Form 10-Q
Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2016

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 x   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 x    No ☐

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

Large accelerated filer x             Accelerated filer ☐             Non-accelerated filer ☐         Smaller reporting company ☐

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

Yes ☐ No x

Number of shares of common stock of the registrant: 108,135,993 outstanding as of October 31, 2016.


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      56   
  ANALYSIS OF FINANCIAL CONDITION      59   
  ASSET/LIABILITY AND MARKET RISK MANAGEMENT      77   

    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      81   

    ITEM 4.

  MINE SAFETY DISCLOSURES      81   

    ITEM 5.

  OTHER INFORMATION      81   

    ITEM 6.

  EXHIBITS      81   

SIGNATURES

     82   

 

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PART I – FINANCIAL INFORMATION (UNAUDITED)

GENERAL

Cautionary Note Regarding Forward-Looking Statements

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

   

local, regional, national and international economic and market conditions and 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 prolonged slowdown or decline in real estate construction, sales or leasing activities;

   

changes in the financial performance and/or condition of our borrowers or key vendors or counterparties;

   

changes in our levels of delinquent loans, nonperforming assets, allowance for loan losses and charge-offs;

   

the costs or effects of acquisitions or dispositions we may make, whether we are able to obtain any required governmental approvals in connection with any such acquisitions or dispositions, and/or our ability to realize the contemplated financial or business benefits associated with any such acquisitions or dispositions;

   

our ability to realize cost savings in connection with our proposed acquisition of Valley Commerce Bancorp within expected time frames or at all, whether governmental approvals for the proposed transaction will be obtained within expected time frames or ever and whether the conditions to the closing of the proposed transaction, including approval by Valley Commerce’s shareholders, are satisfied;

   

the effect of changes in laws, regulations and applicable judicial decisions (including laws, regulations and judicial decisions concerning financial reforms, taxes, banking capital levels, consumer, commercial or secured lending, securities and securities trading and hedging, compliance, fair lending, employment, executive compensation, insurance, vendor management and information security) with which we and our subsidiaries must comply or believe we should comply;

   

changes in estimates of future reserve requirements and minimum capital requirements based upon the periodic review thereof under relevant regulatory and accounting requirements, including changes in the Basel Committee framework establishing capital standards for credit, operations and market risk;

   

the accuracy of the assumptions and estimates and the absence of technical error in implementation or calibration of models used to estimate the fair value of financial instruments;

   

inflation, interest rate, securities market and monetary fluctuations;

   

changes in government interest rates or monetary policies;

   

changes in the amount and availability of deposit insurance;

   

disruptions in the infrastructure that supports our business and the communities where we are located, which are concentrated in California, involving or related to physical site access, cyber incidents, terrorist and political activities, disease pandemics, catastrophic events, natural disasters such as earthquakes, extreme weather events, electrical, environmental, computer servers, and communications or other services we use, or that affect our employees or third parties with whom we conduct business;

   

the timely development and acceptance of new banking products and services and the perceived overall value of these products and services by 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 (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;

   

changes in the competitive environment among financial and bank holding companies, banks and other financial service providers;

 

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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;

   

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 the 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 board of directors;

   

the costs and effects of legal, compliance and regulatory actions, changes and developments, including the initiation and resolution of legal proceedings (such as securities, bank operations, consumer or employee class action litigation),

   

the possibility that any settlement of any of the 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, 2015, 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,  
    2016   2015

Assets

   

Cash and due from banks

    $ 119,420        $ 102,772   

Interest-earning balances due from Federal Reserve

    139,739        3,325   
 

 

 

 

 

 

 

 

Total cash and cash equivalents

    259,159        106,097   
 

 

 

 

 

 

 

 

Interest-earning balances due from depository institutions

    83,178        32,691   

Investment securities available-for-sale, at fair value (with amortized cost of $2,165,551 at September 30, 2016, and $2,337,715 at December 31, 2015)

    2,227,551        2,368,646   

Investment securities held-to-maturity (with fair value of $893,706 at September 30, 2016, and $853,039 at December 31, 2015)

    878,953        850,989   
 

 

 

 

 

 

 

 

Total investment securities

    3,106,504        3,219,635   
 

 

 

 

 

 

 

 

Investment in stock of Federal Home Loan Bank (FHLB)

    17,688        17,588   

Loans and lease finance receivables

    4,295,167        4,016,937   

Allowance for loan losses

    (61,001     (59,156
 

 

 

 

 

 

 

 

Net loans and lease finance receivables

    4,234,166        3,957,781   
 

 

 

 

 

 

 

 

Premises and equipment, net

    38,671        31,382   

Bank owned life insurance

    134,073        130,956   

Accrued interest receivable

    21,220        22,732   

Intangibles

    5,293        2,265   

Goodwill

    88,174        74,244   

Income taxes

    22,399        47,251   

Other assets

    34,468        28,578   
 

 

 

 

 

 

 

 

Total assets

    $ 8,044,993        $ 7,671,200   
 

 

 

 

 

 

 

 

Liabilities and Stockholders’ Equity

   

Deposits:

   

Noninterest-bearing

    $ 3,657,610        $ 3,250,174   

Interest-bearing

    2,663,385        2,667,086   
 

 

 

 

 

 

 

 

Total deposits

    6,320,995        5,917,260   

Customer repurchase agreements

    577,990        690,704   

Other borrowings

    -        46,000   

Deferred compensation

    12,177        11,269   

Junior subordinated debentures

    25,774        25,774   

Payable for securities purchased

    43,111        1,696   

Other liabilities

    61,643        55,098   
 

 

 

 

 

 

 

 

Total liabilities

    7,041,690        6,747,801   
 

 

 

 

 

 

 

 

Commitments and Contingencies

   

Stockholders’ Equity

   

Common stock, authorized, 225,000,000 shares without par; issued and outstanding 108,097,493 at September 30, 2016, and 106,384,982 at December 31, 2015

