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Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended June 30, 2017

or

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

For the transition period from              to             

Commission File Number: 0-10140

CVB FINANCIAL CORP.

(Exact name of registrant as specified in its charter)

 

California     95-3629339

(State or other jurisdiction of

Incorporation or organization)

   

(I.R.S. Employer

Identification No.)

701 North Haven Ave., Suite 350    
Ontario, California     91764
(Address of principal executive offices)     (Zip Code)
  (909) 980-4030  
 

(Registrant’s telephone number,

including area code)

 

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒    No ☐

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

 

Large accelerated filer      Accelerated filer  
Non-accelerated filer   ☐    (Do not check if a smaller reporting company)    Smaller reporting company       ☐    
Emerging growth company           

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

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

Yes ☐ No ☒

Number of shares of common stock of the registrant: 110,151,039 outstanding as of July 31, 2017.


Table of Contents

TABLE OF CONTENTS

 

PART I –

  FINANCIAL INFORMATION (UNAUDITED)      3  

      ITEM 1.

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

      ITEM 2.

 

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONAND RESULTS OF OPERATIONS

     44  
  CRITICAL ACCOUNTING POLICIES      44  
  OVERVIEW      44  
  ANALYSIS OF THE RESULTS OF OPERATIONS      46  
  RESULTS BY BUSINESS SEGMENTS      56  
  ANALYSIS OF FINANCIAL CONDITION      59  
  ASSET/LIABILITY AND MARKET RISK MANAGEMENT      77  

      ITEM 3.

  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK      79  

      ITEM 4.

  CONTROLS AND PROCEDURES      79  

PART II –

  OTHER INFORMATION      80  

      ITEM 1.

  LEGAL PROCEEDINGS      80  

      ITEM 1A.

  RISK FACTORS      81  

      ITEM 2.

  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS      81  

      ITEM 3.

  DEFAULTS UPON SENIOR SECURITIES      81  

      ITEM 4.

  MINE SAFETY DISCLOSURES      81  

      ITEM 5.

  OTHER INFORMATION      81  

      ITEM 6.

  EXHIBITS      81  
SIGNATURES      82  

 

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PART I – FINANCIAL INFORMATION (UNAUDITED)

GENERAL

Cautionary Note Regarding Forward-Looking Statements

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

 

  local, regional, national and international economic and market conditions and political events and the impact they may have on us, our customers and our assets and liabilities;
  our ability to attract deposits and other sources of funding or liquidity;
  supply and demand for real estate and periodic deterioration in real estate prices and/or values in California or other states where we lend, including both residential and commercial real estate;
  a sharp or prolonged slowdown or decline in real estate construction, sales or leasing activities;
  changes in the financial performance and/or condition of our borrowers, depositors or key vendors or counterparties;
  changes in our levels of delinquent loans, nonperforming assets, allowance for loan losses and charge-offs;
  the costs or effects of acquisitions or dispositions we may make, whether we are able to obtain any required governmental approvals in connection with any such acquisitions or dispositions, and/or our ability to realize the contemplated financial or business benefits associated with any such acquisitions or dispositions;
  our ability to realize cost savings and business synergies in connection with our recent acquisition of Valley Commerce Bancorp within expected time frames or at all;
  the effect of changes in laws, regulations and applicable judicial decisions (including laws, regulations and judicial decisions concerning financial reforms, taxes, banking capital levels, allowance for loan losses, consumer, commercial or secured lending, securities and securities trading and hedging, bank operations, compliance, fair lending, employment, executive compensation, insurance, cybersecurity, vendor management and information technology) with which we and our subsidiaries must comply or believe we should comply or which may otherwise impact us;
  additional legal and regulatory requirements to which we may become subject in the event our total assets exceed $10 billion;
  changes in estimates of future reserve requirements and minimum capital requirements based upon the periodic review thereof under relevant regulatory and accounting requirements, including changes in the Basel Committee framework establishing capital standards for credit, operations and market risk;
  the accuracy of the assumptions and estimates and the absence of technical error in implementation or calibration of models used to estimate the fair value of financial instruments;
  inflation, changes in market interest rates, securities market and monetary fluctuations;
  changes in government-established interest rates or monetary policies;
  changes in the amount and availability of deposit insurance;
  disruptions in the infrastructure that supports our business and the communities where we are located, which are concentrated in California, involving or related to physical site access, communications facilities and cyber incidents;
  or theft or loss of Company or customer data or money; political uncertainty or instability; acts of war or terrorism, or natural disasters, such as earthquakes, drought, or the effects of pandemic diseases;
  the timely development and acceptance of new banking products and services and the perceived overall value of these products and services by our customers and potential customers;
  the Company’s relationships with and reliance upon vendors with respect to the operation of certain of the Company’s key internal and external systems and applications;
  changes in commercial or consumer spending, borrowing and savings preferences or behaviors;
  technological changes and the expanding use of technology in banking and financial services (including the adoption of mobile banking and funds transfer applications);

 

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  our ability to retain and increase market share, retain and grow customers and control expenses;
  changes in the competitive environment among financial and bank holding companies, banks and other financial service and technology providers;
  competition and innovation with respect to financial products and services by banks, financial institutions and non-traditional providers including retail businesses and technology companies;
  volatility in the credit and equity markets and its effect on the general economy or local or regional business conditions or on the Company’s customers;
  fluctuations in the price of the Company’s common stock or other securities and the resulting impact on the Company’s ability to raise capital or make acquisitions;
  the effect of changes in accounting policies and practices, as may be adopted from time-to-time by our regulatory agencies, as well as by the Public Company Accounting Oversight Board, the Financial Accounting Standards Board and other accounting standard-setters;
  changes in our organization, management, compensation and benefit plans, and our ability to retain or expand our workforce, management team and/or our board of directors;
  the costs and effects of legal, compliance and regulatory actions, changes and developments, including the initiation and resolution of legal proceedings (including securities, bank operations, consumer or employee class action litigation),
  the possibility that any settlement of any putative class action lawsuits may not be approved by the relevant court or that significant numbers of putative class members may opt out of any settlement;
  regulatory or other governmental inquiries or investigations, and/or the results of regulatory examinations or reviews;
  our ongoing relations with our various federal and state regulators, including the SEC, Federal Reserve Board, FDIC and California DBO;
  our success at managing the risks involved in the foregoing items and
  all other factors set forth in the Company’s public reports including its Annual Report on Form 10-K for the year ended December 31, 2016, and particularly the discussion of risk factors within that document.

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

 

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ITEM 1.    CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

CVB FINANCIAL CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except share amounts)

(Unaudited)

 

         June 30,              December 31,      
     2017      2016  

Assets

     

Cash and due from banks

     $ 134,686          $ 119,445    

Interest-earning balances due from Federal Reserve

     50,061          2,188    
  

 

 

    

 

 

 

Total cash and cash equivalents

     184,747          121,633    
  

 

 

    

 

 

 

Interest-earning balances due from depository institutions

     25,050          47,848    

Investment securities available-for-sale, at fair value (with amortized cost of $2,251,275 at June 30, 2017, and $2,255,874 at December 31, 2016)

     2,269,510          2,270,466    

Investment securities held-to-maturity (with fair value of $862,485 at June 30, 2017, and $897,374 at December 31, 2016)

     869,769          911,676    
  

 

 

    

 

 

 

Total investment securities

     3,139,279          3,182,142    
  

 

 

    

 

 

 

Investment in stock of Federal Home Loan Bank (FHLB)

     17,688          17,688    

Loans and lease finance receivables

     4,687,698          4,395,064    

Allowance for loan losses

     (60,201)         (61,540)   
  

 

 

    

 

 

 

Net loans and lease finance receivables

     4,627,497          4,333,524    
  

 

 

    

 

 

 

Premises and equipment, net

     47,362          42,086    

Bank owned life insurance

     145,441          134,785    

Accrued interest receivable

     22,135          22,259    

Intangibles

     7,519          5,010    

Goodwill

     119,193          89,533    

Other real estate owned (OREO)

     4,527          4,527    

Income taxes

     51,988          45,429    

Asset held-for-sale

     3,411          3,411    

Other assets

     22,366          23,832    
  

 

 

    

 

 

 

Total assets

     $       8,418,203          $       8,073,707    
  

 

 

    

 

 

 

