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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 September 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: 110,156,656 outstanding as of October 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 CONDITION AND RESULTS OF OPERATIONS

     43  
 

CRITICAL ACCOUNTING POLICIES

     43  
 

OVERVIEW

     43  
 

ANALYSIS OF THE RESULTS OF OPERATIONS

     45  
 

RESULTS BY BUSINESS SEGMENTS

     55  
 

ANALYSIS OF FINANCIAL CONDITION

     58  
 

ASSET/LIABILITY AND MARKET RISK MANAGEMENT

     76  
    ITEM 3.  

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     78  
    ITEM 4.  

CONTROLS AND PROCEDURES

     78  
PART II –  

OTHER INFORMATION

     79  
    ITEM 1.  

LEGAL PROCEEDINGS

     79  
    ITEM 1A.  

RISK FACTORS

     80  
    ITEM 2.  

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

     80  
    ITEM 3.  

DEFAULTS UPON SENIOR SECURITIES

     80  
    ITEM 4.  

MINE SAFETY DISCLOSURES

     80  
    ITEM 5.  

OTHER INFORMATION

     80  
    ITEM 6.  

EXHIBITS

     80  

SIGNATURES

     81  

 

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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, 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;
    the costs and effects of 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 or expected credit losses or delinquencies;
    inflation, changes in market interest rates, securities market and monetary fluctuations;
    changes in government-established interest rates or monetary policies;
    changes in the amount, availability and cost of deposit insurance or other types of insurance coverage;
    disruptions in the infrastructure that supports our business and the communities where we are located, which are concentrated in California, involving or related to physical site access and/or communications facilities;
    cyber incidents or theft or loss of Company or customer data or funds;
    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);
    our ability to retain and increase market share, retain and grow customers and control expenses;

 

3


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    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)

 

     September 30,   December 31,
     2017   2016

Assets

    

Cash and due from banks

     $ 137,196       $ 119,445  

Interest-earning balances due from Federal Reserve

     6,594       2,188  
  

 

 

 

 

 

 

 

Total cash and cash equivalents

     143,790       121,633  
  

 

 

 

 

 

 

 

Interest-earning balances due from depository institutions

     20,521       47,848  

Investment securities available-for-sale, at fair value (with amortized cost of $2,155,330 at September 30, 2017, and $2,255,874 at December 31, 2016)

     2,175,648       2,270,466  

Investment securities held-to-maturity (with fair value of $842,050 at September 30, 2017, and $897,374 at December 31, 2016)

     848,382       911,676  
  

 

 

 

 

 

 

 

Total investment securities

     3,024,030       3,182,142  
  

 

 

 

 

 

 

 

Investment in stock of Federal Home Loan Bank (FHLB)

     17,688       17,688  

Loans and lease finance receivables

     4,746,424       4,395,064  

Allowance for loan losses

     (60,631     (61,540
  

 

 

 

 

 

 

 

Net loans and lease finance receivables

     4,685,793       4,333,524  
  

 

 

 

 

 

 

 

Premises and equipment, net

     46,654       42,086  

Bank owned life insurance (BOLI)

     145,970       134,785  

Accrued interest receivable

     21,518       22,259  

Intangibles

     7,177       5,010  

Goodwill

     116,564       89,533  

Other real estate owned (OREO)

     4,527       4,527  

Income taxes

     48,145       45,429  

Asset held-for-sale

     -         3,411  

Other assets

     21,635       23,832  
  

 

 

 

 

 

 

 

Total assets

     $     8,304,012       $     8,073,707  
  

 

 

 

 

 

 

 

Liabilities and Stockholders’ Equity

    

Liabilities:

    

Deposits:

    

Noninterest-bearing

     $ 3,908,809       $ 3,673,541  

Interest-bearing

     2,699,287       2,636,139  
  

 

 

 

 

 

 

 

Total deposits

     6,608,096       6,309,680  

Customer repurchase agreements

     455,069       603,028  

Other borrowings

     63,000       53,000  

Deferred compensation

     18,024       12,361  

Junior subordinated debentures

     25,774       25,774  

Payable for securities purchased

     1,625       23,777  

Other liabilities

     55,960       55,225  
  

 

 

 

 

 

 

 

Total liabilities

     7,227,548       7,082,845  
  

 

 

 

 

 

 

 

Commitments and Contingencies

    

Stockholders’ Equity

    

Common stock, authorized, 225,000,000 shares without par; issued and outstanding 110,157,384 at September 30, 2017, and 108,251,981 at December 31, 2016

     572,685       531,192  

Retained earnings

     491,935       449,499  

Accumulated other comprehensive income, net of tax

     11,844       10,171  
  

 

 

 

 

 

 

 

Total stockholders’ equity

     1,076,464       990,862  
  

 

 

 

 

 

 

 

Total liabilities and stockholders’ equity

     $ 8,304,012       $ 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
September 30,
  For the Nine Months Ended
September 30,
     2017   2016   2017   2016

Interest income:

        

Loans and leases, including fees

     $ 55,998       $ 47,754       $ 158,253       $ 143,781  

Investment securities:

        

Investment securities available-for-sale

     12,240       11,425       37,887       36,242  

Investment securities held-to-maturity

     5,184       4,787       16,014       14,878  
  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total investment income

     17,424       16,212       53,901       51,120  
  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends from FHLB stock

