 31, 2015
	(Dollars in thousands)
Commercial and industrial	$	7,074	$	(411)	$	319	$	1,606	$	8,588
SBA		2,557		(37)		41		(1,568)		993
Real estate:
Commercial real estate		33,373		(117)		4,330		(591)		36,995
Construction		988		-		581		820		2,389
SFR mortgage		2,344		(215)		186		(212)		2,103
Dairy & livestock and agribusiness		5,479		-		407		143		6,029
Municipal lease finance receivables		1,412		-		-		(259)		1,153
Consumer and other loans		1,262		(229)		76		(203)		906
Unallocated (1)		5,336		-		-		(5,336)		-

Total allowance for loan losses	$	59,825	$	(1,009)	$	5,940	$	(5,600)	$	59,156

(1)

Schedule of Recorded Investment in Loans Held-for-Investment and Related Allowance for Loan Losses by Loan Type


	December 31, 2017
	Recorded Investment in Loans						Allowance for Loan Losses
	Individually Evaluated for Impairment		Collectively Evaluated for Impairment		Acquired with Deterioriated Credit Quality		Individually Evaluated for Impairment		Collectively Evaluated for Impairment		Acquired with Deterioriated Credit Quality
	(Dollars in thousands)
Commercial and industrial	$	440	$	512,885	$	-	$	-	$	7,280	$	-
SBA		1,531		120,524		-		1		868		-
Real estate:
Commercial real estate		8,133		3,368,580		-		-		41,722		-
Construction		-		77,982		-		-		984		-
SFR mortgage		4,040		232,162		-		-		2,112		-
Dairy & livestock and agribusiness		829		346,460		-		-		4,647		-
Municipal lease finance receivables		-		70,243		-		-		851		-
Consumer and other loans		552		63,677		-		74		679		-
PCI loans		-		-		28,882		-		-		367

Total	$	15,525	$	4,792,513	$	28,882	$	75	$	59,143	$	367


	December 31, 2016
	Recorded Investment in Loans						Allowance for Loan Losses
	Individually Evaluated for Impairment		Collectively Evaluated for Impairment		Acquired with Deterioriated Credit Quality		Individually Evaluated for Impairment		Collectively Evaluated for Impairment		Acquired with Deterioriated Credit Quality
	(Dollars in thousands)
Commercial and industrial	$	901	$	484,177	$	-	$	114	$	8,040	$	-
SBA		3,582		93,602		-		27		844		-
Real estate:
Commercial real estate		15,128		2,915,013		-		-		37,443		-
Construction		-		85,879		-		-		1,096		-
SFR mortgage		5,174		245,431		-		-		2,287		-
Dairy & livestock and agribusiness		747		337,884		-		-		8,541		-
Municipal lease finance receivables		-		64,639		-		-		941		-
Consumer and other loans		853		77,421		-		-		988		-
PCI loans		-		-		71,585		-		-		1,219

Total	$	26,385	$	4,304,046	$	71,585	$	141	$	60,180	$	1,219

Schedule of Recorded Investment in, and Aging of, Past Due and Nonaccrual Loans, Excluding PCI Loans by Class of Loans

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


	December 31, 2017
	30-59 Days Past Due		60-89 Days Past Due		Total Past Due and Accruing		Nonaccrual (1)		Current		Total Loans and Financing Receivables
	(Dollars in thousands)
Commercial and industrial	$	768	$	-	$	768	$	250	$	512,307	$	513,325
SBA		403		-		403		906		120,746		122,055
Real estate:
Commercial real estate
Owner occupied		-		-		-		4,365		1,091,915		1,096,280
Non-owner occupied		-		-		-		2,477		2,277,956		2,280,433
Construction
Speculative (2)		-		-		-		-		60,042		60,042
Non-speculative		-		-		-		-		17,940		17,940
SFR mortgage		-		-		-		1,337		234,865		236,202
Dairy & livestock and agribusiness		-		-		-		829		346,460		347,289
Municipal lease finance receivables		-		-		-		-		70,243		70,243
Consumer and other loans		1		-		1		552		63,676		64,229

Total gross loans, excluding PCI loans	$	1,172	$	-	$	1,172	$	10,716	$	4,796,150	$	4,808,038

(1)

As of December 31, 2017, $3.6 million of nonaccruing loans were current, $376,000 were 60-89 days past due and $6.8 million were 90+ days past due.