Liabilities and Stockholders’ Equity

     

Liabilities:

     

Deposits:

     

Noninterest-bearing

     $ 3,929,394          $ 3,673,541    

Interest-bearing

     2,767,787          2,636,139    
  

 

 

    

 

 

 

Total deposits

     6,697,181          6,309,680    

Customer repurchase agreements

     546,085          603,028    

Other borrowings

     -              53,000    

Deferred compensation

     18,163          12,361    

Junior subordinated debentures

     25,774          25,774    

Payable for securities purchased

     16,346          23,777    

Other liabilities

     53,885          55,225    
  

 

 

    

 

 

 

Total liabilities

     7,357,434          7,082,845    
  

 

 

    

 

 

 

Commitments and Contingencies

     

Stockholders’ Equity

     

Common stock, authorized, 225,000,000 shares without par; issued and outstanding 110,149,314 at June 30, 2017, and 108,251,981 at December 31, 2016

     571,958          531,192    

Retained earnings

     477,675          449,499    

Accumulated other comprehensive income, net of tax

     11,136          10,171    
  

 

 

    

 

 

 

Total stockholders’ equity

     1,060,769          990,862    
  

 

 

    

 

 

 

Total liabilities and stockholders’ equity

     $ 8,418,203          $ 8,073,707    
  

 

 

    

 

 

 

See accompanying notes to the unaudited condensed consolidated financial statements.

 

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CVB FINANCIAL CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS AND COMPREHENSIVE INCOME

(Dollars in thousands, except per share amounts)

(Unaudited)

 

         For the Three Months Ended    
June 30,
         For the Six Months Ended    
June 30,
 
     2017      2016      2017      2016  

Interest income:

           

Loans and leases, including fees

     $ 53,614          $ 50,257          $ 102,255          $ 96,027    

Investment securities:

           

Investment securities available-for-sale

     13,007          12,018          25,647          24,817    

Investment securities held-to-maturity

     5,323          4,743          10,830          10,091    
  

 

 

    

 

 

    

 

 

    

 

 

 

Total investment income

     18,330          16,761          36,477          34,908    
  

 

 

    

 

 

    

 

 

    

 

 

 

Dividends from FHLB stock

     359          439          752          807    

Interest-earning deposits with other institutions and federal funds sold

     286          558          553          773    
  

 

 

    

 

 

    

 

 

    

 

 

 

Total interest income

     72,589          68,015          140,037          132,515    
  

 

 

    

 

 

    

 

 

    

 

 

 

Interest expense:

           

Deposits

     1,559          1,582          2,992          3,019    

Borrowings and customer repurchase agreements

     382          345          811          768    

Junior subordinated debentures

     165          132          318          256    
  

 

 

    

 

 

    

 

 

    

 

 

 

Total interest expense

     2,106          2,059          4,121          4,043    
  

 

 

    

 

 

    

 

 

    

 

 

 

Net interest income before recapture of provision for loan losses

     70,483          65,956          135,916          128,472    

Recapture of provision for loan losses

     (1,000)         -          (5,500)         -    
  

 

 

    

 

 

    

 

 

    

 

 

 

Net interest income after recapture of provision for loan losses

     71,483          65,956          141,416          128,472    
  

 

 

    

 

 

    

 

 

    

 

 

 

Noninterest income:

           

Service charges on deposit accounts

     3,982          3,822          7,709          7,569    

Trust and investment services

     2,613          2,508          4,909          4,711    

Bankcard services

     871          784          1,636          1,339    

BOLI income

     1,497          752          2,212          1,299    

Gain on sale of loans

     -          -          -          1,101    

Other

     1,813          1,408          3,032          1,938    
  

 

 

    

 

 

    

 

 

    

 

 

 

Total noninterest income

     10,776          9,274          19,498          17,957    
  

 

 

    

 

 

    

 

 

    

 

 

 

Noninterest expense:

           

Salaries and employee benefits

     21,706          21,403          43,281          42,601    

Occupancy and equipment

     4,554          4,125          8,238          7,838    

Professional services

     1,843          1,075          3,100          2,323    

Software licenses and maintenance

     1,627          1,445          3,188          2,719    

Marketing and promotion

     1,190          1,192          2,429          2,619    

Acquisition related expenses

     1,250          355          1,926          1,204    

Other

     4,703          4,843          8,828          9,498    
  

 

 

    

 

 

    

 

 

    

 

 

 

Total noninterest expense

     36,873          34,438          70,990          68,802    
  

 

 

    

 

 

    

 

 

    

 

 

 

Earnings before income taxes

     45,386          40,792          89,924          77,627    
  

 

 

    

 

 

    

 

 

    

 

 

 

Income taxes

     17,013          15,278          33,047          28,722    
  

 

 

    

 

 

    

 

 

    

 

 

 

Net earnings

     $ 28,373          $ 25,514          $ 56,877          $ 48,905    
  

 

 

    

 

 

    

 

 

    

 

 

 

Other comprehensive income:

           

Unrealized gain on securities arising during the period, before tax

     $ 1,642          $ 7,493        $ 2,066          $ 34,763    

Less: Reclassification adjustment for net gain on securities included in net income

     (402)         -            (402)         -      
  

 

 

    

 

 

    

 

 

    

 

 

 

Other comprehensive income, before tax

     1,240          7,493          1,664          34,763    

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

     (521)         (3,147)         (699)         (14,600)   
  

 

 

    

 

 

    

 

 

    

 

 

 

Other comprehensive income, net of tax

     719          4,346          965          20,163    
  

 

 

    

 

 

    

 

 

    

 

 

 

Comprehensive income

     $       29,092          $       29,860          $       57,842          $       69,068    
  

 

 

    

 

 

    

 

 

    

 

 

 

Basic earnings per common share

     $ 0.26          $ 0.23          $ 0.52          $ 0.46    

Diluted earnings per common share

     $ 0.26          $ 0.23          $ 0.52          $ 0.45    

Cash dividends declared per common share

     $ 0.14          $ 0.12          $ 0.26          $ 0.24    

See accompanying notes to the unaudited condensed consolidated financial statements.

 

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CVB FINANCIAL CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

Six months ended June 30, 2017 and 2016

(Dollars and shares in thousands)

(Unaudited)

 

                      Accumulated        
    Common                 Other        
    Shares     Common     Retained     Comprehensive        
    Outstanding     Stock     Earnings     Income     Total  

Balance, January 1, 2016

    106,385         $ 502,571         $ 399,919         $ 20,909         $ 923,399    

Repurchase of common stock

    (40)        (408)        -         -         (408)   

Issuance of common stock for acquisition of County Commerce Bank

    1,394         21,642         -         -         21,642    

Exercise of stock options

    175         2,254         -         -         2,254    

Tax benefit from exercise of stock options

    -         86         -         -         86    

Shares issued pursuant to stock-based compensation plan

    33         1,307         -         -         1,307    

Cash dividends declared on common stock ($0.24 per share)

    -         -         (25,885)        -         (25,885)   

Net earnings

    -         -         48,905         -         48,905    

Other comprehensive income

    -         -         -         20,163         20,163    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, June 30, 2016

    107,947         $      527,452         $      422,939         $      41,072         $      991,463    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, January 1, 2017

    108,252         $ 531,192         $ 449,499         $ 10,171         $ 990,862    

Cumulative adjustment upon adoption of ASU 2016-09

    -         116         (66)        -         50    

Repurchase of common stock

    (37)        (833)        -         -         (833)   

Issuance of common stock for acquisition of Valley Commerce Bancorp

    1,634         37,637         -         -         37,637    

Exercise of stock options

    257         2,389         -         -         2,389    

Shares issued pursuant to stock-based compensation plan

    43         1,457         -         -         1,457    

Cash dividends declared on common stock ($0.26 per share)

    -         -         (28,635)        -         (28,635)   

Net earnings

    -         -         56,877         -         56,877    

Other comprehensive income

    -         -         -         965         965    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, June 30, 2017

    110,149         $ 571,958         $ 477,675         $ 11,136         $ 1,060,769    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

See accompanying notes to the unaudited condensed consolidated financial statements.