     318       403       1,070       1,210  

Interest-earning deposits with other institutions and federal funds sold

     130       802       683       1,575  
  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total interest income

     73,870       65,171       213,907       197,686  
  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense:

        

Deposits

     1,555       1,525       4,547       4,544  

Borrowings and customer repurchase agreements

     402       349       1,213       1,117  

Junior subordinated debentures

     174       136       492       392  
  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total interest expense

     2,131       2,010       6,252       6,053  
  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest income before recapture of provision for loan losses

     71,739       63,161       207,655       191,633  

Recapture of provision for loan losses

     (1,500     (2,000     (7,000     (2,000
  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest income after recapture of provision for loan losses

     73,239       65,161       214,655       193,633  
  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Noninterest income:

        

Service charges on deposit accounts

     4,085       3,817       11,794       11,386  

Trust and investment services

     2,523       2,328       7,432       7,039  

Bankcard services

     927       827       2,563       2,166  

BOLI income

     692       706       2,904       2,005  

Gain on sale of loans

     -         -         -         1,101  

Other

     1,811       1,505       4,843       3,443  
  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total noninterest income

     10,038       9,183       29,536       27,140  
  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Noninterest expense:

        

Salaries and employee benefits

     21,835       20,403       65,116       63,004  

Occupancy and equipment

     4,400       4,102       12,638       11,940  

Professional services

     1,091       1,404       4,191       3,727  

Software licenses and maintenance

     1,510       1,358       4,698       4,077  

Marketing and promotion

     1,055       1,199       3,484       3,818  

Acquisition related expenses

     250       353       2,176       1,557  

Other

     4,565       4,187       13,393       13,685  
  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total noninterest expense

     34,706       33,006       105,696       101,808  
  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings before income taxes

     48,571       41,338       138,495       118,965  
  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income taxes

     18,888       15,890       51,935       44,612  
  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net earnings

     $       29,683       $       25,448       $       86,560       $       74,353  
  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss):

        

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

     $ 1,221       $ (3,709     $ 3,287       $ 31,054  

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

     -         (548     (402     (548
  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss), before tax

     1,221       (4,257     2,885       30,506  

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

     (513     1,788       (1,212     (12,812
  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss), net of tax

     708       (2,469     1,673       17,694  
  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income

     $ 30,391       $ 22,979       $ 88,233       $ 92,047  
  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic earnings per common share

     $ 0.27       $ 0.23       $ 0.79       $ 0.69  

Diluted earnings per common share

     $ 0.27       $ 0.23       $ 0.79       $ 0.69  

Cash dividends declared per common share

     $ 0.14       $ 0.12       $ 0.40       $ 0.36  

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

Nine months ended September 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

     (66     (496     -       -        (496

Issuance of common stock for acquisition of County
Commerce Bank

     1,394       21,642       -       -        21,642  

Exercise of stock options

     274       3,174       -       -        3,174  

Tax benefit from exercise of stock options

     -       236       -       -        236  

Shares issued pursuant to stock-based compensation plan

     110       2,154       -       -        2,154  

Cash dividends declared on common stock ($0.36 per share)

     -       -       (38,853     -        (38,853

Net earnings

     -       -       74,353       -        74,353  

Other comprehensive income

     -       -       -       17,694        17,694  
  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  

 

 

 

Balance, September 30, 2016

           108,097       $     529,281       $     435,419       $     38,603        $     1,003,303  
  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  

 

 

 

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

     (45     (997     -       -        (997

Issuance of common stock for acquisition of Valley
Commerce Bancorp

     1,634       37,637       -       -        37,637  

Exercise of stock options

     270       2,537       -       -        2,537  

Shares issued pursuant to stock-based compensation plan

     46       2,200       -       -        2,200  

Cash dividends declared on common stock ($0.40 per share)

     -       -       (44,058     -        (44,058

Net earnings

     -       -       86,560       -        86,560  

Other comprehensive income

     -       -       -       1,673        1,673  
  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  

 

 

 

Balance, September 30, 2017

     110,157       $ 572,685       $ 491,935       $ 11,844        $ 1,076,464  
  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  

 

 

 

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 Nine Months Ended
     September 30,
     2017   2016

Cash Flows from Operating Activities

    

Interest and dividends received

     $ 223,172       $ 208,995  

Service charges and other fees received

     26,769       23,185  

Interest paid

     (6,279     (6,089

Net cash paid to vendors, employees and others

     (82,411     (95,870

Income taxes

     (53,278     (31,495

Payments to FDIC, loss share agreement

     (498     (510
  

 

 

 

 

 

 

 

Net cash provided by operating activities

     107,475       98,216  
  

 

 

 

 

 

 

 

Cash Flows from Investing Activities

    

Proceeds from redemption of FHLB stock

     1,952       1,423  

Net change in interest-earning balances from depository institutions

     27,806       11,849  

Proceeds from sale of investment securities held-for-sale

     5,403       1,957  

Proceeds from repayment of investment securities available-for-sale

     320,599       325,912  

Proceeds from maturity of investment securities available-for-sale

     20,937       81,209  

Purchases of investment securities available-for-sale

     (280,365     (208,563

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

     96,447       231,355  

Purchases of investment securities held-to-maturity

     (36,166     (261,457

Net increase in loan and lease finance receivables

     (29,713     (109,046

Proceeds from sale of loans

     -       6,417  

Proceeds from sale of asset held-for-sale

     4,012       -  

Purchase of premises and equipment

     (3,129     (2,343

Proceeds from sales of other real estate owned

     -       1,846  

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

                 156,108                   64,838  
  

 