(2)

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


	December 31, 2016
	30-59 Days Past Due		60-89 Days Past Due		Total Past Due and Accruing		Nonaccrual (1)		Current		Total Loans and Financing Receivables
	(Dollars in thousands)
Commercial and industrial	$	-	$	-	$	-	$	156	$	484,922	$	485,078
SBA		352		-		352		2,737		94,095		97,184
Real estate:
Commercial real estate
Owner occupied		-		-		-		635		949,184		949,819
Non-owner occupied		-		-		-		1,048		1,979,274		1,980,322
Construction
Speculative (2)		-		-		-		-		48,841		48,841
Non-speculative		-		-		-		-		37,038		37,038
SFR mortgage		-		-		-		2,207		248,398		250,605
Dairy & livestock and agribusiness		-		-		-		-		338,631		338,631
Municipal lease finance receivables		-		-		-		-		64,639		64,639
Consumer and other loans		84		-		84		369		77,821		78,274

Total gross loans, excluding PCI loans	$	436	$	-	$	436	$	7,152	$	4,322,843	$	4,330,431

(1)

As of December 31, 2016, $4.7 million of nonaccruing loans were current, $514,000 were 30-59 days past due, $435,000 were 60-89 days past due and $1.5 million were 90+ days past due.

(2)

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

Schedule of Held-for-Investment Loans, Excluding PCI Loans, Individually Evaluated for Impairment by Class of Loans

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


	As of and For the Year Ended
	December 31, 2017
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
	(Dollars in thousands)
With no related allowance recorded:
Commercial and industrial	$	440	$	980	$	-	$	548	$	10
SBA		1,530		1,699		-		1,598		47
Real estate:
Commercial real estate
Owner occupied		4,365		4,763		-		4,414		36
Non-owner occupied		3,768		5,107		-		3,951		94
Construction
Speculative		-		-		-		-		-
Non-speculative		-		-		-		-		-
SFR mortgage		4,040		4,692		-		4,119		118
Dairy & livestock and agribusiness		829		1,091		-		988		1
Municipal lease finance receivables		-		-		-		-		-
Consumer and other loans		174		370		-		202		-

Total		15,146		18,702		-		15,820		306

With a related allowance recorded:
Commercial and industrial		-		-		-		-		-
SBA		1		18		1		6		-
Real estate:
Commercial real estate
Owner occupied		-		-		-		-		-
Non-owner occupied		-		-		-		-		-
Construction
Speculative		-		-		-		-		-
Non-speculative		-		-		-		-		-
SFR mortgage		-		-		-		-		-
Dairy & livestock and agribusiness		-		-		-		-		-
Municipal lease finance receivables		-		-		-		-		-
Consumer and other loans		378		391		74		385		-

Total		379		409		75		391		-

Total impaired loans	$	15,525	$	19,111	$	75	$	16,211	$	306


	As of and For the Year Ended
	December 31, 2016
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
	(Dollars in thousands)
With no related allowance recorded:
Commercial and industrial	$	730	$	1,646	$	-	$	832	$	26
SBA		3,386		4,189		-		3,709		50
Real estate:
Commercial real estate
Owner occupied		1,797		2,276		-		1,410		70
Non-owner occupied		13,331		15,842		-		13,517		592
Construction
Speculative		-		-		-		-		-
Non-speculative		-		-		-		-		-
SFR mortgage		5,174		6,075		-		5,327		135
Dairy & livestock and agribusiness		747		747		-		692		47
Municipal lease finance receivables		-		-		-		-		-
Consumer and other loans		853		1,423		-		919		18

Total		26,018		32,198		-		26,406		938

With a related allowance recorded:
Commercial and industrial		171		171		114		233		9
SBA		196		212		27		206		14
Real estate:
Commercial real estate
Owner occupied		-		-		-		-		-
Non-owner occupied		-		-		-		-		-
Construction
Speculative		-		-		-		-		-
Non-speculative		-		-		-		-		-
SFR mortgage		-		-		-		-		-
Dairy & livestock and agribusiness		-		-		-		-		-
Municipal lease finance receivables		-		-		-		-		-
Consumer and other loans		-		-		-		-		-

Total		367		383		141		439		23

Total impaired loans	$	26,385	$	32,581	$	141	$	26,845	$	961


	As of and For the Year Ended
	December 31, 2015
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
	(Dollars in thousands)
With no related allowance recorded:
Commercial and industrial	$	1,017	$	1,894	$	-	$	1,122	$	38
SBA		3,207		3,877		-		3,333		51
Real estate:
Commercial real estate
Owner occupied		6,252		7,445		-		6,718		97
Non-owner occupied		34,041		37,177		-		34,639		1,787
Construction
Speculative		-		-		-		-		-
Non-speculative		-		-		-		-		-
SFR mortgage		5,665		6,453		-		5,771		109
Dairy & livestock and agribusiness		3,685		3,684		-		3,687		177
Municipal lease finance receivables		-		-		-		-		-
Consumer and other loans		890		1,454		-		922		17

Total		54,757		61,984		-		56,192		2,276

With a related allowance recorded:
Commercial and industrial		626		695		626		637		-
SBA		41		47		10		45		-
Real estate:
Commercial real estate
Owner occupied		-		-		-		-		-
Non-owner occupied		-		-		-		-		-
Construction
Speculative		7,651		7,651		13		7,651		388
Non-speculative		-		-		-		-		-
SFR mortgage		588		640		20		607		12
Dairy & livestock and agribusiness		-		-		-		-		-
Municipal lease finance receivables		-		-		-		-		-
Consumer and other loans		43		45		-		45		-