 

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CVB FINANCIAL CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

(Unaudited)

 

     For the Six Months Ended  
     June 30,  
     2017      2016  

Cash Flows from Operating Activities

     

Interest and dividends received

     $ 145,978          $ 138,664    

Service charges and other fees received

     17,456          16,908    

Interest paid

     (4,168)         (4,030)   

Net cash paid to vendors, employees and others

     (52,329)         (69,730)   

Income taxes

     (40,097)         (23,000)   

Payments to FDIC, loss share agreement

     (474)         (203)   
  

 

 

    

 

 

 

Net cash provided by operating activities

     66,366          58,609    
  

 

 

    

 

 

 

Cash Flows from Investing Activities

     

Proceeds from redemption of FHLB stock

     1,952          1,423    

Net change in interest-earning balances from depository institutions

     23,277          3,755    

Proceeds from sale of investment securities held-for-sale

     5,403          -    

Proceeds from repayment of investment securities available-for-sale

     201,546          228,070    

Proceeds from maturity of investment securities available-for-sale

     16,615          56,006    

Purchases of investment securities available-for-sale

     (235,061)         (97,368)   

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

     70,949          128,497    

Purchases of investment securities held-to-maturity

     (30,112)         -    

Net decrease (increase) in loan and lease finance receivables

     25,211          (54,623)   

Proceeds from sale of loans

     -          6,417    

Purchase of premises and equipment

     (2,469)         (2,045)   

Proceeds from sales of other real estate owned

     -          621    

Cash used in sale of branch, net

     -          (8,217)   

Cash acquired from acquisition, net of cash paid

     28,325          (7,504)   
  

 

 

    

 

 

 

Net cash provided by investing activities

     105,636          255,032    
  

 

 

    

 

 

 

Cash Flows from Financing Activities

     

Net increase in other deposits

     58,901          512,784   

Net decrease in time deposits

     (33,197)         (58,754)   

Repayment of FHLB advances

     -          (5,000)   

Net decrease in other borrowings

     (53,000)         (46,000)   

Net decrease in customer repurchase agreements

     (56,943)         (99,818)   

Cash dividends on common stock

     (26,205)         (25,700)   

Repurchase of common stock

     (833)         (408)   

Proceeds from exercise of stock options

     2,389          2,254    

Tax benefit related to exercise of stock options

     -          86    
  

 

 

    

 

 

 

Net cash (used in) provided by financing activities

     (108,888)         279,444    
  

 

 

    

 

 

 

Net increase in cash and cash equivalents

     63,114          593,085    

Cash and cash equivalents, beginning of period

     121,633          106,097    
  

 

 

    

 

 

 

Cash and cash equivalents, end of period

     $         184,747          $         699,182    
  

 

 

    

 

 

 

 

See accompanying notes to the unaudited condensed consolidated financial statements.

 

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CVB FINANCIAL CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

(Dollars in thousands)

(Unaudited)

 

     For the Six Months Ended  
     June 30,  
     2017      2016  

Reconciliation of Net Earnings to Net Cash Provided by Operating Activities

     

Net earnings

     $ 56,877          $ 48,905    

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

     

Gain on sale of loans

     -          (1,101)   

Gain on sale of branch

     -          (272)   

Gain on sale of investment securities

     (402)         -    

Gain on sale of other real estate owned

     -          (14)   

Increase in bank owned life insurance

     (1,234)         (2,275)   

Net amortization of premiums and discounts on investment securities

     8,989          10,192    

Accretion of PCI discount

     (505)         (1,569)   

Recapture of provision for loan losses

     (5,500)         -    

Valuation adjustment on other real estate owned

     -          337    

Payments to FDIC, loss share agreement

     (474)         (203)   

Stock-based compensation

     1,457          1,307    

Depreciation and amortization, net

     (402)         1,685    

Change in other assets and liabilities

     7,560          1,617    
  

 

 

    

 

 

 

Total adjustments

     9,489          9,704    
  

 

 

    

 

 

 

Net cash provided by operating activities

     $          66,366          $          58,609    
  

 

 

    

 

 

 

Supplemental Disclosure of Non-cash Investing Activities

     

Securities purchased and not settled

     $ 16,346          $ 44,723    

Issuance of common stock for acquistion

     $ 37,637          $ 21,642    

See accompanying notes to the unaudited condensed consolidated financial statements.

 

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CVB FINANCIAL CORP. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1.     BUSINESS

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

The Company’s primary operations are related to traditional banking activities. This includes the acceptance of deposits and the lending and investing of money through the operations of the Bank. The Bank also provides trust and investment-related services to customers through its CitizensTrust Division. The Bank’s customers consist primarily of small to mid-sized businesses and individuals located in the Inland Empire, Los Angeles County, Orange County, San Diego County, Ventura County, Santa Barbara County, and the Central Valley area of California. The Bank operates 54 banking centers and three trust office locations. The Company is headquartered in the city of Ontario, California.

On March 10, 2017, we completed the acquisition of Valley Commerce Bancorp (“VCBP”), the holding company for Valley Business Bank (“VBB”), headquartered in the Central Valley area of California with four branch locations and total assets of approximately $400 million. This acquisition strengthens our market share in the Central Valley area of California. Our condensed consolidated financial statements for 2017 include VBB operations, post-merger. See Note 4 – Business Combinations, included herein.

2.     BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements and notes thereto have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”) for Form 10-Q and conform to practices within the banking industry and include all of the information and disclosures required by accounting principles generally accepted in the United States of America (“GAAP”) for interim financial reporting. The accompanying unaudited condensed consolidated financial statements reflect all adjustments (consisting only of normal recurring adjustments), which are necessary for a fair presentation of financial results for the interim periods presented. The results of operations for the six months ended June 30, 2017 are not necessarily indicative of the results for the full year. Certain information and note disclosures normally included in annual financial statements prepared in accordance with GAAP have been condensed or omitted. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements, accounting policies and financial notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016, filed with the SEC. A summary of the significant accounting policies consistently applied in the preparation of the accompanying unaudited condensed consolidated financial statements follows.

Reclassification – Certain amounts in the prior periods’ unaudited condensed consolidated financial statements and related footnote disclosures have been reclassified to conform to the current presentation with no impact on previously reported net income or stockholders’ equity.

 

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3.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Except as discussed below, our accounting policies are described in Note 3—Summary of Significant Accounting Policies, of our audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2016 as filed with the SEC (“Form 10-K”).

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

Adoption of New Accounting Standard— In March 2016, the FASB issued ASU No. 2016-09, “Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting”. This ASU simplifies several aspects of the accounting for employee share-based payment transactions, including the following: Accounting for income taxes, classification of excess tax benefits on the statement of cash flows, forfeitures, statutory tax withholding requirements, classification of awards as either equity or liabilities and classification of employee taxes paid on the statement of cash flows when an employer withholds shares for tax-withholding purposes. ASU 2016-09 is effective for the fiscal years beginning after December 15, 2016, and interim periods within those years. The Company adopted this standard during the first quarter of 2017. The primary impact of the adoption of the standard on the Company’s condensed consolidated financial statements was the recognition of excess tax benefits in the provision for income taxes rather than additional paid-in capital, which reduced income tax expense by approximately $1.3 million for the six months ended June 30, 2017. We also elected to account for forfeitures as they occur, rather than to estimate forfeitures over the vesting period. The remaining provisions of this accounting standard did not have a material impact on the Company’s unaudited condensed consolidated financial statements.

Recent Accounting Pronouncements— In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606)”, which provides revenue recognition guidance that is intended to create greater consistency with respect to how and when revenue from contracts with customers is shown in the income statement. This update to the ASC requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The ASU will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. In applying the revenue model to contracts within its scope, an entity should apply the following steps: (1) Identify the contract(s) with a customer, (2) Identify the performance obligations in the contract, (3) Determine the transaction price, (4) Allocate the transaction price to the performance obligations in the contract, and (5) Recognize revenue when (or as) the entity satisfies a performance obligation. The standard applies to all contracts with customers except those that are within the scope of other topics in the FASB Codification. The standard also requires significantly expanded disclosures about revenue recognition. In August 2015, the FASB issued ASU No. 2015-14, “Revenue from Contracts with Customers (Topic 606) - Deferral of the Effective Date”, which deferred the effective date for us of ASU No. 2014-09 to January 1, 2018. The Company intends to adopt the accounting standard during the first quarter of 2018, as required. The Company has not yet selected a transition method. The Company’s preliminary analysis suggests that the adoption of this accounting standard is not expected to have a material impact on the Company’s consolidated financial statements as substantially all of the Company’s revenues are excluded from the scope of the new standard.