 

 

 

 

 

 

Cash Flows from Financing Activities

    

Net (decrease) increase in other deposits

     (23,896     508,916  

Net decrease in time deposits

     (39,485     (319,877

Repayment of FHLB advances

     -       (5,000

Net increase (decrease) in other borrowings

     10,000       (46,000

Net decrease in customer repurchase agreements

     (147,959     (112,293

Cash dividends on common stock

     (41,626     (38,652

Repurchase of common stock

     (997     (496

Proceeds from exercise of stock options

     2,537       3,174  

Tax benefit related to exercise of stock options

     -       236  
  

 

 

 

 

 

 

 

Net cash used in financing activities

     (241,426     (9,992
  

 

 

 

 

 

 

 

Net increase in cash and cash equivalents

     22,157       153,062  

Cash and cash equivalents, beginning of period

     121,633       106,097  
  

 

 

 

 

 

 

 

Cash and cash equivalents, end of period

     $ 143,790       $ 259,159  
  

 

 

 

 

 

 

 

 

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 Nine Months Ended
     September 30,
     2017   2016

Reconciliation of Net Earnings to Net Cash Provided by Operating Activities

    

Net earnings

     $ 86,560       $ 74,353  

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     (548

Gain on sale of other real estate owned

     -       (30

Increase in bank owned life insurance

     (1,763     (3,117

Net amortization of premiums and discounts on investment securities

     13,585       15,422  

Accretion of PCI discount

     (756     (2,112

Recapture of provision for loan losses

     (7,000     (2,000

Valuation adjustment on other real estate owned

     -       337  

Payments to FDIC, loss share agreement

     (498     (510

Stock-based compensation

     2,200       2,154  

Depreciation and amortization, net

     (433     3,128  

Change in other assets and liabilities

     15,982       12,512  
  

 

 

 

 

 

 

 

Total adjustments

     20,915       23,863  
  

 

 

 

 

 

 

 

Net cash provided by operating activities

     $           107,475       $             98,216  
  

 

 

 

 

 

 

 

Supplemental Disclosure of Non-cash Investing Activities

    

Securities purchased and not settled

     $ 1,625       $ 43,111  

Issuance of common stock for acquisition

     $ 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 51 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 nine months ended September 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 $1.5 million for the nine months ended September 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 does not expect this ASU 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 model does not apply to available-for-sale (“AFS”) debt securities. For AFS debt securities with unrealized losses, entities will measure

 

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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.

In August 2017, the FASB issued ASU No. 2017-12, “Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities.” ASU 2017-12 changes the recognition and presentation requirements of hedge accounting and makes certain targeted improvements to simplify the application of the hedge accounting guidance in current GAAP. The amendments in this ASU better align an entity’s financial reporting and risk management activities for hedging relationships through changes to both the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results. To meet that objective, the amendments expand and refine hedge accounting for both non-financial and financial risk components and align the recognition and presentation of the effects of the hedging instrument and the hedged item in the financial statements. ASU No. 2017-12 is effective for interim and annual reporting periods beginning after December 15, 2018; early adoption is permitted. The Company currently does not designate any derivative financial instruments as qualifying hedging relationships, and therefore, does not utilize hedge accounting. The Company 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. Three of these center locations were consolidated into nearby CBB locations in the third quarter of 2017. The Company has entered into an agreement to sell the Woodlake branch, which is expected to close in the fourth quarter of 2017.

Goodwill of $27.0 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 $405.9 million, which included $28.3 million in cash and cash equivalents net of cash paid, $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 $21.0 million in other assets. The total fair value of liabilities assumed was $368.3 million, which included $361.8 million in deposits, and $6.5 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. The purchase price allocation was finalized in the third quarter of 2017.

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 nine months ended September 30, 2017, the Company incurred non-recurring merger related expenses associated with the VCBP acquisition of $250,000 and $2.2 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 net of cash paid, $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 nine months ended September 30, 2016, the Company incurred non-recurring merger related expenses associated with the CCB acquisition of $145,000 and $1.3 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.

 

     September 30, 2017
     Amortized
Cost
   Gross
Unrealized
Holding
Gain
   Gross
Unrealized
Holding
Loss
  Fair Value    Total
Percent
     (Dollars in thousands)

Investment securities available-for-sale:

             

Residential mortgage-backed securities

     $ 1,799,972        $ 22,164        $ (4,102     $ 1,818,034        83.57

CMO/REMIC - residential

     291,984        2,665        (867     293,782        13.50

Municipal bonds

     62,657        726        (268     63,115        2.90

Other securities

     717        -        -       717        0.03
  

 

 

 

  

 

 

 

  

 

 

 

 

 

 

 

  

 

 

 

Total available-for-sale securities

     $   2,155,330        $       25,555        $       (5,237     $   2,175,648              100.00
  

 

 

 

  

 

 

 

  

 

 

 

 

 

 

 

  

 

 

 

Investment securities held-to-maturity:

             

Government agency/GSE

     $ 164,886        $ 1,532        $ (1,489     $ 164,929        19.44

Residential mortgage-backed securities

     178,246        880        (61     179,065        21.01

CMO

     229,885        -        (6,865     223,020        27.09

Municipal bonds

     275,365        2,800        (3,129     275,036        32.46
  

 