Total		8,949		9,078		669		8,985		400

Total impaired loans	$	63,706	$	71,062	$	669	$	65,177	$	2,676

Summary of Activity Related to Troubled Debt Restructurings

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


	For the Year Ended December 31,
	2017		2016
	(Dollars in thousands)
Performing TDRs:
Beginning balance	$	19,233	$	42,687
New modifications		3,143		1,996
Payoffs/payments, net and other		(14,752)		(34,001)
TDRs returned to accrual status		329		8,551
TDRs placed on nonaccrual status		(3,144)		-

Ending balance	$	4,809	$	19,233

Nonperforming TDRs:
Beginning balance	$	1,626	$	12,622
New modifications		2,066		102
Charge-offs		-		(38)
Payoffs/payments, net and other		(2,307)		(2,509)
TDRs returned to accrual status		(329)		(8,551)
TDRs placed on nonaccrual status		3,144		-

Ending balance	$	4,200	$	1,626

Total TDRs	$	9,009	$	20,859

Summary of Loans Modified as Troubled Debt Restructurings

The following tables summarize loans modified as troubled debt restructurings for the periods presented.

Modifications (1)


	For the Year Ended December 31, 2017
	Number of Loans		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Outstanding Recorded Investment at December 31, 2017		Financial Effect Resulting From Modifications (2)
	(Dollars in thousands)
Commercial and industrial:
Interest rate reduction		-	$	-	$	-	$	-	$	-
Change in amortization period or maturity		-		-		-		-		-
SBA:
Interest rate reduction		-		-		-		-		-
Change in amortization period or maturity		-		-		-		-		-
Real estate:
Commercial real estate:
Owner occupied
Interest rate reduction		-		-		-		-		-
Change in amortization period or maturity		1		3,143		3,143		3,143		-
Non-owner occupied
Interest rate reduction		-		-		-		-		-
Change in amortization period or maturity		-		-		-		-		-
Dairy & livestock and agribusiness:
Interest rate reduction		-		-		-		-		-
Change in amortization period or maturity		1		1,984		1,984		78		-
Consumer:
Interest rate reduction		-		-		-		-		-
Change in amortization period or maturity		-		-		-		-		-

Total loans		2	$	5,127	$	5,127	$	3,221	$	-


	For the Year Ended December 31, 2016
	Number of Loans		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Outstanding Recorded Investment at December 31, 2016		Financial Effect Resulting From Modifications (2)
	(Dollars in thousands)
Commercial and industrial:
Interest rate reduction		1	$	112	$	112	$	103	$	-
Change in amortization period or maturity		-		-		-		-		-
SBA:
Interest rate reduction		-		-		-		-		-
Change in amortization period or maturity		2		214		214		196		28
Real estate:
Commercial real estate:
Owner occupied
Interest rate reduction		-		-		-		-		-
Change in amortization period or maturity		-		-		-		-		-
Non-owner occupied
Interest rate reduction		1		759		759		756		-
Change in amortization period or maturity		-		-		-		-		-
Dairy & livestock and agribusiness:
Interest rate reduction		-		-		-		-		-
Change in amortization period or maturity		-		-		-		-		-
Consumer:
Interest rate reduction		-		-		-		-		-
Change in amortization period or maturity		3		201		201		185		-

Total loans		7	$	1,286	$	1,286	$	1,240	$	28


	For the Year Ended December 31, 2015
	Number of Loans		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Outstanding Recorded Investment at December 31, 2015		Financial Effect Resulting From Modifications (2)
	(Dollars in thousands)
Commercial and industrial:
Interest rate reduction		-	$	-	$	-	$	-	$	-
Change in amortization period or maturity		1		203		203		203		203
SBA:
Interest rate reduction		-		-		-		-		-
Change in amortization period or maturity		1		330		330		320		-
Real estate:
Commercial real estate:
Owner occupied
Interest rate reduction		-		-		-		-		-
Change in amortization period or maturity		2		823		823		821		-
Non-owner occupied
Interest rate reduction		1		2,376		2,376		2,316		-
Change in amortization period or maturity		1		280		280		280		-
Dairy & livestock and agribusiness:
Interest rate reduction		-		-		-		-		-
Change in amortization period or maturity		-		-		-		-		-
SFR mortgage:
Interest rate reduction		1		322		322		326		-
Change in amortization period or maturity		-		-		-		-		-

Total loans		7	$	4,334	$	4,334	$	4,266	$	203

(1)

The tables above exclude modified loans that were paid off prior to the end of the period.

(2)

Financial effects resulting from modifications represent charge-offs and specific allowance recorded at modification date.