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

In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” This ASU significantly changes how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. The standard will replace the current “incurred loss” approach with an “expected loss” model. The new model, referred to as the Current Expected Credit Loss (“CECL”) model, will apply to: (1) financial assets subject to credit losses and measured at amortized cost, and (2) certain off-balance sheet credit exposures. This includes, but is not limited to, loans, leases, held-to-maturity securities, loan commitments, and financial guarantees. The CECL

 

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model does not apply to available-for-sale (“AFS”) debt securities. For AFS debt securities with unrealized losses, entities will measure credit losses in a manner similar to what they do today, except that the losses will be recognized as allowances rather than reductions in the amortized cost of the securities. As a result, entities will recognize improvements to estimated credit losses immediately in earnings rather than as interest income over time, as they do today. ASU No. 2016-13 is effective for interim and annual reporting periods beginning after December 15, 2019. Entities will apply the standard’s provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective (i.e., modified retrospective approach). The Company is currently evaluating the impact of adoption of this ASU on its consolidated financial statements.

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.

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

In March 2017, the FASB issued ASU No. 2017-08, “Receivables – Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities.” ASU 2017-08 shortens the amortization period for the premium on certain purchased callable debt securities to the earliest call date. ASU No. 2017-08 is effective for interim and annual reporting periods beginning after December 15, 2018; early adoption is permitted. The guidance calls for a modified retrospective transition approach under which a cumulative-effect adjustment will be made to retained earnings as of the beginning of the first reporting period in which the guidance is adopted. The Company adopted this ASU effective January 1, 2017 and the adoption did not have a significant impact on its consolidated financial statements.

In May 2017, the FASB issued ASU No. 2017-09, “Compensation – Stock Compensation (Topic 718): Scope of Modification Accounting.” The amendments in ASU 2017-09 provide guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting. An entity should account for the effects of a modification unless all the following are met: (1) The fair value (or calculated value or intrinsic value, if such an alternative measurement method is used) of the modified award is the same as the fair value (or calculated value or intrinsic value, if such an alternative measurement method is used) of the original award immediately before the original award is modified. If the modification does not affect any of the inputs to the valuation technique that the entity uses to value the award, the entity is not required to estimate the value immediately before and after the modification. (2) The vesting conditions of the modified award are the same as the vesting conditions of the original award immediately before the original award is modified. (3) The classification of the modified award as an equity instrument or a liability instrument is the same as the classification of the original award immediately before the original award is modified. The amendments in ASU No. 2017-09 are effective for annual periods, and interim within those annual reporting periods, beginning after December 15, 2017; early adoption is permitted. The amendments in this ASU should be applied prospectively to an award modified on or after the adoption date. The Company does not expect this ASU to have a material impact on the Company’s consolidated financial statements.

 

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4.     BUSINESS COMBINATIONS

Valley Commerce Bancorp Acquisition

On March 10, 2017, the Company completed the acquisition of VCBP, the holding company for VBB, headquartered in the Central Valley area of California. The Company acquired all of the assets and assumed all of the liabilities of VCBP for $23.2 million in cash and $37.6 million in stock. As a result, VBB was merged with the Bank, the principal subsidiary of CVB. The Company believes this transaction serves to further strengthen its presence in the Central Valley area of California. At close, VBB had four branches located in Visalia, Tulare, Fresno, and Woodlake. The systems integration of VCBP and CBB was completed in May 2017.

Goodwill of $29.7 million from the acquisition represents the excess of the purchase price over the fair value of the net tangible and intangible assets acquired.

The total fair value of assets acquired approximated $406.1 million, which included $51.5 million in cash and cash equivalents, $2.0 million in FHLB stock, $309.7 million in loans and lease finance receivables, $5.3 million in fixed assets, $9.4 million in Bank-Owned Life Insurance (“BOLI”), $3.2 million in core deposit intangible assets acquired and $18.5 million in other assets. The total fair value of liabilities assumed was $368.5 million, which included $361.8 million in deposits, and $6.7 million in other liabilities. The assets and liabilities, both tangible and intangible, were recorded at their estimated fair values as of March 10, 2017. The assets acquired and liabilities assumed have been accounted for under the acquisition method accounting. These fair values are estimates and are subject to adjustment for up to one year after the acquisition date or when additional information relative to the closing date fair values becomes available and such information is considered final, whichever is earlier.

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

For the three and six months ended June 30, 2017, the Company incurred non-recurring merger related expenses associated with the VCBP acquisition of $1.3 million and $1.9 million, respectively.

County Commerce Bank Acquisition

On February 29, 2016, the Bank acquired all of the assets and assumed all of the liabilities of County Commerce Bank (“CCB”) for $20.6 million in cash and $21.6 million in stock. As a result, CCB was merged with the Bank, the principal subsidiary of CVB. The Company believes this transaction served to further expand its footprint northward into and along the central coast of California. At close, CCB had four branches located in Ventura, Oxnard, Camarillo, and Westlake Village.

Goodwill of $15.3 million from the acquisition represents the excess of the purchase price over the fair value of the net tangible and intangible assets acquired.

The total fair value of assets acquired approximated $252.4 million, which included $54.8 million in cash and balances due from depository institutions, $1.5 million in FHLB stock, $168.0 million in loans and lease finance receivables, $8.6 million in fixed assets, $3.9 million in core deposit intangible assets acquired and $289,000 in other assets. The total fair value of liabilities assumed was $230.8 million, which included $224.2 million in deposits, $5.0 million in FHLB advances and $1.6 million in other liabilities. The assets and liabilities, both tangible and intangible, were recorded at their estimated fair values as of February 29, 2016. The assets acquired and liabilities assumed have been accounted for under the acquisition method accounting. The purchase price allocation was finalized in the fourth quarter of 2016.

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

For the three and six months ended June 30, 2016, the Company incurred non-recurring merger related expenses associated with the CCB acquisition of $355,000 and $1.2 million, respectively.

 

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5.     INVESTMENT SECURITIES

The amortized cost and estimated fair value of investment securities are summarized below. The majority of securities held are traded in markets where similar assets are actively traded. Estimated fair values were obtained from an independent pricing service based upon market quotes.

 

    June 30, 2017  
    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

    $ 1,750         $ -         $ -         $ 1,750         0.08%   

Residential mortgage-backed securities

    1,866,602         20,302         (4,601)        1,882,303         82.94%   

CMO/REMIC - residential

    312,024         3,045         (951)        314,118         13.84%   

Municipal bonds

    70,209         795         (355)        70,649         3.11%   

Other securities

    690         -         -         690         0.03%   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total available-for-sale securities

    $ 2,251,275         $     24,142         $ (5,907)        $ 2,269,510         100.00%   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Investment securities held-to-maturity:

         

Government agency/GSE

    $ 169,942         $ 1,108         $ (1,361)        $ 169,689         19.54%   

Residential mortgage-backed securities

    185,401         676         (393)        185,684         21.32%   

CMO

    234,003         -         (6,611)        227,392         26.90%   

Municipal bonds

    280,423         2,634         (3,337)        279,720         32.24%   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total held-to-maturity securities

    $ 869,769         $ 4,418         $ (11,702)        $ 862,485         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%   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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

 

     For the Three Months Ended
June 30,
     For the Six Months Ended
June 30,
 
     2017      2016      2017      2016  
     (Dollars in thousands)  

Investment securities available-for-sale:

           

Taxable

     $ 12,420          $ 10,827          $ 24,346          $ 22,207    

Tax-advantaged

     587          1,191          1,301          2,610    
  

 

 

    

 

 

    

 

 

    

 

 

 

Total interest income from available-for-sale securities

     13,007          12,018          25,647          24,817    
  

 

 

    

 

 

    

 

 

    

 

 

 

Investment securities held-to-maturity:

           

Taxable

     3,203          2,215          6,480          4,835    

Tax-advantaged

     2,120          2,528          4,350          5,256    
  

 

 

    

 

 

    

 

 

    

 

 

 

Total interest income from held-to-maturity securities

     5,323          4,743          10,830          10,091    
  

 

 

    

 

 

    

 

 

    

 

 

 

Total interest income from investment securities

     $     18,330          $     16,761          $     36,477          $     34,908    
  

 

 

    

 

 

    

 

 

    

 

 

 

Approximately 89% of the total investment securities portfolio at June 30, 2017 represents securities issued by the U.S government or U.S. government-sponsored enterprises, with the implied guarantee of payment of principal and interest. All non-agency available-for-sale Collateralized Mortgage Obligations (“CMO”)/Real Estate Mortgage Investment Conduit (“REMIC”) issues held are rated investment grade or better by either Standard & Poor’s or Moody’s, as of June 30, 2017 and December 31, 2016. At June 30, 2017, the Bank had $4,000 in total CMO backed by whole loans issued by private-label companies (nongovernment sponsored).