    529,281        502,571   

Retained earnings

    435,419        399,919   

Accumulated other comprehensive income, net of tax

    38,603        20,909   
 

 

 

 

 

 

 

 

Total stockholders’ equity

    1,003,303        923,399   
 

 

 

 

 

 

 

 

Total liabilities and stockholders’ equity

    $ 8,044,993        $ 7,671,200   
 

 

 

 

 

 

 

 

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,
     2016   2015   2016   2015

Interest income:

        

  Loans and leases, including fees

     $   47,754        $   48,822        $   143,781        $   139,686   

  Investment securities:

        

  Investment securities available-for-sale

     11,425        14,734        36,242        50,171   

  Investment securities held-to-maturity

     4,787        3,436        14,878        3,510   
  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   Total investment income

     16,212        18,170        51,120        53,681   
  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  Dividends from FHLB stock

     403        509        1,210        2,392   

  Interest-earning deposits with other institutions

     802        230        1,575        667   
  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   Total interest income

     65,171        67,731        197,686        196,426   
  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense:

        

  Deposits

     1,525        1,333        4,544        3,933   

  Borrowings and customer repurchase agreements

     349        371        1,117        2,486   

  Junior subordinated debentures

     136        110        392        323   
  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   Total interest expense

     2,010        1,814        6,053        6,742   
  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  Net interest income before recapture of provision for loan losses

     63,161        65,917        191,633        189,684   

Recapture of provision for loan losses

     (2,000     (2,500     (2,000     (4,500
  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  Net interest income after recapture of provision for loan losses

     65,161        68,417        193,633        194,184   
  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Noninterest income:

        

  Service charges on deposit accounts

     3,817        3,930        11,386        11,843   

  Trust and investment services

     2,328        2,275        7,039        6,607   

  Bankcard services

     827        805        2,166        2,380   

  BOLI income

     706        491        2,005        1,948   

  Gain on sale of loans

     -        -        1,101        -   

  Other

     1,505        912        3,443        1,991   
  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   Total noninterest income

     9,183        8,413        27,140        24,769   
  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Noninterest expense:

        

  Salaries and employee benefits

     20,464        20,395        63,275        59,338   

  Occupancy and equipment

     4,102        3,853        11,940        11,218   

  Professional services

     1,517        1,937        4,071        4,617   

  Software licenses and maintenance

     947        901        2,921        2,924   

  Marketing and promotion

     1,199        1,297        3,818        3,825   

  Recapture of provision for unfunded loan commitments

     -        -        -        (500

  Debt termination expense

     -        -        16        13,870   

  Acquisition related expenses

     353        75        1,557        75   

  Other

     4,424        4,284        14,210        13,380   
  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   Total noninterest expense

     33,006        32,742        101,808        108,747   
  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings before income taxes

     41,338        44,088        118,965        110,206   
  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income taxes

     15,890        16,202        44,612        39,674   
  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  Net earnings

     $ 25,448        $ 27,886        $ 74,353        $ 70,532   
  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive (loss) income:

        

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

     $ (3,709     $ 18,674        $ 31,054        $ 5,974   

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

     (548     22        (548     22   
  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  Other comprehensive (loss) income, before tax

     (4,257     18,696        30,506        5,996   

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

     1,788        (7,852     (12,812     (2,518
  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  Other comprehensive (loss) income, net of tax

     (2,469     10,844        17,694        3,478   
  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  Comprehensive income

     $ 22,979        $ 38,730        $ 92,047        $ 74,010   
  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic earnings per common share

     $ 0.23        $ 0.26        $ 0.69        $ 0.66   

Diluted earnings per common share

     $ 0.23        $ 0.26        $ 0.69        $ 0.66   

Cash dividends declared per common share

     $ 0.12        $ 0.12        $ 0.36        $ 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, 2016 and 2015

(Dollars and shares in thousands)

(Unaudited)

 

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

Balance, January 1, 2015

     105,893        $     495,220        $ 351,814        $ 31,075         $ 878,109   

Repurchase of common stock

     (41     (606     -        -         (606

Exercise of stock options

     411        4,672        -        -         4,672   

Tax benefit from exercise of stock options

     -        772        -        -         772   

Shares issued pursuant to stock-based compensation plan

     92        2,044        -        -         2,044   

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

     -        -        (38,274     -         (38,274

Net earnings

     -        -        70,532        -         70,532   

Other comprehensive income

     -        -        -        3,478         3,478   
  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  

 

 

 

Balance, September 30, 2015

     106,355        $ 502,102        $ 384,072        $ 34,553         $ 920,727   
  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  

 

 

 

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   
  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  

 

 

 

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,
     2016   2015

Cash Flows from Operating Activities

    

Interest and dividends received

     $ 208,995        $ 208,549   

Service charges and other fees received

     23,185        21,604   

Interest paid

     (6,089     (7,631

Net cash paid to vendors, employees and others

     (95,870     (98,692

Income taxes paid

     (31,495     (38,000

Payments to FDIC, net share agreement

     (510     (460
  

 

 

 

 

 

 

 

Net cash provided by operating activities

     98,216        85,370   
  

 

 

 

 

 

 

 

Cash Flows from Investing Activities

    

Proceeds from redemption of FHLB stock

     1,423        7,750   

Net change in interest-earning balances from depository institutions

     11,849        (6,071

Proceeds from sale of investment securities

     1,957        975   

Proceeds from repayment of investment securities available-for-sale

     325,912        300,959   

Proceeds from maturity of investment securities available-for-sale

     81,209        83,322   

Purchases of investment securities available-for-sale

     (208,563     (431,650

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

     231,355        33,727   

Purchases of investment securities held-to-maturity

     (261,457     -   

Net (increase) decrease in loan and lease finance receivables

     (109,046     2,647   

Proceeds from sale of loans

     6,417        -   

Purchase of premises and equipment

     (2,343     (1,249

Proceeds from sales of other real estate owned

     1,846        2,579   

Cash used in sale of branch, net

     (8,217     -   

Cash paid for County Commerce Bank (CCB) acquisition, net of cash acquired

     (7,504     -   
  

 