Other Real Estate Owned (Tables)

12 Months Ended

Dec. 31, 2017

Summary of Activity Related to Total OREO

The following table summarizes the activity related to total OREO for the periods presented.


	For the Year Ended December 31,
	2017		2016
	(Dollars in thousands)
Balance, beginning of period	$	4,527	$	6,993
Additions		-		-
Dispositions		-		(2,129)
Valuation adjustments		-		(337)

Balance, end of period	$	4,527	$	4,527

Goodwill and Other Intangible Assets (Tables)

12 Months Ended

Dec. 31, 2017

Goodwill and Intangible Assets Disclosure [Abstract]

Changes in Carrying Amount of Goodwill

The following table presents the changes in the carrying amount of goodwill for the periods presented.


	As of and for the Year Ended December 31,
	2017		2016
	(Dollars in thousands)
Balance, beginning of period	$	89,533	$	74,244
Additions due to acquisitions		27,031		15,289

Balance, end of period	$	116,564	$	89,533

Summary of Amortizable Intangible Assets

The following summarizes activity of amortizable core deposit intangible (“CDI”) assets for the periods presented.


	As of and For the Year Ended December 31,
	2017						2016
	Gross CDI		Accumulated		Net CDI		Gross CDI		Accumulated		Net CDI
	Amount		Amortization		Amount		Amount		Amortization		Amount
	(Dollars in thousands)
Balance of intangible assets, beginning of period	$	37,940	$	(32,930)	$	5,010	$	34,089	$	(31,824)	$	2,265
Additions due to acquisitions		3,157						3,851

Balance of intangible assets, end of period	$	41,097	$	(34,259)	$	6,838	$	37,940	$	(32,930)	$	5,010

Aggregate amortization expense:
For year ended December 31,	$	1,329					$	1,106
Estimated Amortization Expense:
For the year ending December 31, 2018		1,304
For the year ending December 31, 2019		1,067
For the year ending December 31, 2020		718
For the year ending December 31, 2021		703
Thereafter		3,046

Premises and Equipment (Tables)

12 Months Ended

Dec. 31, 2017

Property, Plant and Equipment [Abstract]

Schedule of Premises and Equipment

Premises and equipment were comprised of the following for the periods presented.


	As of December 31,
	2017		2016
	(Dollars in thousands)
Land	$	14,489	$	13,119
Bank premises		65,215		62,154
Furniture and equipment		25,610		28,759

Premises and equipment, gross		105,314		104,032
Accumulated depreciation and amortization		(59,148)		(61,946)

Premises and equipment, net	$	46,166	$	42,086

Future Minimum Annual Rental Payments for Noncancelable Leases

The future minimum annual rental payments required for leases that have initial or remaining noncancelable lease terms in excess of one year as of December 31, 2017, excluding property taxes and insurance, are as follows:


	As of December 31, 2017
Year:	(Dollars in thousands)
2018	$	4,958
2019		3,307
2020		1,758
2021		1,204
2022		971
Thereafter		299

Total	$	12,497

Other Assets (Tables)

12 Months Ended

Dec. 31, 2017

Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract]

Summary of Other Assets

Other assets were comprised of the following for the periods presented.


	As of December 31,
	2017		2016
	(Dollars in thousands)
Prepaid expenses	$	4,538	$	4,338
Interest rate swaps		3,211		5,783
Other investments		6,778		7,221
Other assets		10,790		6,490

Total	$	25,317	$	23,832

Income Taxes (Tables)

12 Months Ended

Dec. 31, 2017

Income Tax Disclosure [Abstract]

Schedule of Current and Deferred Amounts of Income Tax Expense (Benefit)

The current and deferred amounts of income tax expense (benefit) consist of the following.


	For the Year Ended December 31,
	2017		2016		2015
	(Dollars in thousands)
Current provision:
Federal	$	44,153	$	41,195	$	40,021
State		17,151		17,944		17,040

		61,304		59,139		57,061

Deferred provision/(benefit):
Federal		20,926		1,208		(3,443)
State		2,154		510		(1,397)

		23,080		1,718		(4,840)

Total	$	84,384	$	60,857	$	52,221

Schedule of Income Tax Asset

Income tax asset consists of the following.


	As of December 31,
	2017		2016
	(Dollars in thousands)
Current:
Federal	$	11,713	$	4,399
State		2,946		538

		14,659		4,937

Deferred:
Federal		16,557		31,566
State		8,830		8,926

		25,387		40,492

Total	$	40,046	$	45,429

Components of Net Deferred Tax Asset

The components of the net deferred tax asset are as follows.