The tables below show the Company’s investment securities’ gross unrealized losses and fair value by investment category and length of time that individual securities have been in a continuous unrealized loss position at June 30, 2017 and December 31, 2016. Management has reviewed individual securities to determine whether a decline in fair value below the amortized cost basis is other-than-temporary. The unrealized losses on these securities were primarily attributed to changes in interest rates. The issuers of these securities have not, to our knowledge, evidenced any cause for default on these securities. These securities have fluctuated in value since their purchase dates as market rates have fluctuated. However, we have the ability and the intention to hold these securities until their fair values recover to cost or maturity. As such, management does not deem these securities to be Other-Than-Temporarily-Impaired (“OTTI”).

 

     June 30, 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:

                 

Government agency/GSE

     $ -          $ -          $ -          $ -          $ -          $ -    

Residential mortgage-backed securities

     339,074          (4,601)         -          -          339,074          (4,601)   

CMO/REMIC - residential

     79,172          (951)         -          -          79,172          (951)   

Municipal bonds

     16,243          (354)         5,991          (1)         22,234          (355)   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total available-for-sale  securities

     $ 434,489          $ (5,906)         $ 5,991          $ (1)         $ 440,480          $ (5,907)   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Investment securities held-to-maturity:

                 

Government agency/GSE

     $ 46,040          $ (1,361)         $ -          $ -          $ 46,040          $ (1,361)   

Residential mortgage-backed securities

     111,873          (393)         -          -          111,873          (393)   

CMO

     227,392          (6,611)         -          -          227,392          (6,611)   

Municipal bonds

     77,824          (2,430)         23,484          (907)         101,308          (3,337)   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total held-to-maturity securities

     $     463,129          $     (10,795)         $     23,484          $         (907)         $     486,613          $     (11,702)   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

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Table of Contents
    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:

           

Government agency/GSE

    $ -         $ -         $ -         $ -         $ -         $ -    

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)   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

At June 30, 2017 and December 31, 2016, investment securities having a carrying value of approximately $2.03 billion and $2.19 billion, respectively, were pledged to secure public deposits, short and long-term borrowings, and for other purposes as required or permitted by law.

The amortized cost and fair value of debt securities at June 30, 2017, by contractual maturity, are shown in the table below. Although certain mortgage-backed and CMO/REMIC securities have contractual maturities through 2057, expected maturities will differ from contractual maturities because borrowers may have the right to prepay such obligations without penalty. Mortgage-backed and CMO/REMIC securities are included in maturity categories based upon estimated average lives which incorporate estimated prepayment speeds.

 

     June 30, 2017       
     Available-for-sale      Held-to-maturity     
     Amortized
Cost
     Fair Value      Amortized
Cost
        Fair Value        
     (Dollars in thousands)     

Due in one year or less

     $ 17,369          $ 17,485          $ 425          $ 424       

Due after one year through five years

     1,955,896          1,975,849          124,293          122,167       

Due after five years through ten years

     232,464          230,357          417,336          413,416       

Due after ten years

     45,546          45,819          327,715          326,478       
  

 

 

    

 

 

    

 

 

    

 

 

    

Total investment securities

     $   2,251,275          $   2,269,510          $   869,769          $   862,485       
  

 

 

    

 

 

    

 

 

    

 

 

    

The investment in FHLB stock is periodically evaluated for impairment based on, among other things, the capital adequacy of the FHLB and its overall financial condition. No impairment losses have been recorded through June 30, 2017.

 

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6.     ACQUIRED SJB ASSETS AND FDIC LOSS SHARING ASSET

FDIC Assisted Acquisition

On October 16, 2009, the Bank acquired San Joaquin Bank (“SJB”) and entered into loss sharing agreements with the Federal Deposit Insurance Corporation (“FDIC”) that is more fully discussed in Note 3—Summary of Significant Accounting Policies, included in our Annual Report on Form 10-K for the year ended December 31, 2016. The acquisition has been accounted for under the purchase method of accounting. The assets and liabilities were recorded at their estimated fair values as of the October 16, 2009 acquisition date. The acquired loans were accounted for as Purchase Credit Impaired (“PCI”) loans.

At June 30, 2017, the remaining discount associated with the PCI loans approximated $1.0 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 indicated.

 

                                               
         June 30, 2017            December 31, 2016         
     (Dollars in thousands)     

Commercial and industrial

     $ 1,913          $ 2,309       

SBA

     1,433          327       

Real estate:

        

Commercial real estate

     46,210          67,594       

Construction

     -          -       

SFR mortgage

     171          178       

Dairy & livestock and agribusiness

     345          1,216       

Municipal lease finance receivables

     -          -       

Consumer and other loans

     805          1,469       
  

 

 

    

 

 

    

Gross PCI loans

     50,877          73,093       

Less: Purchase accounting discount

     (1,008)         (1,508)      
  

 

 

    

 

 

    

Gross PCI loans, net of discount

     49,869          71,585       

Less: Allowance for PCI loan losses

     (659)         (1,219)      
  

 

 

    

 

 

    

Net PCI loans

     $ 49,210          $ 70,366       
  

 

 

    

 

 

    

Credit Quality Indicators

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

 

                                               
         June 30, 2017            December 31, 2016         
     (Dollars in thousands)     

Pass

     $ 38,623          $ 59,409       

Special mention

     167          1,162       

Substandard

     12,087          12,522       

Doubtful & loss

     -          -       
  

 

 

    

 

 

    

Total gross PCI loans

     $     50,877          $     73,093       
  

 

 

    

 

 

    

 

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Table of Contents

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.

 

         June 30, 2017             December 31, 2016    
     (Dollars in thousands)  

Commercial and industrial

     $ 537,347         $ 485,078    

SBA

     129,283         97,184    

Real estate:

    

Commercial real estate

     3,265,858         2,930,141    

Construction

     77,294         85,879    

SFR mortgage

     249,933         250,605    

Dairy & livestock and agribusiness

     245,255         338,631    

Municipal lease finance receivables

     66,048         64,639    

Consumer and other loans

     73,909         78,274    
  

 

 

   

 

 

 

Gross loans, excluding PCI loans

     4,644,927         4,330,431    

Less: Deferred loan fees, net

     (7,098)        (6,952)   
  

 

 

   

 

 

 

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

     4,637,829         4,323,479    

Less: Allowance for loan losses

     (59,542)        (60,321)   
  

 

 

   

 

 

 

Net loans, excluding PCI loans

     4,578,287         4,263,158    
  

 

 

   

 

 

 

PCI Loans

     50,877         73,093    

Discount on PCI loans

     (1,008)        (1,508)   

Less: Allowance for loan losses

     (659)        (1,219)   
  

 

 

   

 

 

 

PCI loans, net

     49,210         70,366    
  

 

 

   

 

 

 

Total loans and lease finance receivables

     $     4,627,497         $     4,333,524    
  

 

 

   

 

 

 

As of June 30, 2017, 77.36% of the total gross loan portfolio (excluding PCI loans) consisted of real estate loans, 70.31% 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 June 30, 2017, $156.5 million, or 4.79% 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 $99.7 million for loans secured by dairy & livestock land and $56.8 million for loans secured by agricultural land at June 30, 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 June 30, 2017, dairy & livestock and agribusiness loans of $245.3 million were comprised of $208.7 million for dairy & livestock loans and $36.5 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 June 30, 2017, the Company held approximately $2.11 billion of total fixed rate loans, including PCI loans.

At June 30, 2017 and December 31, 2016, loans totaling $3.50 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 June 30, 2017 and December 31, 2016.

 

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Table of Contents

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 effected in the future.