 

 

  

 

 

 

  

 

 

 

 

 

 

 

  

 

 

 

Total held-to-maturity securities

     $ 848,382        $ 5,212        $ (11,544     $ 842,050        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    For the Nine Months Ended
     September 30,    September 30,
     2017    2016    2017    2016
     (Dollars in thousands)

Investment securities available-for-sale:

           

Taxable

     $ 11,767        $ 10,546        $ 36,113        $ 32,754  

Tax-advantaged

     473        879        1,774        3,488  
  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

Total interest income from available-for-sale securities

     12,240        11,425        37,887        36,242  
  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

Investment securities held-to-maturity:

           

Taxable

     3,111        2,349        9,591        7,184  

Tax-advantaged

     2,073        2,438        6,423        7,694  
  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

Total interest income from held-to-maturity securities

     5,184        4,787        16,014        14,878  
  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

Total interest income from investment securities

     $       17,424        $       16,212        $       53,901        $       51,120  
  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

Approximately 89% of the total investment securities portfolio at September 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 September 30, 2017 and December 31, 2016.

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 September 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”).

 

     September 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:

               

Residential mortgage-backed securities

     $ 352,129        $ (4,102     $ -        $ -       $ 352,129        $ (4,102

CMO/REMIC - residential

     42,017        (463     33,454        (404     75,471        (867

Municipal bonds

     15,008        (267     5,996        (1     21,004        (268
  

 

 

 

  

 

 

 

 

 

 

 

  

 

 

 

 

 

 

 

  

 

 

 

Total available-for-sale securities

     $ 409,154        $ (4,832     $ 39,450        $ (405     $ 448,604        $ (5,237
  

 

 

 

  

 

 

 

 

 

 

 

  

 

 

 

 

 

 

 

  

 

 

 

Investment securities held-to-maturity:

               

Government agency/GSE

     $ 39,929        $ (1,305     $ 5,411        $ (184     $ 45,340        $ (1,489

Residential mortgage-backed securities

     62,677        (61     -        -       62,677        (61

CMO

     173,752        (5,200     49,268        (1,665     223,020        (6,865

Municipal bonds

     66,912        (1,676     32,921        (1,453     99,833        (3,129
  

 

 

 

  

 

 

 

 

 

 

 

  

 

 

 

 

 

 

 

  

 

 

 

Total held-to-maturity securities

     $     343,270        $     (8,242     $     87,600        $     (3,302     $     430,870        $     (11,544
  

 

 

 

  

 

 

 

 

 

 

 

  

 

 

 

 

 

 

 

  

 

 

 

 

15


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:

               

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 September 30, 2017 and December 31, 2016, investment securities having a carrying value of approximately $1.88 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 September 30, 2017, by contractual maturity, are shown in the table below. Although mortgage-backed and CMO/REMIC securities have contractual maturities through 2057, expected maturities will differ from contractual maturities because borrowers may have the right to prepay such obligations without penalty. Mortgage-backed and CMO/REMIC securities are included in maturity categories based upon estimated average lives which incorporate estimated prepayment speeds.

 

     September 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

     $ 18,711        $ 18,895        $ 885        $ 887  

Due after one year through five years

     1,985,884        2,005,750        251,948        249,473  

Due after five years through ten years

     116,933        116,800        237,282        235,069  

Due after ten years

     33,802        34,203        358,267        356,621  
  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

Total investment securities

     $   2,155,330        $   2,175,648        $     848,382        $   842,050  
  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

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

 

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Table of Contents
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 September 30, 2017, the remaining discount associated with the PCI loans approximated $758,000. 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.

 

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

Commercial and industrial

     $ 1,002       $ 2,309  

SBA

     1,410       327  

Real estate:

    

Commercial real estate

     33,799       67,594  

Construction

     -       -  

SFR mortgage

     166       178  

Dairy & livestock and agribusiness

     335       1,216  

Municipal lease finance receivables

     -       -  

Consumer and other loans

     594       1,469  
  

 

 

 

 

 

 

 

Gross PCI loans

     37,306       73,093  

Less: Purchase accounting discount

     (758     (1,508
  

 

 

 

 

 

 

 

Gross PCI loans, net of discount

     36,548       71,585  

Less: Allowance for PCI loan losses

     (431     (1,219
  

 

 

 

 

 

 

 

Net PCI loans

     $                 36,117       $                 70,366  
  

 

 

 

 

 

 

 

Credit Quality Indicators

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

 

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

Pass

     $ 32,309          $ 59,409    

Special mention

     147          1,162    

Substandard

     4,850          12,522    

Doubtful & loss

     -          -    
  

 

 

 

  

 

 

 

Total gross PCI loans

     $                 37,306          $                 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.