	As of December 31,
	2017		2016
		(Dollars in thousands)

Deferred tax assets:
Bad debt and credit loss deduction	$	19,911	$	31,284
Net operating loss carryforward		207		453
Deferred compensation		5,501		5,296
PCI loans		3,098		12,147
California franchise tax		1,618		3,269
Accrued expense		1,365		5,299
Other, net		3,353		2,110

Gross deferred tax asset		35,053		59,858


Deferred tax liabilities:
Depreciation		975		2,168
Intangibles - acquisitions		3,404		3,543
FHLB Stock		2,400		3,421
Deferred income		2,112		4,099
Unrealized gain on investment securities, net		775		6,135

Gross deferred tax liability		9,666		19,366

Net deferred tax asset	$	25,387	$	40,492

Reconciliation of Statutory Income Tax Rate to Consolidated Effective Income Tax Rate

The annual consolidated effective tax rate for the periods presented, is reconciled to the U.S. statutory income rate as follows.


	For the Year Ended December 31,
	2017				2016				2015
	Amount		Percent		Amount		Percent		Amount		Percent
	(Dollars in thousands)
Federal income tax at statutory rate	$	66,078		35.0%	$	56,800		35.0%	$	52,978		35.0%
State franchise taxes, net of federal benefit		12,903		6.9%		11,299		7.0%		10,457		6.9%
Tax-exempt income		(4,450)		(2.4%)		(5,848)		(3.6%)		(7,619)		(5.0%)
Tax credits		(1,096)		(0.6%)		(846)		(0.5%)		(1,014)		(0.7%)
Deferred tax asset revalution adjustment		13,208		7.0%		-		0.0%		-		0.0%
Other, net		(2,259)		(1.2%)		(548)		(0.4%)		(2,581)		(1.7%)

Provision for income taxes	$	84,384		44.7%	$	60,857		37.5%	$	52,221		34.5%

Change in Unrecognized Tax Benefits

The change in unrecognized tax benefits in 2017 and 2016 follows.


	For the Year Ended December 31,
	2017		2016
	(Dollars in thousands)
Balance, beginning of period	$	1,675	$	1,675
Additions for tax positions related to prior years		-		-
Reductions due to lapse of statue of limitations		(716)		-
Settlement with tax authorities		(959)		-

Balance, end of period	$	-	$	1,675

Deposits (Tables)

12 Months Ended

Dec. 31, 2017

Scheduled Maturities of Time Certificates of Deposit

Composition of Deposits

The composition of deposits is summarized for the periods presented in the table below.


	As of December 31,
	2017				2016
	Amount		Percent		Amount		Percent
	(Dollars in thousands)
Noninterest-bearing deposits	$	3,846,436		58.75%	$	3,673,541		58.22%
Interest-bearing deposits:
Investment checking		433,971		6.63%		407,058		6.45%
Money market		1,517,050		23.17%		1,504,021		23.84%
Savings		364,049		5.56%		342,236		5.42%
Time deposits		385,347		5.89%		382,824		6.07%

Total deposits	$	6,546,853		100.00%	$	6,309,680		100.00%

At December 31, 2017, the scheduled maturities of time certificates of deposit are as follows.


	December 31, 2017
Year of maturity:	(Dollars in thousands)
2018	$	354,055
2019		14,173
2020		7,196
2021		1,562
2022 and thereafter		8,361

Total	$	385,347

Earnings Per Share Reconciliation (Tables)

12 Months Ended

Dec. 31, 2017

Earnings Per Share [Abstract]

Schedule of Earnings Per Common Share Reconciliation

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


	For the Year Ended December 31,
	2017		2016		2015
	(In thousands, except per share amounts)
Earnings per common share:
Net earnings	$	104,411	$	101,429	$	99,145
Less: Net earnings allocated to restricted stock		382		421		515

Net earnings allocated to common shareholders	$	104,029	$	101,008	$	98,630

Weighted average shares outstanding		109,409		107,282		105,715
Basic earnings per common share	$	0.95	$	0.94	$	0.93


Diluted earnings per common share:
Net income allocated to common shareholders	$	104,029	$	101,008	$	98,630

Weighted average shares outstanding		109,409		107,282		105,715
Incremental shares from assumed exercise of outstanding options		398		405		477

Diluted weighted average shares outstanding		109,807		107,687		106,192
Diluted earnings per common share	$	0.95	$	0.94	$	0.93

Stock Option Plans and Restricted Stock Awards (Tables)

12 Months Ended

Dec. 31, 2017

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Estimated Fair Value of Stock Options

The fair value of each stock option granted in 2017, 2016 and 2015, was estimated on the date of grant using the following weighted-average assumptions.


	For the Year Ended December 31,
	2017		2016		2015
Dividend yield		2.2%		2.9%		2.5%
Volatility		29.6%		33.1%		47.7%
Risk-free interest rate		1.8%		1.2%		1.5%
Expected life		5.6 years		5.6 years		6.1 years
Weighted average grant date fair value		$5.17		$3.96		$5.83

Option Activity under Company's Stock Option Plans

The following table presents option activity under the Company’s stock option plans as of and for the year ended December 31, 2017.