 

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Table of Contents

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

 

    June 30, 2017  
    Pass     Special
Mention
    Substandard     Doubtful &
Loss
    Total  
    (Dollars in thousands)  

Commercial and industrial

    $ 497,714         $ 24,927         $ 14,706         $ -         $ 537,347    

SBA

    117,400         5,477         6,400         6         129,283    

Real estate:

         

Commercial real estate

         

Owner occupied

    927,211         77,594         20,059         -         1,024,864    

Non-owner occupied

    2,207,442         18,217         15,335         -         2,240,994    

Construction

         

Speculative

    53,698         6,745         -         -         60,443    

Non-speculative

    16,851         -         -         -         16,851    

SFR mortgage

    241,269         4,961         3,703         -         249,933    

Dairy & livestock and agribusiness

    154,008         71,761         19,486         -         245,255    

Municipal lease finance receivables

    65,419         629         -         -         66,048    

Consumer and other loans

    70,129         2,118         1,659         3         73,909    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total gross loans, excluding PCI loans

    $   4,351,141         $   212,429         $ 81,348         $ 9         $   4,644,927    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    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    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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Table of Contents

Allowance for Loan Losses (“ALLL”)

The Bank’s Director Loan Committee provides 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 of the 2016 Annual Report on Form 10-K for the year ended December 31, 2016 for a more detailed discussion concerning the allowance for loan losses.

Management believes that the ALLL was appropriate at June 30, 2017 and December 31, 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 Three Months Ended June 30, 2017  
    Ending Balance
March 30, 2017
       Charge-offs           Recoveries        (Recapture of)
Provision for
Loan Losses
    Ending Balance
June 30, 2017
 
    (Dollars in thousands)  

Commercial and industrial

    $ 7,956         $ -         $ 42         $ 62         $ 8,060    

SBA

    871         -         38         4         913    

Real estate:

         

Commercial real estate

    38,986         -         154         787         39,927    

Construction

    820         -         1,694         (1,455)        1,059    

SFR mortgage

    2,186         -         -         183         2,369    

Dairy & livestock and agribusiness

    5,842         -         19         (421)        5,440    

Municipal lease finance receivables

    889         -         -         (37)        852    

Consumer and other loans

    937         -         42         (57)        922    

PCI loans

    725         -         -         (66)        659    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total allowance for loan losses

    $       59,212         $ -         $   1,989         $ (1,000)        $   60,201    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    For the Three Months Ended June 30, 2016  
    Ending Balance
March 31, 2016
    Charge-offs     Recoveries     (Recapture of)
Provision for
Loan Losses
    Ending Balance
June 30, 2016
 
    (Dollars in thousands)  

Commercial and industrial

    $ 8,731         $ (24)        $ 141         $ 539         $ 9,387    

SBA

    1,236         -         2         (61)        1,177    

Real estate:

         

Commercial real estate

    38,286         -         496         1,137         39,919    

Construction

    1,151         -         875         (798)        1,228    

SFR mortgage

    2,202         -         -         299         2,501    

Dairy & livestock and agribusiness

    5,176         -         107         (401)        4,882    

Municipal lease finance receivables

    1,165         -         -         (50)        1,115    

Consumer and other loans

    1,389         (1)        6         (975)        419    

PCI loans

    -         -         -         310         310    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total allowance for loan losses

    $ 59,336         $ (25)        $ 1,627         $ -         $ 60,938    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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Table of Contents
    For the Six Months Ended June 30, 2017  
    Ending Balance
December 31,
2016
    Charge-offs     Recoveries     (Recapture of)
Provision for
Loan Losses
    Ending Balance
June 30, 2017
 
    (Dollars in thousands)  

Commercial and industrial

    $ 8,154         $ -         $ 94         $ (188)        $ 8,060    

SBA

    871         -         42         -         913    

Real estate:

         

Commercial real estate

    37,443         -         154         2,330         39,927    

Construction

    1,096         -         3,719         (3,756)        1,059    

SFR mortgage

    2,287         -         64         18         2,369    

Dairy & livestock and agribusiness

    8,541         -         19         (3,120)        5,440    

Municipal lease finance receivables

    941         -         -         (89)        852    

Consumer and other loans

    988         (2)        71         (135)        922    

PCI loans

    1,219         -         -         (560)        659    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total allowance for loan losses

    $ 61,540         $ (2)        $ 4,163         $ (5,500)        $ 60,201    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    For the Six Months Ended June 30, 2016  
    Ending Balance
December 31,
2015
    Charge-offs     Recoveries     (Recapture of)
Provision for
Loan Losses
    Ending Balance
June 30, 2016
 
    (Dollars in thousands)  

Commercial and industrial

    $ 8,588         $ (85)        $ 204         $ 680         $ 9,387    

SBA

    993         -         3         181         1,177    

Real estate:

         

Commercial real estate

    36,995         -         635         2,289         39,919    

Construction

    2,389         -         884         (2,045)        1,228    

SFR mortgage

    2,103         (102)        -         500         2,501    

Dairy & livestock and agribusiness

    6,029         -         206         (1,353)        4,882    

Municipal lease finance receivables

    1,153         -         -         (38)        1,115    

Consumer and other loans

    906         (1)        38         (524)        419    

PCI loans

    -         -         -         310         310    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total allowance for loan losses

    $ 59,156         $ (188)        $ 1,970         $ -         $ 60,938    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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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 first six months of 2017 excludes the impact of the recent VCBP acquisition from certain of the Bank’s qualitative factors that are otherwise designed to capture incremental risk in the legacy loan portfolio. The VBB acquired loans are also supported by a credit mark established through the determination of fair value for the acquired loan portfolio.

 

    June 30, 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

    $ 1,605         $ 535,742         $ -         $ 13         $ 8,047         $ -    

SBA

    2,478         126,805         -         6         907         -    

Real estate:

           

Commercial real estate

    18,558         3,247,300         -         -         39,927         -    

Construction

    -         77,294         -         -         1,059         -    

SFR mortgage

    4,195         245,738         -         -         2,369         -    

Dairy & livestock and agribusiness

    829         244,426         -         -         5,440         -    

Municipal lease finance receivables

    -         66,048         -         -         852         -    

Consumer and other loans

    1,131         72,778         -         94         828         -    

PCI loans

    -         -         49,869         -         -         659    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

    $ 28,796         $ 4,616,131         $ 49,869         $ 113         $ 59,429         $ 659    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    June 30, 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

    $ 1,447         $ 477,686         $ -         $ 526         $ 8,861         $ -    

SBA

    3,498         108,264         -         42         1,135         -    

Real estate:

           

Commercial real estate

    17,908         2,866,424         -         1         39,918         -    

Construction

    7,651         86,358         -         45         1,183         -    

SFR mortgage

    5,734         231,754         -         13         2,488         -    

Dairy & livestock and agribusiness

    697         213,133         -         -         4,882         -    

Municipal lease finance receivables

    -         71,929         -         -         1,115         -    

Consumer and other loans

    829         78,896         -         3         416         -    

PCI loans

    -         -         76,022         -         -         310    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

    $ 37,764         $ 4,134,444         $ 76,022         $ 630         $ 59,998         $ 310    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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Table of Contents

Past Due and Nonperforming Loans

We seek to manage asset quality and control credit risk through diversification of the loan portfolio and the application of policies designed to promote sound underwriting and loan monitoring practices. The Bank’s Credit Management Division is in charge of monitoring asset quality, establishing credit policies and procedures and enforcing the consistent application of these policies and procedures across the Bank. Reviews of nonperforming, past due loans and larger credits, designed to identify potential charges to the allowance for loan losses, and to determine the adequacy of the allowance, are conducted on an ongoing basis. These reviews consider such factors as the financial strength of borrowers and any guarantors, the value of the applicable collateral, loan loss experience, estimated loan losses, growth in the loan portfolio, prevailing economic conditions and other factors. Refer to Note 3 – Summary of Significant Accounting Policies, included in our Annual Report on Form 10-K for the year ended December 31, 2016, for additional discussion concerning the Bank’s policy for past due and nonperforming loans.

A loan is reported as a Troubled Debt Restructuring (“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.

 

24


Table of Contents

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.