 

 

 

 

 

 

Net cash provided by (used in) investing activities

     64,838        (7,011
  

 

 

 

 

 

 

 

Cash Flows from Financing Activities

    

Net increase in other deposits

     508,916        416,830   

Net decrease in time deposits

     (319,877     (62,016

Repayment of FHLB advances

     (5,000     (200,000

Net decrease in other borrowings

     (46,000     (46,000

Net (decrease) increase in customer repurchase agreements

     (112,293     46,547   

Cash dividends on common stock

     (38,652     (36,099

Repurchase of common stock

     (496     (606

Proceeds from exercise of stock options

     3,174        4,672   

Tax benefit related to exercise of stock options

     236        772   
  

 

 

 

 

 

 

 

Net cash (used in) provided by financing activities

     (9,992     124,100   
  

 

 

 

 

 

 

 

Net increase in cash and cash equivalents

     153,062        202,459   

Cash and cash equivalents, beginning of period

     106,097        105,768   
  

 

 

 

 

 

 

 

Cash and cash equivalents, end of period

     $     259,159        $     308,227   
  

 

 

 

 

 

 

 

 

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,
     2016   2015

Reconciliation of Net Earnings to Net Cash Provided by Operating Activities

    

  Net earnings

     $ 74,353        $ 70,532   

  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 other real estate owned

     (30     (386

  Gain on sale of investment securities

     (548     22   

  Increase in bank owned life insurance

     (3,117     (3,149

  Net amortization of premiums and discounts on investment securities

     15,422        14,605   

  Accretion of PCI discount

     (2,112     (3,010

  Recapture of provision for loan losses

     (2,000     (4,500

  Recapture of provision for unfunded loan commitments

     -        (500

  Valuation adjustment on other real estate owned

     337        162   

  Payments to FDIC, loss share agreement

     (510     (460

  Stock-based compensation

     2,154        2,044   

  Depreciation and amortization, net

     3,128        (180

  Change in other assets and liabilities

     12,512        10,190   
  

 

 

 

 

 

 

 

    Total adjustments

     23,863        14,838   
  

 

 

 

 

 

 

 

      Net cash provided by operating activities

     $           98,216        $               85,370   
  

 

 

 

 

 

 

 

Supplemental Disclosure of Non-cash Investing Activities

    

  Securities purchased and not settled

     $ 43,111        $ 42,317   

  Transfer of loans to other real estate owned

     $ -        $ 3,721   

  Issuance of common stock for CCB acquistion

     $ 21,642        $ -   

  Transfer of AFS securities to HTM securities

     $ -        $ 898,598   

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 San Bernardino County, Riverside County, Los Angeles County, Orange County, San Diego County, Ventura County, Santa Barbara County, and the Central Valley area of California. The Bank operates 42 Business Financial Centers, eight Commercial Banking Centers, and three trust office locations. The Company is headquartered in the city of Ontario, California.

On February 29, 2016, we completed the acquisition of County Commerce Bank (“CCB”), headquartered in Ventura County with four branch locations in Ventura County with total assets of approximately $253 million. This acquisition extends our geographic footprint northward into the central coast of California. Our condensed consolidated financial statements for 2016 include CCB operations, post-merger. See Note 4 – Business Combinations, included herein.

On September 22, 2016, we announced that we entered into a merger agreement with Valley Commerce Bancorp (“VCBP”), pursuant to which its subsidiary, Valley Business Bank will merge into Citizens Business Bank. Valley Business Bank has four branch locations and total assets of approximately $416 million. We expect to close this announced acquisition in the first quarter of 2017, subject to regulatory and Valley Commerce Bancorp shareholders’ approvals.

 

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, 2016 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, 2015, 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, 2015 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.

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 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 standard permits the use of either the retrospective or cumulative effect transition method, with early adoption permitted, but not before January 1, 2017. The Company is currently evaluating the impact of adoption of this ASU on its consolidated financial statements.

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 debt securities. For AFS debt securities with unrealized losses, entities will measure credit losses in a manner similar to what they do today, except that the losses will be recognized as allowances rather than reductions in the amortized cost of the securities. As a result, entities will recognize improvements to estimated credit losses immediately in earnings rather than as interest income over time, as they do today. ASU No. 2016-13 is effective for interim and annual reporting periods beginning after December 15, 2019. Entities will apply the standard’s provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective (i.e., modified retrospective approach). The Company is currently evaluating the impact of adoption of this ASU on its consolidated financial statements.

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

 

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4. BUSINESS COMBINATIONS

County Commerce Bank Acquisition

On February 29, 2016, the Bank acquired all of the assets and assumed all of the liabilities of 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 serves 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. The systems integration of CCB and CBB was completed in April 2016.

Goodwill of $13.9 million from the acquisition represents the excess of the purchase price over the fair value of the net tangible and intangible assets acquired.

The total fair value of assets acquired approximated $252.4 million, which included $54.8 million in cash and balances due from depository institutions, $1.5 million in FHLB stock, $168.0 million in loans and lease finance receivables, $8.6 million in fixed assets, $3.9 million in core deposit intangible assets acquired and $1.7 million 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. These fair values are estimates and are subject to adjustment for up to one year after the acquisition date or when additional information relative to the closing date fair values becomes available and such information is considered final, whichever is earlier.