	Number of Stock Options Outstanding		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term		Aggregate Intrinsic Value
	(In thousands)				(In years)		(In thousands)
Outstanding at January 1, 2017		876		$ 11.88
Granted		12		21.99
Exercised		(283)		9.48
Forfeited or expired		(17)		15.69

Outstanding at December 31, 2017		588		$ 13.12		5.17		$ 6,137

Vested or expected to vest at December 31, 2017		560		$ 12.96		5.03		$ 5,942
Exercisable at December 31, 2017		383		$ 11.46		3.90		$ 4,640

Summary of Status of Company's Non-Vested Restricted Shares

The table below summarizes activity related to the Company’s non-vested restricted shares for the year ended December 31, 2017.


	Shares		Weighted Average Fair Value
	(In thousands)

Nonvested at January 1, 2017		460		$ 15.43
Granted		73		21.59
Vested		(150)		14.98
Forfeited		(7)		14.49

Nonvested at December 31, 2017		376		$ 16.82

Regulatory Matters (Tables)

12 Months Ended

Dec. 31, 2017

Regulatory Capital Amounts and Ratios for Company and Bank


	Actual				For Capital Adequacy Purposes					To Be Well Capitalized under Prompt Corrective Action Provisions
	Amount		Ratio		Amount			Ratio		Amount			Ratio
	(Dollars in thousands)
As of December 31, 2017:
Total Capital (to Risk-Weighted Assets)
Company	$	1,039,060		18.01%	$	461,574	³		8.00%					N/A
Bank	$	1,029,126		17.86%	$	461,037	³		8.00%	$	576,296	³		10.00%
Tier 1 Capital (to Risk-Weighted Assets)
Company	$	973,169		16.87%	$	346,180	³		6.00%					N/A
Bank	$	963,235		16.71%	$	345,778	³		6.00%	$	461,037	³		8.00%
Common equity Tier 1 capital ratio
Company	$	948,210		16.43%	$	259,635	³		4.50%					N/A
Bank	$	963,235		16.71%	$	259,333	³		4.50%	$	374,592	³		6.50%
Tier 1 Capital (to Average-Assets)
Company	$	973,169		11.88%	$	327,680	³		4.00%					N/A
Bank	$	963,235		11.77%	$	327,397	³		4.00%	$	409,246	³		5.00%
As of December 31, 2016:
Total Capital (to Risk-Weighted Assets)
Company	$	982,461		18.19%	$	432,081	³		8.00%					N/A
Bank	$	971,681		18.01%	$	431,576	³		8.00%	$	539,471	³		10.00%
Tier 1 Capital (to Risk-Weighted Assets)
Company	$	914,937		16.94%	$	324,061	³		6.00%					N/A
Bank	$	904,236		16.76%	$	323,682	³		6.00%	$	431,576	³		8.00%
Common equity Tier 1 capital ratio
Company	$	890,118		16.48%	$	243,046	³		4.50%					N/A
Bank	$	904,236		16.76%	$	242,762	³		4.50%	$	350,656	³		6.50%
Tier 1 Capital (to Average-Assets)
Company	$	914,937		11.49%	$	318,552	³		4.00%					N/A
Bank	$	904,236		11.36%	$	318,305	³		4.00%	$	397,882	³		5.00%

Fair Value Information (Tables)

12 Months Ended

Dec. 31, 2017

Fair Value Disclosures [Abstract]

Assets and Liabilities Measured at Fair Value on Recurring Basis

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


	Carrying Value at December 31, 2017		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(Dollars in thousands)
Description of assets
Investment securities - AFS:
Government agency/GSE	$	-	$	-	$	-	$	-
Residential mortgage-backed securities		1,750,909		-		1,750,909		-
CMO/REMIC - residential		273,829		-		273,829		-
Municipal bonds		55,496		-		55,496		-
Other securities		751		-		751		-

Total investment securities - AFS		2,080,985		-		2,080,985		-
Interest rate swaps		3,211		-		3,211		-

Total assets	$	2,084,196	$	-	$	2,084,196	$	-

Description of liability
Interest rate swaps	$	3,211	$	-	$	3,211	$	-

Total liabilities	$	3,211	$	-	$	3,211	$	-


	Carrying Value at December 31, 2016		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(Dollars in thousands)
Description of assets
Investment securities - AFS:
Government agency/GSE	$	2,752	$	-	$	2,752	$	-
Residential mortgage-backed securities		1,834,748		-		1,834,748		-
CMO/REMIC - residential		347,189		-		347,189		-
Municipal bonds		80,071		-		80,071		-
Other securities		5,706		-		5,706		-

Total investment securities - AFS		2,270,466		-		2,270,466		-
Interest rate swaps		5,783		-		5,783		-

Total assets	$	2,276,249	$	-	$	2,276,249	$	-

Description of liability
Interest rate swaps	$	5,783	$	-	$	5,783	$	-

Total liabilities	$	5,783	$	-	$	5,783	$	-

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

the following tables provide the level of valuation assumptions used to determine each adjustment and the carrying value of the related assets that had losses during the period.