 

    June 30, 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

    $ -         $ -         $ -         $ 1,058         $ 536,289         $ 537,347    

SBA

    -         -         -         1,651         127,632         129,283    

Real estate:

           

Commercial real estate

           

Owner occupied

    218         -         218         4,401         1,020,245         1,024,864    

Non-owner occupied

    -         -         -         2,549         2,238,445         2,240,994    

Construction

           

Speculative (2)

    -         -         -         -         60,443         60,443    

Non-speculative

    -         -         -         -         16,851         16,851    

SFR mortgage

    -         400         400         963         248,570         249,933    

Dairy & livestock and agribusiness

    -         -         -         829         244,426         245,255    

Municipal lease finance receivables

    -         -         -         -         66,048         66,048    

Consumer and other loans

    1         -         1         771         73,137         73,909    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total gross loans, excluding PCI loans

    $ 219         $ 400         $ 619         $ 12,222         $      4,632,086         $ 4,644,927    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

  (1) As of June 30, 2017, $5.5 million of nonaccruing loans were current, $4.5 million were 30-59 days past due, and $2.2 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.

 

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Table of Contents

Impaired Loans

At June 30, 2017, the Company had impaired loans, excluding PCI loans, of $28.8 million and included $4.6 million of loans acquired from VBB in the first quarter of 2017. Impaired loans included $7.0 million of nonaccrual commercial real estate loans, $1.7 million of nonaccrual Small Business Administration (“SBA”) loans, $1.1 million of nonaccrual commercial and industrial loans, $963,000 of nonaccrual single-family residential (“SFR”) mortgage loans, $829,000 of nonaccrual dairy & livestock and agribusiness loans, and $771,000 of nonaccrual consumer and other loans. These impaired loans included $21.0 million of loans whose terms were modified in a troubled debt restructuring, of which $4.4 million were classified as nonaccrual. The remaining balance of $16.6 million consisted of 24 loans performing according to the restructured terms. The impaired loans had a specific allowance of $113,000 at June 30, 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 Six Months Ended
June 30, 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

    $ 1,465         $ 1,939         $ -             $ 1,572         $ 13    

SBA

    2,472         2,750         -             2,538         32    

Real estate:

         

Commercial real estate

         

Owner occupied

    5,541         5,866         -             5,240         69    

Non-owner occupied

    13,017         15,469         -             12,908         798    

Construction

         

Speculative

    -             -             -             -             -        

Non-speculative

    -             -             -             -             -        

SFR mortgage

    4,195         4,983         -             4,242         73    

Dairy & livestock and agribusiness

    829         1,091         -             1,123         1    

Municipal lease finance receivables

    -         -             -             -             -        

Consumer and other loans

    734         941         -             752         9    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

    28,253         33,039         -             28,375         995    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

With a related allowance recorded:

         

Commercial and industrial

    140         187         13         157         1    

SBA

    6         23         6         9         -        

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

    397         402         94         399         -        
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

    543         612         113         565         1    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total impaired loans

    $ 28,796         $ 33,651         $ 113         $ 28,940         $ 996    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

26


Table of Contents
    As of and For the Six Months Ended
June 30, 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

    $ 840         $ 1,727         $ -           $ 904         $ 14    

SBA

    3,266         4,026         -           3,347         25    

Real estate:

         

Commercial real estate

         

Owner occupied

    4,386         5,573         -             4,623         87    

Non-owner occupied

    12,522         15,110         -             12,760         83    

Construction

         

Speculative

    -             -             -             -           -      

Non-speculative

    -             -             -             -           -      

SFR mortgage

    5,464         6,331         -             5,591         60    

Dairy & livestock and agribusiness

    697         697         -             709         17    

Municipal lease finance receivables

    -             -             -             -           -      

Consumer and other loans

    816         1,373         -             845         8    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

    27,991         34,837         -             28,779         294    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

With a related allowance recorded:

         

Commercial and industrial

    607         668         526         638         6    

SBA

    232         250         42         238         6    

Real estate:

         

Commercial real estate

         

Owner occupied

    1,000         1,000         1         392         28    

Non-owner occupied

    -             -             -             -           -      

Construction

         

Speculative

    7,651         7,651         45         7,651         193    

Non-speculative

    -             -             -             -           -      

SFR mortgage

    270         270         13         277         3    

Dairy & livestock and agribusiness

    -             -             -             -           -      

Municipal lease finance receivables

    -             -             -             -           -      

Consumer and other loans

    13         13         3         13         -      
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

    9,773         9,852         630         9,209         236    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total impaired loans

    $ 37,764         $ 44,689         $ 630         $ 37,988         $ 530    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

27


Table of Contents
                                                               
     As of December 31, 2016       
     Recorded
    Investment    
     Unpaid
    Principal    
Balance
     Related
    Allowance    
    
     (Dollars in thousands)     

With no related allowance recorded:

           

Commercial and industrial

     $ 730          $ 1,646          $ -         

SBA

     3,386          4,189          -         

Real estate:

           

Commercial real estate

           

Owner occupied

     1,797          2,276          -         

Non-owner occupied

     13,331          15,842          -         

Construction

           

Speculative

     -            -            -         

Non-speculative

     -            -            -         

SFR mortgage

     5,174          6,075          -         

Dairy & livestock and agribusiness

     747          747          -         

Municipal lease finance receivables

     -            -            -         

Consumer and other loans

     853          1,423          -         
  

 

 

    

 

 

    

 

 

    

Total

     26,018          32,198          -         
  

 

 

    

 

 

    

 

 

    

With a related allowance recorded:

           

Commercial and industrial

     171          171          114       

SBA

     196          212          27       

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       
  

 

 

    

 

 

    

 

 

    

Total impaired loans

     $ 26,385          $ 32,581          $ 141       
  

 

 

    

 

 

    

 

 

    

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 June 30, 2017 and December 31, 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 smaller balance non-collateral dependent loans.

 

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Reserve for Unfunded Loan Commitments

The allowance for off-balance sheet credit exposure relates to commitments to extend credit, letters of credit and undisbursed funds on lines of credit. The Company evaluates credit risk associated with the off-balance sheet loan commitments at the same time it evaluates credit risk associated with the loan and lease portfolio. There was no provision or recapture of provision for unfunded loan commitments for the three and six months ended June 30, 2017 and 2016. As of June 30, 2017 and December 31, 2016, the balance in this reserve was $6.7 million 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, included in our Annual Report on Form 10-K for the year ended December 31, 2016 for a more detailed discussion regarding TDRs.

As of June 30, 2017, there were $21.0 million of loans classified as a TDR, of which $4.4 million were nonperforming and $16.6 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 June 30, 2017, performing TDRs were comprised of five commercial real estate loans of $11.6 million, 11 SFR mortgage loans of $3.2 million, two SBA loans of $827,000, five commercial and industrial loans of $547,000, and one consumer loan of $360,000.

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 $10,000 and $141,000 of specific allowance to TDRs as of June 30, 2017 and December 31, 2016, respectively.

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

 

     For the Three Months Ended
June 30,
     For the Six Months Ended
June 30,
 
     2017      2016      2017      2016  
     (Dollars in thousands)  

Performing TDRs:

           

Beginning balance

     $ 19,702          $ 37,321          $ 19,233          $ 42,687    

New modifications

     -          112          3,143          1,118    

Payoffs/payments, net and other

     16          (17,141)         (2,987)         (23,513)   

TDRs returned to accrual status

     -          -          329          -    

TDRs placed on nonaccrual status

     (3,144)         -          (3,144)         -    
  

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance

     $ 16,574          $ 20,292          $ 16,574          $ 20,292    
  

 

 

    

 

 

    

 

 

    

 

 

 

Nonperforming TDRs:

           

Beginning balance

     $ 1,407          $ 12,360          $ 1,626          $ 12,622    

New modifications

     -          -          2,066          82    

Charge-offs

     -          -          -          (38)   

Payoffs/payments, net and other

     (160)         (331)         (2,116)         (637)   

TDRs returned to accrual status

     -          -          (329)         -    

TDRs placed on nonaccrual status

     3,144          -          3,144          -    
  

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance

     $ 4,391          $ 12,029          $ 4,391          $ 12,029    
  

 

 

    

 

 

    

 

 

    

 

 

 

Total TDRs

     $ 20,965          $ 32,321          $ 20,965          $ 32,321    
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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

Modifications (1)

    For the Three Months Ended June 30, 2017  
    Number of
Loans
    Pre-Modification
Outstanding
Recorded
Investment
    Post-Modification
Outstanding
Recorded