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

For the three and nine months ended September 30, 2016, the Company incurred 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, 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

     $ 3,750         $ 7         $ -        $ 3,757         0.17

   Residential mortgage-backed securities

     1,684,735         52,941         -        1,737,676         78.01

   CMO/REMIC - residential

     376,529         6,679         (112     383,096         17.20

   Municipal bonds

     95,537         1,998         (1     97,534         4.38

   Other securities

     5,000         488         -        5,488         0.24
  

 

 

 

  

 

 

 

  

 

 

 

 

 

 

 

  

 

 

 

      Total available-for-sale securities

     $   2,165,551         $ 62,113         $ (113     $   2,227,551         100.00
  

 

 

 

  

 

 

 

  

 

 

 

 

 

 

 

  

 

 

 

Investment securities held-to-maturity (1):

             

   Government agency/GSE

     $ 181,840         $ 5,038         $ (25     $ 186,853         20.69

   Residential mortgage-backed securities

     204,791         5,811         -        210,602         23.30

   CMO

     192,680         195         (325     192,550         21.92

   Municipal bonds

     299,642         5,357         (1,298     303,701         34.09
  

 

 

 

  

 

 

 

  

 

 

 

 

 

 

 

  

 

 

 

      Total held-to-maturity securities

     $ 878,953         $       16,401         $     (1,648     $ 893,706               100.00
  

 

 

 

  

 

 

 

  

 

 

 

 

 

 

 

  

 

 

 

     December 31, 2015
     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

     $ 5,752         $ -         $ (7     $ 5,745         0.24

   Residential mortgage-backed securities

     1,788,857         26,001         (1,761     1,813,097         76.55

   CMO/REMIC - residential

     380,166         4,689         (1,074     383,781         16.20

   Municipal bonds

     157,940         3,036         (3     160,973         6.80

   Other securities

     5,000         50         -        5,050         0.21
  

 

 

 

  

 

 

 

  

 

 

 

 

 

 

 

  

 

 

 

      Total available-for-sale securities

     $ 2,337,715         $ 33,776         $ (2,845     $ 2,368,646         100.00
  

 

 

 

  

 

 

 

  

 

 

 

 

 

 

 

  

 

 

 

Investment securities held-to-maturity (1):

             

   Government agency/GSE

     $ 293,338         $ 1,176         $ (734     $ 293,780         34.47

   Residential mortgage-backed securities

     232,053         -         (1,293     230,760         27.27

   CMO

     1,284         569         -        1,853         0.15

   Municipal bonds

     324,314         3,051         (719     326,646         38.11
  

 

 

 

  

 

 

 

  

 

 

 

 

 

 

 

  

 

 

 

      Total held-to-maturity securities

     $ 850,989         $ 4,796         $ (2,746     $ 853,039         100.00
  

 

 

 

  

 

 

 

  

 

 

 

 

 

 

 

  

 

 

 

(1) Securities held-to-maturity are presented in the condensed consolidated balance sheets at amortized cost.

During the quarter ended September 30, 2015, investment securities were transferred from the available-for-sale security portfolio to the held-to-maturity security portfolio. Transfers of securities into the held-to-maturity category from the available-for-sale category are transferred at fair value at the date of transfer. The fair value of these securities at the date of transfer was $898.6 million. The unrealized holding gain or loss at the date of transfer is retained in accumulated other comprehensive income (“AOCI”) and in the carrying value of the held-to-maturity securities. The net unrealized holding gain at the date of transfer was $3.9 million after-tax and will continue to be reported in AOCI and amortized over the remaining life of the securities as a yield adjustment. At September 30, 2016, investment securities HTM totaled $879.0 million. The after-tax unrealized gain reported in AOCI on investment securities HTM was $2.6 million at September 30, 2016.

 

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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
September 30,
   For the Nine Months Ended
September 30,
     2016    2015    2016    2015
     (Dollars in thousands)

Investment securities available-for-sale:

           

   Taxable

     $ 10,546         $ 11,840         $ 32,754         $ 37,548   

   Tax-advantaged

     879         2,894         3,488         12,623   

Investment securities held-to-maturity:

           

   Taxable

     2,349         1,688         7,184         1,762   

   Tax-advantaged

     2,438         1,748         7,694         1,748   
  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

     Total interest income from investment securities

     $ 16,212         $ 18,170         $ 51,120         $ 53,681   
  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

Approximately 87% of the total investment securities portfolio at September 30, 2016 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, 2016 and December 31, 2015. At September 30, 2016, the Bank had $101,000 in total CMO backed by whole loans issued by private-label companies (nongovernment sponsored).

The tables below show the Company’s investment securities’ gross unrealized losses and fair value by investment category and length of time that individual securities have been in a continuous unrealized loss position at September 30, 2016 and December 31, 2015. 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”).

As of December 31, 2015, the Company had one OTTI HTM security with a net carrying value of $1.3 million. This security sold for a net gain of $546,000 in the third quarter of 2016. The Company did not record any charges for OTTI losses for the nine months ended September 30, 2016 and 2015.

 

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Table of Contents
                                                     
     September 30, 2016
     Less Than 12 Months   12 Months or Longer   Total
   Fair Value    Gross
Unrealized
Holding
Losses
  Fair Value    Gross
Unrealized
Holding
Losses
  Fair Value    Gross
Unrealized
Holding
Losses
     (Dollars in thousands)

Investment securities available-for-sale:

               

Government agency/GSE

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

Residential mortgage-backed securities

     -         -        -         -        -         -   

CMO/REMIC - residential

     39,453         (112     -         -        39,453         (112

Municipal bonds

     -         -        5,975         (1     5,975         (1

Other securities

     -         -        -         -        -         -   
  

 

 

 

  

 

 

 

 

 

 

 

  

 

 

 

 

 

 

 

  

 

 

 

Total available-for-sale securities

     $ 39,453         $       (112     $ 5,975         $ (1     $ 45,428         $ (113
  

 

 

 

  

 

 

 

 

 

 

 

  

 

 

 

 

 

 

 

  

 

 

 

Investment securities held-to-maturity:

               

Government agency/GSE

     $ 6,065         $ (25     $ -         $ -        $ 6,065         $ (25

Residential mortgage-backed securities

     -         -        -         -        -         -   

CMO/REMIC - residential

     54,425         (325     -         -        54,425         (325

Municipal bonds

     39,894         (351     38,027         (947     77,921         (1,298

Other securities

     -         -        -         -        -         -   
  

 

 

 

  

 

 

 