	Carrying Value at December 31, 2017		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Losses For the Year Ended December 31, 2017
	(Dollars in thousands)
Description of assets
Impaired loans, excluding PCI loans:
Commercial and industrial	$	-	$	-	$	-	$	-	$	-
SBA		-		-		-		-		-
Real estate:
Commercial real estate		-		-		-		-		-
Construction		-		-		-		-		-
SFR mortgage		-		-		-		-		-
Dairy & livestock and agribusiness		-		-		-		-		-
Consumer and other loans		378		-		-		378		74
Other real estate owned		-		-		-		-		-
Asset held-for-sale		-						-		-

Total assets	$	378	$	-	$	-	$	378	$	74


	Carrying Value at December 31, 2016		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Losses For the Year Ended December 31, 2016
	(Dollars in thousands)
Description of assets
Impaired loans, excluding PCI loans:
Commercial and industrial	$	65	$	-	$	-	$	65	$	8
SBA		196		-		-		196		27
Real estate:
Commercial real estate		-		-		-		-		-
Construction		-		-		-		-		-
SFR mortgage		-		-		-		-		-
Dairy & livestock and agribusiness		-		-		-		-		-
Consumer and other loans		-		-		-		-		-
Other real estate owned		-		-		-		-		-
Asset held-for-sale		3,411						3,411		2,558

Total assets	$	3,672	$	-	$	-	$	3,672	$	2,593

Estimated Fair Value of Financial Instruments

The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.


	December 31, 2017
			Estimated Fair Value
	Carrying Amount		Level 1		Level 2		Level 3		Total
	(Dollars in thousands)
Assets
Total cash and cash equivalents	$	144,377	$	144,377	$	-	$	-	$	144,377
Interest-earning balances due from depository institutions		17,952		-		17,951		-		17,951
FHLB stock		17,688		-		17,688		-		17,688
Investment securities available-for-sale		2,080,985		-		2,080,985		-		2,080,985
Investment securities held-to-maturity		829,890		-		819,215		-		819,215
Total loans, net of allowance for loan losses		4,771,046		-		-		4,678,402		4,678,402
Swaps		3,211		-		3,211		-		3,211
Liabilities
Deposits:
Noninterest-bearing	$	3,846,436	$	3,846,436	$	-	$	-	$	3,846,436
Interest-bearing		2,700,417		-		2,697,781		-		2,697,781
Borrowings		553,773		-		553,416		-		553,416
Junior subordinated debentures		25,774		-		-		18,070		18,070
Swaps		3,211		-		3,211		-		3,211

	December 31, 2016
			Estimated Fair Value
	Carrying Amount		Level 1		Level 2		Level 3		Total
	(Dollars in thousands)
Assets
Total cash and due from banks	$	121,633	$	121,633	$	-	$	-	$	121,633
Interest-earning balances due from depository institutions		47,848		-		47,848		-		47,848
FHLB stock		17,688		-		17,688		-		17,688
Investment securities available-for-sale		2,270,466		-		2,270,466		-		2,270,466
Investment securities held-to-maturity		911,676		-		897,374		-		897,374
Total loans, net of allowance for loan losses		4,333,524		-		-		4,306,225		4,306,225
Swaps		5,783		-		5,783		-		5,783
Liabilities
Deposits:
Noninterest-bearing	$	3,673,541	$	3,673,541	$	-	$	-	$	3,673,541
Interest-bearing		2,636,139		-		2,634,443		-		2,634,443
Borrowings		656,028		-		655,820		-		655,820
Junior subordinated debentures		25,774		-		-		18,463		18,463
Swaps		5,783		-		5,783		-		5,783

Business Segments (Tables)

12 Months Ended

Dec. 31, 2017

Segment Reporting [Abstract]

Schedule of Segment Reporting Information by Segment

The following tables present the operating results and other key financial measures for the individual operating segments for the periods presented.


	For the Year Ended December 31, 2017
	Centers		Dairy & livestock and agribusiness		Other (1)		Total
	(Dollars in thousands)
Net interest income	$	195,377	$	10,798	$	72,755	$	278,930
(Recapture of) provision for loan losses		1,712		(3,913)		(6,299)		(8,500)

Net interest income after (recapture of) provision for loan losses		193,665		14,711		79,054		287,430

Noninterest income		21,674		232		20,212		42,118
Noninterest expense		51,337		1,963		87,453		140,753

Segment pre-tax profit	$	164,002	$	12,980	$	11,813	$	188,795

Goodwill	$	116,564	$	-	$	-	$	116,564

Segment assets as of December 31, 2017	$	7,235,549	$	474,292	$	560,745	$	8,270,586

(1)

Includes the elimination of certain items that are included in more than one department, most of which represents products and services for Centers’ customers.