 

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

Commercial and industrial

     $ 528,659       $ 485,078  

SBA

     124,091       97,184  

Real estate:

    

Commercial real estate

     3,332,517       2,930,141  

Construction

     74,148       85,879  

SFR mortgage

     244,662       250,605  

Dairy & livestock and agribusiness

     270,482       338,631  

Municipal lease finance receivables

     71,352       64,639  

Consumer and other loans

     70,415       78,274  
  

 

 

 

 

 

 

 

Gross loans, excluding PCI loans

     4,716,326       4,330,431  

Less: Deferred loan fees, net

     (6,450     (6,952
  

 

 

 

 

 

 

 

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

     4,709,876       4,323,479  

Less: Allowance for loan losses

     (60,200     (60,321
  

 

 

 

 

 

 

 

Net loans, excluding PCI loans

     4,649,676       4,263,158  
  

 

 

 

 

 

 

 

PCI Loans

     37,306       73,093  

Discount on PCI loans

     (758     (1,508

Less: Allowance for loan losses

     (431     (1,219
  

 

 

 

 

 

 

 

PCI loans, net

     36,117       70,366  
  

 

 

 

 

 

 

 

Total loans and lease finance receivables

     $             4,685,793       $             4,333,524  
  

 

 

 

 

 

 

 

As of September 30, 2017, 77.42% of the total gross loan portfolio (excluding PCI loans) consisted of real estate loans, 70.66% 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 September 30, 2017, $180.2 million, or 5.41% 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 $102.0 million for loans secured by dairy & livestock land and $78.2 million for loans secured by agricultural land at September 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 September 30, 2017, dairy & livestock and agribusiness loans of $270.5 million were comprised of $235.2 million for dairy & livestock loans and $35.3 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 September 30, 2017, the Company held approximately $2.16 billion of total fixed rate loans, including PCI loans.

At September 30, 2017 and December 31, 2016, loans totaling $3.61 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 September 30, 2017 and December 31, 2016.

 

18


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 affected 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.

 

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

Commercial and industrial

     $ 485,025        $ 30,675        $ 12,959        $ -        $ 528,659  

SBA

     113,423        4,504        6,164        -        124,091  

Real estate:

              

Commercial real estate

              

Owner occupied

     960,523        88,507        21,327        -        1,070,357  

Non-owner occupied

     2,238,827        16,363        6,970        -        2,262,160  

Construction

              

Speculative

     51,596        2,966        -        -        54,562  

Non-speculative

     19,586        -        -        -        19,586  

SFR mortgage

     236,027        4,560        4,075        -        244,662  

Dairy & livestock and agribusiness

     206,720        46,614        17,148        -        270,482  

Municipal lease finance receivables

     70,723        629        -        -        71,352  

Consumer and other loans

     67,362        1,457        1,594        2        70,415  
  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

Total gross loans, excluding PCI loans

     $ 4,449,812        $ 196,275        $ 70,237      $ 2      $ 4,716,326  
  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

     December 31, 2016
     Pass    Special
Mention
   Substandard    Doubtful &
Loss
   Total
     (Dollars in thousands)

Commercial and industrial

     $ 449,658        $ 21,610      $ 13,809      $ 1      $ 485,078  

SBA

     80,138        10,553        6,482        11        97,184  

Real estate:

              

Commercial real estate

              

Owner occupied

     842,992        87,781        19,046        -        949,819  

Non-owner occupied

     1,941,203        23,534        15,585        -        1,980,322  

Construction

              

Speculative

     48,841        -        -        -        48,841  

Non-speculative

     37,038        -        -        -        37,038  

SFR mortgage

     243,374        4,930        2,301        -        250,605  

Dairy & livestock and agribusiness

     187,819        114,106        36,706        -        338,631  

Municipal lease finance receivables

     60,102        4,537        -        -        64,639  

Consumer and other loans

     74,328        2,123        1,819        4        78,274  
  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

Total gross loans, excluding PCI loans

     $   3,965,493        $   269,174        $   95,748        $                 16        $   4,330,431  
  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

Allowance for Loan Losses (“ALLL”)

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

Our methodology for assessing the appropriateness of the allowance is conducted on a regular basis and considers the Bank’s overall loan portfolio. Refer to Note 3 – Summary of Significant Accounting Policies 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 September 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.

 

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Table of Contents

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 September 30, 2017
     Ending Balance
June 30, 2017
   Charge-offs   Recoveries    (Recapture of)
Provision for
Loan Losses
  Ending Balance
September 30,
2017
     (Dollars in thousands)

Commercial and industrial

     $ 8,060        $ (138     $ 12        $ 129       $ 8,063  

SBA

     913        -       5        (54     864  

Real estate:

            

Commercial real estate

     39,927        -       -        943       40,870  

Construction

     1,059        -       2,055        (2,181     933  

SFR mortgage

     2,369        -       -        (49     2,320  

Dairy & livestock and agribusiness

     5,440        -       -        (66     5,374  

Municipal lease finance receivables

     852        -       -        54       906  

Consumer and other loans

     922        (9     5        (48     870  

PCI loans

     659        -       -        (228     431  
  

 

 

 

  

 

 

 

 

 

 

 

  

 

 

 

 

 

 

 

Total allowance for loan losses

     $ 60,201        $ (147     $ 2,077        $ (1,500     $ 60,631  
  

 

 

 

  

 

 

 

 

 

 

 

  

 

 

 

 

 

 

 

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

Commercial and industrial

     $ 9,387        $ -       $ 49        $ 30       $ 9,466  

SBA

     1,177        -       6        (179     1,004  

Real estate:

            

Commercial real estate

     39,919        -       156        (1,267     38,808  

Construction

     1,228        -       1,731        (1,851     1,108  

SFR mortgage

     2,501        -       -        70       2,571  

Dairy & livestock and agribusiness

     4,882        -       -        1,089       5,971  

Municipal lease finance receivables

     1,115        -       -        (82     1,033  

Consumer and other loans

     419        (7     128        (100     440  

PCI loans

     310        -       -        290       600  
  

 