 

 

 

 

  

 

 

 

 

 

 

 

  

 

 

 

Total held-to-maturity securities

     $ 100,384         $ (701     $       38,027         $         (947     $ 138,411         $ (1,648
  

 

 

 

  

 

 

 

 

 

 

 

  

 

 

 

 

 

 

 

  

 

 

 

     December 31, 2015
     Less Than 12 Months   12 Months or Longer   Total
   Fair Value    Gross
Unrealized
Holding
Losses
  Fair Value    Gross
Unrealized
Holding
Losses
  Fair Value    Gross
Unrealized
Holding
Losses
     (Dollars in thousands)

Investment securities available-for-sale:

               

Government agency/GSE

     $ 5,745         $ (7     $ -         $ -        $ 5,745         $ (7

Residential mortgage-backed securities

     437,699         (1,761     -         -        437,699         (1,761

CMO/REMIC - residential

     171,923         (1,074     -         -        171,923         (1,074

Municipal bonds

     398         (2     5,961         (1     6,359         (3

Other securities

     -         -        -         -        -         -   
  

 

 

 

  

 

 

 

 

 

 

 

  

 

 

 

 

 

 

 

  

 

 

 

Total available-for-sale securities

     $ 615,765         $       (2,844     $ 5,961         $ (1     $ 621,726         $ (2,845
  

 

 

 

  

 

 

 

 

 

 

 

  

 

 

 

 

 

 

 

  

 

 

 

Investment securities held-to-maturity:

               

Government agency/GSE

     $ 84,495         $ (734     $ -         $ -        $ 84,495         $ (734

Residential mortgage-backed securities

     230,760         (1,293     -         -        230,760         (1,293

CMO

     -         -        -         -        -         -   

Municipal bonds

     110,119         (719     -         -        110,119         (719

Other securities

     -         -        -         -        -         -   
  

 

 

 

  

 

 

 

 

 

 

 

  

 

 

 

 

 

 

 

  

 

 

 

Total held-to-maturity securities

     $     425,374         $ (2,746     $ -         $ -        $     425,374         $     (2,746
  

 

 

 

  

 

 

 

 

 

 

 

  

 

 

 

 

 

 

 

  

 

 

 

At September 30, 2016 and December 31, 2015, investment securities having a carrying value of approximately $2.25 billion and $2.81 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, 2016, by contractual maturity, are shown in the table below. Although mortgage-backed securities and CMO/REMIC 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 securities and CMO/REMIC are included in maturity categories based upon estimated prepayment speeds.

 

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Table of Contents
     September 30, 2016                    
     Available-for-sale    Held-to-maturity   
     Amortized    Fair    Amortized    Fair   
     Cost    Value    Cost    Value   
     (Dollars in thousands)   

Due in one year or less

     $ 12,709         $ 12,877         $ -         $ -      

Due after one year through five years

     1,845,451         1,898,916         295,758         298,986      

Due after five years through ten years

     98,086         100,634         236,734         240,043      

Due after ten years

     209,305         215,124         346,461         354,677      
  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

  Total investment securities

     $   2,165,551         $   2,227,551         $     878,953         $     893,706      
  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

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, 2016.

 

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, 2015. 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. The application of the purchase method of accounting resulted in an after-tax gain of $12.3 million which was included in 2009 earnings. The gain is the negative goodwill resulting from the acquired assets and liabilities recognized at fair value.

At September 30, 2016, the remaining discount associated with the PCI loans approximated $1.9 million. Based on the Company’s regular forecast of expected cash flows from these loans, approximately $1.2 million of the related discount is expected to accrete into interest income over the remaining average lives of the respective pools, which approximates 3 years. The loss sharing agreement for commercial loans expired October 16, 2014.

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, 2016       December 31, 2015                 
     (Dollars in thousands)  

Commercial and industrial

     $ 2,331        $ 7,473     

SBA

     336        393     

Real estate:

      

Commercial real estate

     70,094        81,786     

Construction

     -        -     

SFR mortgage

     182        193     

Dairy & livestock and agribusiness

     507        1,429     

Municipal lease finance receivables

     -        -     

Consumer and other loans

     1,479        2,438     
  

 

 

 

 

 

 

 

 

Gross PCI loans

     74,929        93,712     

Less: Purchase accounting discount

     (1,894     (3,872  
  

 

 

 

 

 

 

 

 

Gross PCI loans, net of discount

     73,035        89,840     

Less: Allowance for PCI loan losses

     (600     -     
  

 

 

 

 

 

 

 

 

Net PCI loans

     $ 72,435        $ 89,840     
  

 

 

 

 

 

 

 

 

 

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Table of Contents

Credit Quality Indicators

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

 

                         
      September 30, 2016      December 31, 2015 
     (Dollars in thousands)

Pass

     $ 59,642         $ 76,401   

Special mention

     2,478         11,142   

Substandard

     12,809         6,169   

Doubtful & loss

     -         -   
  

 

 

 

  

 

 

 

Total gross PCI loans

     $ 74,929         $ 93,712   
  

 

 

 

  

 

 

 

Allowance for Loan Losses (“ALLL”)

The Company’s Credit Management Division is responsible for regularly reviewing the ALLL methodology for PCI loans. The ALLL for PCI loans is determined separately from total loans, and is based on expectations of future cash flows from the underlying pools of loans or individual loans in accordance with ASC 310-30, as more fully described in Note 3— Summary of Significant Accounting Policies, included in our Annual Report on Form 10-K for the year ended December 31, 2015. As of September 30, 2016, the allowance for loan losses included $600,000 for PCI loans, compared to no allowance for loan losses at December 31, 2015.