	For the Year Ended December 31, 2016
	Centers		Dairy & livestock and agribusiness		Other (1)		Total
	(Dollars in thousands)
Net interest income	$	178,183	$	7,973	$	70,918	$	257,074
(Recapture of) provision for loan losses		(172)		2,296		(8,524)		(6,400)

Net interest income after (recapture of) provision for loan losses		178,355		5,677		79,442		263,474

Noninterest income		20,179		223		15,150		35,552
Noninterest expense		50,110		1,958		84,656		136,724
Debt termination expense		-		-		16		16

Segment pre-tax profit	$	148,424	$	3,942	$	9,920	$	162,286

Goodwill	$	89,533	$	-	$	-	$	89,533

Segment assets as of December 31, 2016	$	7,024,986	$	473,670	$	575,051	$	8,073,707

(1)

Includes the elimination of certain items that are included in more than one department, most of which represents products and services for Centers’ customers.


	For the Year Ended December 31, 2015
	Centers		Dairy & livestock and agribusiness		Other (1)		Total
	(Dollars in thousands)
Net interest income	$	167,633	$	7,558	$	77,751	$	252,942
(Recapture of) provision for loan losses		(6,711)		143		968		(5,600)

Net interest income after (recapture of) provision for loan losses		174,344		7,415		76,783		258,542

Noninterest income		20,677		261		12,545		33,483
Noninterest expense		48,568		1,844		76,377		126,789
Debt termination expense		-		-		13,870		13,870

Segment pre-tax profit (loss)	$	146,453	$	5,832	$	(919)	$	151,366

Goodwill	$	74,244	$	-	$	-	$	74,244

Segment assets as of December 31, 2015	$	6,441,751	$	458,214	$	771,235	$	7,671,200

(1)

Includes the elimination of certain items that are included in more than one department, most of which represents products and services for Centers’ customers.

Derivative Financial Instruments (Tables)

12 Months Ended

Dec. 31, 2017

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Fair Value of Derivative Instruments

December 31, 2017

Asset Derivatives

Liability Derivatives

Balance Sheet
Location

Fair
Value

Balance Sheet
Location

Fair
Value

(Dollars in thousands)

Derivatives not designated as hedging instruments:

Interest rate swaps

Other assets

3,211

Other liabilities

3,211

Total derivatives

3,211

December 31, 2016

Asset Derivatives

Liability Derivatives

Balance Sheet
Location

Fair
Value

Balance Sheet
Location

Fair
Value

(Dollars in thousands)

Derivatives not designated as hedging instruments:

Interest rate swaps

Other assets

5,783

Other liabilities

5,783

Total derivatives

5,783

Effect of Derivative Instruments on Consolidated Statement of Earnings

The following table summarizes the effect of derivative financial instruments on the consolidated statements of earnings for the periods presented.


Derivatives Not Designated as Hedging Instruments	Location of Gain Recognized in Income on Derivative Instruments	Amount of Gain Recognized in Income on Derivative Instruments
		For the Year Ended December 31,
		2017		2016		2015
		(Dollars in thousands)
Interest rate swaps	Other income	$	615	$	691	$	333

Total		$	615	$	691	$	333

Other Comprehensive Income (Loss) (Tables)

12 Months Ended

Dec. 31, 2017

Equity [Abstract]

Summary of Components of Other Comprehensive Income

The tables below provide a summary of the components of OCI for the periods presented.


	For the Year Ended December 31,
	2017						2016						2015
	Before-tax		Tax effect		After-tax		Before-tax		Tax effect		After-tax		Before-tax		Tax effect		After-tax
	(Dollars in thousands)
Investment securities:
Net change in fair value recorded in accumulated OCI	$	(11,336)	$	(4,760)	$	(6,576)	$	(15,792)	$	(6,633)	$	(9,159)	$	(22,667)	$	(9,519)	$	(13,148)
Cumulative-effect adjustment for unrealized gains on securities transferred from available-for-sale to held-to-maturity		-		-		-		-		-		-		6,690		2,808		3,882
Amortization of unrealized (gains)/losses on securities transferred from available-for-sale to held-to-maturity		(3,293)		(1,383)		(1,910)		(2,174)		(913)		(1,261)		(1,573)		(660)		(913)
Net realized (gain)/loss reclassified into earnings (1)		(402)		(169)		(233)		(548)		(230)		(318)		22		9		13

Net change	$	(15,031)	$	(6,312)	$	(8,719)	$	(18,514)	$	(7,776)	$	(10,738)	$	(17,528)	$	(7,362)	$	(10,166)

(1)

Included in other noninterest income.

Balance Sheet Offsetting (Tables)

12 Months Ended

Dec. 31, 2017