 

 

  

 

 

 

 

 

 

 

  

 

 

 

 

 

 

 

Total allowance for loan losses

     $ 60,938        $ (7     $ 2,070        $ (2,000     $ 61,001  
  

 

 

 

  

 

 

 

 

 

 

 

  

 

 

 

 

 

 

 

 

21


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

Commercial and industrial

     $ 8,154        $ (138     $ 106        $ (59     $ 8,063  

SBA

     871        -       47        (54     864  

Real estate:

            

Commercial real estate

     37,443        -       154        3,273       40,870  

Construction

     1,096        -       5,774        (5,937     933  

SFR mortgage

     2,287        -       64        (31     2,320  

Dairy & livestock and agribusiness

     8,541        -       19        (3,186     5,374  

Municipal lease finance receivables

     941        -       -        (35     906  

Consumer and other loans

     988        (11     76        (183     870  

PCI loans

     1,219        -       -        (788     431  
  

 

 

 

  

 

 

 

 

 

 

 

  

 

 

 

 

 

 

 

Total allowance for loan losses

     $ 61,540        $ (149     $ 6,240        $ (7,000     $ 60,631  
  

 

 

 

  

 

 

 

 

 

 

 

  

 

 

 

 

 

 

 

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

Commercial and industrial

     $ 8,588        $ (85     $ 253        $ 710       $ 9,466  

SBA

     993        -       9        2       1,004  

Real estate:

            

Commercial real estate

     36,995        -       791        1,022       38,808  

Construction

     2,389        -       2,615        (3,896     1,108  

SFR mortgage

     2,103        (102     -        570       2,571  

Dairy & livestock and agribusiness

     6,029        -       206        (264     5,971  

Municipal lease finance receivables

     1,153        -       -        (120     1,033  

Consumer and other loans

     906        (8     166        (624     440  

PCI loans

     -        -       -        600       600  
  

 

 

 

  

 

 

 

 

 

 

 

  

 

 

 

 

 

 

 

Total allowance for loan losses

     $ 59,156        $ (195     $ 4,040        $ (2,000     $ 61,001  
  

 

 

 

  

 

 

 

 

 

 

 

  

 

 

 

 

 

 

 

 

22


Table of Contents

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 nine 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 discount established through the determination of fair value for the acquired loan portfolio.

 

                                                                                               
    September 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

    $ 745       $ 527,914       $ -       $ 2       $ 8,061       $ -  

SBA

    2,273       121,818       -       3       861       -  

Real estate:

           

Commercial real estate

    8,168       3,324,349       -       -       40,870       -  

Construction

    -       74,148       -       -       933       -  

SFR mortgage

    4,550       240,112       -       -       2,320       -  

Dairy & livestock and agribusiness

    829       269,653       -       -       5,374       -  

Municipal lease finance receivables

    -       71,352       -       -       906       -  

Consumer and other loans

    743       69,672       -       83       787       -  

PCI loans

    -       -       36,548       -       -       431  
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

    $ 17,308       $ 4,699,018       $ 36,548       $ 88       $ 60,112       $ 431  
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    September 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

    $ 1,349       $ 493,134       $ -       $ 493       $ 8,973       $ -  

SBA

    3,867       100,176       -       33       971       -  

Real estate:

           

Commercial real estate

    15,806       2,895,959       -       -       38,808       -  

Construction

    7,651       83,059       -       4       1,104       -  

SFR mortgage

    5,502       235,988       -       6       2,565       -  

Dairy & livestock and agribusiness

    659       238,583       -       -       5,971       -  

Municipal lease finance receivables

    -       68,309       -       -       1,033       -  

Consumer and other loans

    850       78,814       -       12       428       -  

PCI loans

    -       -       73,035       -       -       600  
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

    $ 35,684       $ 4,194,022       $ 73,035       $ 548       $ 59,853       $ 600  
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

23


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.

 

                                                                                                                 
     September 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

     $ 45        $ -        $ 45        $ 313        $ 528,301        $ 528,659  

SBA

     -        -        -        1,611        122,480        124,091  

Real estate:

                 

Commercial real estate

                 

Owner occupied

     220        -        220        4,184        1,065,953        1,070,357  

Non-owner occupied

     -        -        -        2,544        2,259,616        2,262,160  

Construction

                 

Speculative (2)

     -        -        -        -        54,562        54,562  

Non-speculative

     -        -        -        -        19,586        19,586  

SFR mortgage

     -        -        -        1,349        243,313        244,662  

Dairy & livestock and agribusiness

     -        -        -        829        269,653        270,482  

Municipal lease finance receivables

     -        -        -        -        71,352        71,352  

Consumer and other loans

     6        -        6        743        69,666        70,415  
  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

Total gross loans, excluding PCI Loans

     $ 271        $ -        $ 271        $ 11,573        $ 4,704,482        $ 4,716,326  
  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

                                                                                                                                   

 

(1)    As of September 30, 2017, $4.5 million of nonaccruing loans were current, $1.4 million were 30-59 days past due, $423,000 were 60-89 days past due and $5.3 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.