 

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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, 2016     December 31, 2015 
     (Dollars in thousands)

Commercial and industrial

     $ 494,483        $ 434,099   

SBA

     104,043        106,867   

Real estate:

    

Commercial real estate

     2,911,765        2,643,184   

Construction

     90,710        68,563   

SFR mortgage

     241,490        233,754   

Dairy & livestock and agribusiness

     239,242        305,509   

Municipal lease finance receivables

     68,309        74,135   

Consumer and other loans

     79,664        69,278   
  

 

 

 

 

 

 

 

Gross loans, excluding PCI loans

     4,229,706        3,935,389   

Less: Deferred loan fees, net

     (7,574     (8,292
  

 

 

 

 

 

 

 

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

     4,222,132        3,927,097   

Less: Allowance for loan losses

     (60,401     (59,156
  

 

 

 

 

 

 

 

Net loans, excluding PCI loans

     4,161,731        3,867,941   
  

 

 

 

 

 

 

 

PCI Loans

     74,929        93,712   

Discount on PCI loans

     (1,894     (3,872

Less: Allowance for loan losses

     (600     -   
  

 

 

 

 

 

 

 

PCI loans, net

     72,435        89,840   
  

 

 

 

 

 

 

 

Total loans and lease finance receivables

     $ 4,234,166        $ 3,957,781   
  

 

 

 

 

 

 

 

As of September 30, 2016, 76.69% of the total gross loan portfolio (excluding PCI loans) consisted of real estate loans, 68.84% 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, 2016, $178.0 million, or 6.11% of the total commercial real estate loans included loans secured by farmland, compared to $173.0 million, or 6.54%, at December 31, 2015. The loans secured by farmland included $128.8 million for loans secured by dairy & livestock land and $49.2 million for loans secured by agricultural land at September 30, 2016, compared to $128.4 million for loans secured by dairy & livestock land and $44.6 million for loans secured by agricultural land at December 31, 2015. As of September 30, 2016, dairy & livestock and agribusiness loans of $239.2 million were comprised of $220.8 million for dairy & livestock loans and $18.4 million for agribusiness loans, compared to $287.0 million for dairy & livestock loans and $18.5 million for agribusiness loans at December 31, 2015.

At September 30, 2016, the Company held approximately $2.02 billion of total fixed rate loans, including PCI loans.

At September 30, 2016 and December 31, 2015, loans totaling $3.15 billion and $2.91 billion, respectively, were pledged to secure the borrowings and available lines of credit from the FHLB and the Federal Reserve Bank.

 

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Table of Contents

Credit Quality Indicators

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

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

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

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

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

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

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

 

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Table of Contents

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

 

                                                                                    
     September 30, 2016
     Pass    Special
Mention
   Substandard    Doubtful &
Loss
   Total
     (Dollars in thousands)

Commercial and industrial

     $ 458,131         $ 21,547         $ 14,801         $ 4         $ 494,483   

SBA

     86,269         10,641         6,942         191         104,043   

Real estate:

              

Commercial real estate

              

Owner occupied

     828,798         95,259         14,419         -         938,476   

Non-owner occupied

     1,933,610         24,375         15,304         -         1,973,289   

Construction

              

Speculative

     49,338         -         7,651         -         56,989   

Non-speculative

     33,721         -         -         -         33,721   

SFR mortgage

     234,058         5,093         2,339         -         241,490   

Dairy & livestock and agribusiness

     127,137         83,930         28,175         -         239,242   

Municipal lease finance receivables

     63,743         4,566         -         -         68,309   

Consumer and other loans

     75,558         1,770         2,324         12         79,664   
  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

Total gross loans, excluding PCI loans

     $ 3,890,363         $ 247,181         $ 91,955         $ 207         $ 4,229,706   
  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

     December 31, 2015
     Pass    Special
Mention
   Substandard    Doubtful &
Loss
   Total
     (Dollars in thousands)

Commercial and industrial

     $ 398,651         $ 33,000         $ 2,403         $ 45         $ 434,099   

SBA

     87,441         13,169         4,854         1,403         106,867   

Real estate:

              

Commercial real estate

              

Owner occupied

     772,114         54,758         11,481         -         838,353   

Non-owner occupied

     1,741,615         26,170         37,046         -         1,804,831   

Construction

              

Speculative

     38,186         -         7,651         -         45,837   

Non-speculative

     22,726         -         -         -         22,726   

SFR mortgage

     227,207         3,556         2,991         -         233,754   

Dairy & livestock and agribusiness

     285,647         19,862         -         -         305,509   

Municipal lease finance receivables

     69,194         4,941         -         -         74,135   

Consumer and other loans

     64,844         1,618         2,708         108         69,278   
  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

Total gross loans, excluding PCI loans

     $   3,707,625         $ 157,074         $ 69,134         $ 1,556         $   3,935,389   
  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

Allowance for Loan Losses

The Company’s Credit Management Division is responsible for regularly reviewing the ALLL methodology, including loss factors and economic risk factors. The Bank’s Director Loan Committee provides Board oversight of the ALLL process and approves the ALLL methodology on a quarterly basis.

Our methodology for assessing the appropriateness of the allowance is conducted on a regular basis and considers the Bank’s overall loan portfolio. Refer to Note 3 – Summary of Significant Accounting Policies of the 2015 Annual Report on Form 10-K for the year ended December 31, 2015 for a more detailed discussion concerning the allowance for loan losses.