Investment
    Outstanding
Recorded
Investment at

June 30, 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

    -         -         -         -         -    

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

    -         -         -         -         -    

Consumer:

         

Interest rate reduction

    -         -         -         -         -    

Change in amortization period or maturity

    -         -         -         -         -    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total loans

    -       $ -       $ -       $ -       $ -    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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Table of Contents
    For the Three Months Ended June 30, 2016  
    Number of
Loans
    Pre-Modification
Outstanding
Recorded
Investment
    Post-Modification
Outstanding
Recorded

Investment
    Outstanding
Recorded
Investment at

June 30, 2016
    Financial Effect
Resulting From
Modifications (2)    
 
    (Dollars in thousands)  

Commercial and industrial:

         

Interest rate reduction

    -         $ -         $ -         $ -         $ -    

Change in amortization period or maturity

    1       112       112       110       -    

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

    -         -         -         -         -    

Non-owner occupied

         

Interest rate reduction

    -         -         -         -         -    

Change in amortization period or maturity

    -         -         -         -         -    

Consumer:

         

Interest rate reduction

    -         -         -         -         -    

Change in amortization period or maturity

    -         -         -         -         -    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total loans

    1         $ 112         $ 112         $ 110         $ -    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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Table of Contents
    For the Six Months Ended June 30, 2017  
    Number of
Loans
    Pre-Modification
Outstanding
Recorded
Investment
    Post-Modification
Outstanding
Recorded

Investment
    Outstanding
Recorded
Investment at

June 30, 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

    1         82         82         78         -    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total loans

    3         $ 5,209         $ 5,209         $ 3,299         $ -    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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Table of Contents
    For the Six Months Ended June 30, 2016  
    Number of
Loans
    Pre-Modification
Outstanding
Recorded
Investment
    Post-Modification
Outstanding
Recorded

Investment
    Outstanding
Recorded
Investment at

June 30, 2016    
    Financial Effect
Resulting From
Modifications (2)    
 
    (Dollars in thousands)  

Commercial and industrial:

         

Interest rate reduction

    -         $ -         $ -         $ -         $ -    

Change in amortization period or maturity

    1         112         112         110         -    

SBA:

         

Interest rate reduction

    -         -         -         -         -    

Change in amortization period or maturity

    1         194         194         190         28    

Real estate:

         

Commercial real estate:

         

Owner occupied

         

Interest rate reduction

    -         -         -         -         -    

Change in amortization period or maturity

    2         812         812         761         -    

Non-owner occupied

         

Interest rate reduction

    -         -         -         -         -    

Change in amortization period or maturity

    -         -         -         -         -    

Consumer:

         

Interest rate reduction

    -         -         -         -         -    

Change in amortization period or maturity

    2         82         82         72         -    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total loans

    6         $ 1,200         $ 1,200         $ 1,133         $ 28    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

  (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 June 30, 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 during the three and six months ended June 30, 2017.

 

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8.     EARNINGS PER SHARE RECONCILIATION

Basic earnings per common share are computed by dividing income allocated to common stockholders by the weighted-average number of common shares outstanding during each period. The computation of diluted earnings per common share considers the number of tax-effected shares issuable upon the assumed exercise of outstanding common stock options. Antidilutive common shares are not included in the calculation of diluted earnings per common share. For the three and six months ended June 30, 2017, shares deemed to be antidilutive, and thus excluded from the computation of earnings per common share, were 11,000 and 8,000, respectively. For the three and six months ended June 30, 2016, shares deemed to be antidilutive, and thus excluded from the computation of earnings per common share, were 262,000 and 267,000, respectively.

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

 

    For the Three Months     For the Six Months  
    Ended June 30,     Ended June 30,  
    2017     2016     2017     2016  
    (In thousands, except per share amounts)  

Earnings per common share:

       

Net earnings

    $       28,373         $       25,514         $       56,877         $       48,905    

Less: Net earnings allocated to restricted stock

    105         99         217         205    
 

 

 

   

 

 

   

 

 

   

 

 

 

Net earnings allocated to common shareholders

    $ 28,268         $ 25,415         $ 56,660         $ 48,700    
 

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average shares outstanding

    109,730         108,834         109,039         106,917    

Basic earnings per common share

    $ 0.26         $ 0.23         $ 0.52         $ 0.46    
 

 

 

   

 

 

   

 

 

   

 

 

 

Diluted earnings per common share:

       

Net income allocated to common shareholders

    $ 28,268         $ 25,415         $ 56,660         $ 48,700    
 

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average shares outstanding

    109,730         108,834         109,039         106,917    

Incremental shares from assumed exercise of outstanding options

    348         410         406         406    
 

 

 

   

 

 

   

 

 

   

 

 

 

Diluted weighted average shares outstanding

    110,078         109,244         109,445         107,323    

Diluted earnings per common share

    $ 0.26         $ 0.23         $ 0.52         $ 0.45    
 

 

 

   

 

 

   

 

 

   

 

 

 

 

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9.     FAIR VALUE INFORMATION

Fair Value Hierarchy

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

The following disclosure provides the fair value information for financial assets and liabilities as of June 30, 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 six months ended June 30, 2017 and 2016.

 

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Table of Contents

Assets and Liabilities Measured at Fair Value on a Recurring Basis

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

 

     Carrying Value at
June 30, 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

     $ 1,750        $ -        $ 1,750        $ -  

Residential mortgage-backed securities

     1,882,303        -        1,882,303        -  

CMO/REMIC - residential

     314,118        -        314,118        -  

Municipal bonds

     70,649        -        70,649        -  

Other securities

     690        -        690        -  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total investment securities - AFS

     2,269,510        -        2,269,510        -  

Interest rate swaps

     5,148        -        5,148        -  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total assets

     $ 2,274,658        $ -        $ 2,274,658        $ -  
  

 

 

    

 

 

    

 

 

    

 

 

 

Description of liability

           

Interest rate swaps

     $ 5,148        $ -        $ 5,148        $ -  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total liabilities

     $ 5,148        $ -        $ 5,148        $ -  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

     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        $ -  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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Table of Contents

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

We may be required to measure certain assets at fair value on a non-recurring basis in accordance with GAAP. These adjustments to fair value usually result from application of lower of cost or fair value accounting or write-downs of individual assets. For assets measured at fair value on a non-recurring basis that were held on the balance sheet at June 30, 2017 and December 31, 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
June 30, 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 Six Months
Ended

June 30, 2017
 
                   (Dollars in thousands)               

Description of assets

             

Impaired loans, excluding PCI loans:

             

Commercial and industrial

     $ 105         $        $       $ 105         $  

SBA

                                 

Real estate:

             

Commercial real estate

                                 

Construction

                                 

SFR mortgage

                                 

Dairy & livestock and agribusiness

                                 

Consumer and other loans

     398                      398         94   

Other real estate owned

                                 

Asset held-for-sale

                         
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 

Total assets

     $ 503         $        $       $ 503         $ 103   
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 
     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         $  

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   
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 

 

37


Table of Contents

Fair Value of Financial Instruments

The following disclosure presents estimated fair value of our financial instruments. The estimated fair value amounts have been determined by the Company using available market information and appropriate valuation methodologies. However, considerable judgment is required to develop the estimates of fair value. Accordingly, the estimates presented below are not necessarily indicative of the amounts the Company may realize in a current market exchange as of June 30, 2017 and December 31, 2016, respectively. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.

 

     June 30, 2017  
            Estimated Fair Value  
     Carrying
Amount
     Level 1      Level 2      Level 3      Total  
            (Dollars in thousands)         

Assets

              

Total cash and cash equivalents

   $     184,747        $ 184,747        $ -        $ -        $     184,747    

Interest-earning balances due from depository institutions

     25,050          -          25,088          -          25,088    

FHLB stock

     17,688          -          17,688          -          17,688    

Investment securities available-for-sale

     2,269,510          -          2,269,510          -          2,269,510    

Investment securities held-to-maturity

     869,769          -          862,485          -          862,485    

Total loans, net of allowance for loan losses

     4,627,497          -          -          4,598,548          4,598,548    

Swaps

     5,148          -          5,148          -          5,148    

Liabilities

              

Deposits:

              

Noninterest-bearing

   $ 3,929,394        $     3,929,394        $ -