 

25


Table of Contents

Impaired Loans

At September 30, 2017, the Company had impaired loans, excluding PCI loans, of $17.3 million and included $4.5 million of loans acquired from VBB in the first quarter of 2017. Impaired loans included $6.7 million of nonaccrual commercial real estate loans, $1.6 million of nonaccrual Small Business Administration (“SBA”) loans, $1.3 million of nonaccrual single-family residential (“SFR”) mortgage loans, $829,000 of nonaccrual dairy & livestock and agribusiness loans, $743,000 of nonaccrual consumer and other loans, and $313,000 of nonaccrual commercial and industrial loans. These impaired loans included $10.0 million of loans whose terms were modified in a troubled debt restructuring, of which $4.3 million were classified as nonaccrual. The remaining balance of $5.7 million consisted of 21 loans performing according to the restructured terms. The impaired loans had a specific allowance of $88,000 at September 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 Nine Months Ended
September 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

     $ 726        $ 1,256        $ -        $ 870        $ 15  

SBA

     2,270        2,573        -        2,489        38  

Real estate:

              

Commercial real estate

              

Owner occupied

     4,313        4,625        -        4,361        42  

Non-owner occupied

     3,855        5,155        -        4,010        72  

Construction

              

Speculative

     -        -        -        -        -  

Non-speculative

     -        -        -        -        -  

SFR mortgage

     4,550        5,345        -        4,620        109  

Dairy & livestock and agribusiness

     829        1,091        -        1,035        1  

Municipal lease finance receivables

     -        -        -        -        -  

Consumer and other loans

     356        571        -        381        -  
  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

Total

     16,899        20,616        -        17,766        277  
  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

With a related allowance recorded

              

Commercial and industrial

     19        20        2        42        1  

SBA

     3        20        3        7        -  

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

     387        394        83        390        -  
  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

Total

     409        434        88        439        1  
  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

Total impaired loans

     $ 17,308        $ 21,050        $ 88        $ 18,205        $ 278  
  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

 

26


Table of Contents
                                                                                              
     As of and For the Nine Months Ended
September 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

   $ 786      $ 1,687      $ -      $ 858      $ 20  

SBA

     3,665        4,452        -        3,770        38  

Real estate:

              

Commercial real estate

              

Owner occupied

     2,773        3,786        -        3,039        63  

Non-owner occupied

     13,033        15,764        -        13,386        130  

Construction

              

Speculative

     -        -        -        -        -  

Non-speculative

     -        -        -        -        -  

SFR mortgage

     5,239        6,118        -        5,370        93  

Dairy & livestock and agribusiness

     659        722        -        695        24  

Municipal lease finance receivables

     -        -        -        -        -  

Consumer and other loans

     838        1,409        -        896        11  
  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

Total

     26,993        33,938        -        28,014        379  
  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

With a related allowance recorded

              

Commercial and industrial

     563        625        493        671        8  

SBA

     202        217        33        209        10  

Real estate:

              

Commercial real estate

              

Owner occupied

     -        -        -        -        -  

Non-owner occupied

     -        -        -        -        -  

Construction

              

Speculative

     7,651        7,651        4        7,651        291  

Non-speculative

     -        -        -        -        -  

SFR mortgage

     263        263        6        273        4  

Dairy & livestock and agribusiness

     -        -        -        -        -  

Municipal lease finance receivables

     -        -        -        -        -  

Consumer and other loans

     12        12        12        12        -  
  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

Total

     8,691        8,768        548        8,816        313  
  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

Total impaired loans

   $ 35,684      $ 42,706      $ 548      $ 36,830      $ 692  
  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

 

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 September 30, 2017, December 31, 2016 and September 30, 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.

 

28


Table of Contents

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 nine months ended September 30, 2017, and 2016. As of September 30, 2017 and December 31, 2016, the balance in this reserve was $6.7 million and was included in other liabilities.

Troubled Debt Restructurings (“TDRs”)

Loans that are reported as TDRs are considered impaired and charge-off amounts are taken on an individual loan basis, as deemed appropriate. The majority of restructured loans are loans for which the terms of repayment have been renegotiated, resulting in a reduction in interest rate or deferral of principal. Refer to Note 3 – Summary of Significant Accounting Policies, included in our Annual Report on Form 10-K for the year ended December 31, 2016 for a more detailed discussion regarding TDRs.

As of September 30, 2017, there were $10.0 million of loans classified as a TDR, of which $4.3 million were nonperforming and $5.7 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 September 30, 2017, performing TDRs were comprised of three commercial real estate loans of $1.4 million, 11 SFR mortgage loans of $3.2 million, two SBA loans of $662,000, and five commercial and industrial loans of $432,000.

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 $5,000 and $141,000 of specific allowance to TDRs as of September 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  
September 30,
    For the Nine Months Ended  
September 30,
     2017   2016   2017   2016
     (Dollars in thousands)

Performing TDRs:

        

Beginning balance

     $ 16,574       $ 20,292       $ 19,233       $ 42,687  

New modifications

     -       759       3,143       1,877  

Payoffs/payments, net and other

     (10,839     (2,584     (13,826     (26,097

TDRs returned to accrual status

     -       8,551       329       8,551  

TDRs placed on nonaccrual status

     -       -       (3,144     -  
  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending balance

     $         5,735       $         27,018       $         5,735       $         27,018  
  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nonperforming TDRs:

        

Beginning balance

     $ 4,391       $ 12,029       $ 1,626       $ 12,622  

New modifications

     -       20       2,066       102  

Charge-offs

     -       -       -       (38

Payoffs/payments, net and other

     (81     (465     (2,197     (1,102

TDRs returned to accrual status

     -       (8,551     (329     (8,551

TDRs placed on nonaccrual status

     -       -       3,144       -  
  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending balance

     $ 4,310       $ 3,033       $ 4,310       $ 3,033  
  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total TDRs

     $ 10,045       $ 30,051       $ 10,045       $ 30,051  
  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

There were no loans that were modified as TDRs during the three months ended September 30, 2017.