Management believes that the ALLL was appropriate at September 30, 2016 and December 31, 2015. 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, 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   

Unallocated (1)

     -         -        -         -        -   
  

 

 

 

  

 

 

 

 

 

 

 

  

 

 

 

 

 

 

 

Total allowance for loan losses

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

 

 

 

  

 

 

 

 

 

 

 

  

 

 

 

 

 

 

 

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

Commercial and industrial

     $ 7,185         $ (82     $ 50         $ (620     $ 6,533   

SBA

     2,085         -        2         (122     1,965   

Real estate:

            

Commercial real estate

     35,414         (10     2,018         (2,811     34,611   

Construction

     746         -        8         119        873   

SFR mortgage

     2,564         -        -         75        2,639   

Dairy & livestock and agribusiness

     3,974         -        98         796        4,868   

Municipal lease finance receivables

     1,014         -        -         17        1,031   

Consumer and other loans

     834         -        11         (16     829   

Unallocated (1)

     5,738         -        -         62        5,800   
  

 

 

 

  

 

 

 

 

 

 

 

  

 

 

 

 

 

 

 

Total allowance for loan losses

     $ 59,554         $ (92     $ 2,187         $ (2,500     $ 59,149   
  

 

 

 

  

 

 

 

 

 

 

 

  

 

 

 

 

 

 

 

 

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Table of Contents
                                                                                    
     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   

Unallocated (1)

     -         -        -         -        -   
  

 

 

 

  

 

 

 

 

 

 

 

  

 

 

 

 

 

 

 

Total allowance for loan losses

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

 

 

 

  

 

 

 

 

 

 

 

  

 

 

 

 

 

 

 

     For the Nine Months Ended September 30, 2015
     Ending Balance
December 31,
2014
   Charge-offs   Recoveries    (Recapture of)
Provision for
Loan Losses
  Ending Balance
September 30,
2015
     (Dollars in thousands)

Commercial and industrial

     $ 7,074         $ (216     $ 282         $ (607     $ 6,533   

SBA

     2,557         (33     39         (598     1,965   

Real estate:

            

Commercial real estate

     33,373         (117     3,658         (2,303     34,611   

Construction

     988         -        58         (173     873   

SFR mortgage

     2,344         (215     185         325        2,639   

Dairy & livestock and agribusiness

     5,479         -        308         (919     4,868   

Municipal lease finance receivables

     1,412         -        -         (381     1,031   

Consumer and other loans

     1,262         (197     72         (308     829   

Unallocated (1)

     5,336         -        -         464        5,800   
  

 

 

 

  

 

 

 

 

 

 

 

  

 

 

 

 

 

 

 

Total allowance for loan losses

     $ 59,825         $ (778     $ 4,602         $ (4,500     $ 59,149   
  

 

 

 

  

 

 

 

 

 

 

 

  

 

 

 

 

 

 

 

 

  (1) Based upon changes to our ALLL methodology, as described in Note 3 – Summary of Significant Accounting Policies of the 2015 Annual Report on Form 10-K for the year ended December 31, 2015, beginning with the fourth quarter of 2015 and coinciding with the implementation of the new ALLL methodology, the Bank’s previous “unallocated reserve” was absorbed into the qualitative component of the allowance.

 

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.

 

                                                                                               
    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   

Unallocated (1)

    -        -        -        -        -        -   
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    September 30, 2015
    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

    $ 1,687        $ 412,022        $ -        $ 607        $ 5,926        $ -   

SBA

    3,319        112,807        -        4        1,961        -   

Real estate:

           

Commercial real estate

    43,647        2,525,481        -        -        34,611        -   

Construction

    7,651        49,927        -        23        850        -   

SFR mortgage

    6,389        215,307        -        22        2,617        -   

Dairy & livestock and agribusiness

    5,262        207,408        -        -        4,868        -   

Municipal lease finance receivables

    -        75,839        -        -        1,031        -   

Consumer and other loans

    906        68,724        -        6        823        -   

PCI loans

    -        -        94,431        -        -        -   

Unallocated (1)

    -        -        -        -        5,800        -   
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

    $ 68,861        $ 3,667,515        $ 94,431        $ 662        $ 58,487        $ -   
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  (1) Based upon changes to our ALLL methodology, as described in Note 3 – Summary of Significant Accounting Policies of the 2015 Annual Report on Form 10-K for the year ended December 31, 2015, beginning with the fourth quarter of 2015 and coinciding with the implementation of the new ALLL methodology, the Bank’s previous “unallocated reserve” was absorbed into the qualitative component of the allowance.

 

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Table of Contents

Past Due and Nonperforming Loans

We seek to manage asset quality and control credit risk through diversification of the loan portfolio and the application of policies designed to promote sound underwriting and loan monitoring practices. The Bank’s Credit Management Division is in charge of monitoring asset quality, establishing credit policies and procedures and enforcing the consistent application of these policies and procedures across the Bank. Reviews of nonperforming, past due loans and larger credits, designed to identify potential charges to the allowance for loan losses, and to determine the adequacy of the allowance, are conducted on an ongoing basis. These reviews consider such factors as the financial strength of borrowers and any guarantors, the value of the applicable collateral, loan loss experience, estimated loan losses, growth in the loan portfolio, prevailing economic conditions and other factors. Refer to Note 3 –Summary of Significant Accounting Policies, included in our Annual Report on Form 10-K for the year ended December 31, 2015, for additional discussion concerning the Bank’s policy for past due and nonperforming loans.

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

 

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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, 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

     $ -         $ -         $ -         $ 543         $ 493,940         $ 494,483   

SBA

     -         -         -         3,013         101,030         104,043   

Real estate:

                 

Commercial real estate

                 

Owner occupied

     -         -         -         1,502         936,974         938,476   

Non-owner occupied

     228         -         228         894         1,972,167         1,973,289   

Construction

                 

Speculative (2)

     -         -         -         -         56,989         56,989   

Non-speculative

     -         -         -         -         33,721         33,721   

SFR mortgage

     -         -         -         2,244         239,246         241,490   

Dairy & livestock and agribusiness

     -         -         -         -         239,242         239,242   

Municipal lease finance receivables

     -         -         -         -         68,309         68,309   

Consumer and other loans

     94         200         294         470         78,900         79,664   
  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

Total gross loans, excluding PCI loans

     $ 322         $ 200         $ 522         $ 8,666         $ 4,220,518         $ 4,229,706   
  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

                                                                                                                                   

 

(1)    As of September 30, 2016, $5.4 million of nonaccruing loans were current, $1.2 million were 30-59 days past due, $440,000 were 60-89 days past due and $1.6 million were 90+ days past due.