 

29


Table of Contents

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

Modifications (1)

 

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

Investment
  Outstanding
Recorded

Investment at
September 30, 2016
  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

    1       20       20       14       -  

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

    1       759       759       759       -  

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

    2     $ 779     $ 779     $ 773     $ -  
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

Investment
  Outstanding
Recorded

Investment at
    September 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       76       -  
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total loans

    3       $ 5,209       $ 5,209       $ 3,297       $ -  
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

Investment
  Outstanding
Recorded

Investment at
    September 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       184       -  

SBA:

         

Interest rate reduction

    -       -       -       -       -  

Change in amortization period or maturity

    2       214       214       202       28  

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

    1       759       759       759       -  

Dairy & livestock and agribusiness:

         

Interest rate reduction

    -       -       -       -       -  

Change in amortization period or maturity

    -       -       -       -       -  

Consumer:

         

Interest rate reduction

    -       -       -       -       -  

Change in amortization period or maturity

    1       24       24       22       -  
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total loans

    5       $ 1,109       $ 1,109       $ 1,167       $ 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 September 30, 2017, there was one commercial real estate loan with an outstanding balance of $3.1 million and one dairy & livestock and agribusiness loan with an outstanding balance of $78,000 that was modified as a TDR within the previous 12 months that subsequently defaulted during the nine months ended September 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 nine months ended September 30, 2017, shares deemed to be antidilutive, and thus excluded from the computation of earnings per common share, were 15,000 and 10,000, respectively. For the three and nine months ended September 30, 2016, shares deemed to be antidilutive, and thus excluded from the computation of earnings per common share, were 299,000 and 281,000, respectively.

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

 

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

Earnings per common share:

           

Net earnings

     $ 29,683        $ 25,448        $ 86,560        $ 74,353  

Less: Net earnings allocated to restricted stock

     107        98        325        305  
  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

Net earnings allocated to common shareholders

     $ 29,576        $ 25,350        $ 86,235        $ 74,048  
  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

Weighted average shares outstanding

     109,754        108,984        109,280        107,144  

Basic earnings per common share

     $ 0.27        $ 0.23        $ 0.79        $ 0.69  
  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

Diluted earnings per common share:

           

Net income allocated to common shareholders

     $ 29,576        $ 25,350        $ 86,235        $ 74,048  
  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

Weighted average shares outstanding

     109,754        108,984        109,280        107,144  

Incremental shares from assumed exercise of outstanding options

     365        386        392        403  
  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

Diluted weighted average shares outstanding

             110,119                109,370                109,672                107,547  

Diluted earnings per common share

     $ 0.27        $ 0.23        $ 0.79        $ 0.69  
  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

 

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Table of Contents
9. FAIR VALUE INFORMATION

Fair Value Hierarchy

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

The following disclosure provides the fair value information for financial assets and liabilities as of September 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 nine months ended September 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
  September 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

    $ -       $  -       $ -       $  -  

Residential mortgage-backed securities

    1,818,034       -       1,818,034       -  

CMO/REMIC - residential

    293,782       -       293,782       -  

Municipal bonds

    63,115       -       63,115       -  

Other securities

    717       -       717       -  
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total investment securities - AFS

    2,175,648       -       2,175,648       -  

Interest rate swaps

    4,819       -       4,819       -  
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total assets

    $ 2,180,467       $ -       $ 2,180,467       $ -  
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Description of liability

       

Interest rate swaps

    $ 4,819       $ -       $ 4,819       $ -  
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total liabilities

    $ 4,819       $ -       $ 4,819       $ -  
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    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 September 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
  September 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 Nine
Months Ended
  September 30, 2017  
    (Dollars in thousands)

Description of assets

         

Impaired loans, excluding PCI loans:

         

Commercial and industrial

    $ -       $ -       $ -       $ -       $ -  

SBA

    -       -       -       -       -  

Real estate:

         

Commercial real estate

    -       -       -       -       -  

Construction

    -       -       -       -       -  

SFR mortgage

    -       -       -       -       -  

Dairy & livestock and agribusiness

    -       -       -       -       -  

Consumer and other loans

    386       -       -       386       83  

Other real estate owned

    -       -       -       -       -  

Asset held-for-sale

    -       -       -       -       -  
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total assets

    $ 386       $ -       $ -       $ 386       $ 83  
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    Carrying Value at
December 31, 2016
  Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
  Significant Other
Observable Inputs
(Level 2)
  Significant
Unobservable Inputs
(Level 3)
  Total Losses
For the Year Ended
December 31, 2016
    (Dollars in thousands)

Description of assets

         

Impaired loans, excluding PCI loans:

         

Commercial and industrial

    $ 65       $ -       $ -       $ 65       $ 8  

SBA

    196       -       -       196       27  

Real estate:

         

Commercial real estate

    -       -       -       -       -  

Construction

    -       -       -       -       -  

SFR mortgage

    -       -       -       -       -  

Dairy & livestock and agribusiness

    -       -       -       -       -  

Consumer and other loans

    -       -       -       -       -