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

 

                                                                                                                 
     December 31, 2015
     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

     $ -         $ -         $ -         $ 704         $ 433,395         $ 434,099   

SBA

     -         -         -         2,567         104,300         106,867   

Real estate:

                 

Commercial real estate

                 

Owner occupied

     -         -         -         4,174         834,179         838,353   

Non-owner occupied

     354         -         354         10,367         1,794,110         1,804,831   

Construction

                 

Speculative (2)

     -         -         -         -         45,837         45,837   

Non-speculative

     -         -         -         -         22,726         22,726   

SFR mortgage

     1,082         -         1,082         2,688         229,984         233,754   

Dairy & livestock and agribusiness

     -         -         -         -         305,509         305,509   

Municipal lease finance receivables

     -         -         -         -         74,135         74,135   

Consumer and other loans

     -         -         -         519         68,759         69,278   
  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

Total gross loans, excluding PCI loans

     $ 1,436         $  -         $ 1,436         $ 21,019         $ 3,912,934         $ 3,935,389   
  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

 

  (1) As of December 31, 2015, $7.9 million of nonaccruing loans were current, $456,000 were 30-59 days past due, $9.1 million were 60-89 days past due and $3.5 million were 90+ days past due.
  (2) Speculative construction loans are generally for properties where there is no identified buyer or renter.

 

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Impaired Loans

At September 30, 2016, the Company had impaired loans, excluding PCI loans, of $35.7 million. Of this amount, there was $3.0 million of nonaccrual Small Business Administration (“SBA”) loans, $2.4 million of nonaccrual commercial real estate loans, $2.2 million of nonaccrual single-family residential (“SFR”) mortgage loans, $543,000 of nonaccrual commercial and industrial loans, and $470,000 of nonaccrual consumer and other loans. These impaired loans included $30.0 million of loans whose terms were modified in a troubled debt restructuring, of which $3.0 million were classified as nonaccrual. The remaining balance of $27.0 million consisted of 29 loans performing according to the restructured terms. The impaired loans had a specific allowance of $548,000 at September 30, 2016. At December 31, 2015, the Company had classified as impaired, loans, excluding PCI loans, with a balance of $63.7 million with a related allowance of $669,000.

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, 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   
  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

 

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Table of Contents
                                                                                              
     As of and For the Nine Months Ended
September 30, 2015
     Recorded
Investment
   Unpaid
Principal
Balance
   Related
Allowance
   Average
Recorded
Investment
   Interest
Income
Recognized
     (Dollars in thousands)

With no related allowance recorded:

              

Commercial and industrial

     $ 1,067         $ 1,926         $ -         $ 1,166         $ 23   

SBA

     3,273         3,911         -         3,385         39   

Real estate:

              

Commercial real estate

              

Owner occupied

     7,665         8,806         -         7,935         178   

Non-owner occupied

     35,982         40,591         -         36,490         1,338   

Construction

              

Speculative

     -         -         -         -         -   

Non-speculative

     -         -         -         -         -   

SFR mortgage

     5,788         6,739         -         6,392         82   

Dairy & livestock and agribusiness

     5,262         5,650         -         5,569         180   

Municipal lease finance receivables

     -         -         -         -         -   

Consumer and other loans

     852         1,379         -         881         12   
  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

Total

     59,889         69,002         -         61,818         1,852   
  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

With a related allowance recorded:

              

Commercial and industrial

     620         694         607         637         -   

SBA

     46         47         4         58         -   

Real estate:

              

Commercial real estate

              

Owner occupied

     -         -         -         -         -   

Non-owner occupied

     -         -         -         -         -   

Construction

              

Speculative

     7,651         7,651         23         7,651         290   

Non-speculative

     -         -         -         -         -   

SFR mortgage

     601         653         22         612         9   

Dairy & livestock and agribusiness

     -         -         -         -         -   

Municipal lease finance receivables

     -         -         -         -         -   

Consumer and other loans

     54         59         6         56         -   
  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

Total

     8,972         9,104         662         9,014         299   
  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

Total impaired loans

     $ 68,861         $ 78,106         $ 662         $ 70,832         $ 2,151   
  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

 

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Table of Contents
                                                                                   
     As of December 31, 2015   

                             

     Recorded
Investment
   Unpaid
Principal
Balance
   Related
Allowance
  
     (Dollars in thousands)   

With no related allowance recorded:

           

Commercial and industrial

     $ 1,017         $ 1,894       $ -      

SBA

     3,207         3,877         -      

Real estate:

           

Commercial real estate

           

Owner occupied

     6,252         7,445         -      

Non-owner occupied

     34,041         37,177         -      

Construction

           

Speculative

     -         -         -      

Non-speculative

     -         -         -      

SFR mortgage

     5,665         6,453         -      

Dairy & livestock and agribusiness

     3,685         3,684         -      

Municipal lease finance receivables

     -         -         -      

Consumer and other loans

     890         1,454         -      
  

 

 

 

  

 

 

 

  

 

 

 

  

Total

     54,757         61,984         -      
  

 

 

 

  

 

 

 

  

 

 

 

  

With a related allowance recorded:

           

Commercial and industrial

     626         695         626      

SBA

     41         47         10      

Real estate:

           

Commercial real estate

           

Owner occupied

     -         -         -      

Non-owner occupied

     -         -         -      

Construction

           

Speculative

     7,651         7,651         13      

Non-speculative

     -         -         -      

SFR mortgage

     588         640         20      

Dairy & livestock and agribusiness

     -         -         -      

Municipal lease finance receivables

     -         -         -      

Consumer and other loans

     43         45         -      
  

 

 

 

  

 

 

 

  

 

 

 

  

Total

     8,949         9,078         669      
  

 

 

 

  

 

 

 

  

 

 

 

  

Total impaired loans

     $ 63,706         $ 71,062         $ 669      
  

 

 

 

  

 

 

 

  

 

 

 

  

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, 2016 and December 31, 2015 have already been written down to the estimated net realizable value. The impaired loans with a related allowance recorded are on nonaccrual loans where a charge-off is not yet processed, on nonaccrual SFR loans where there is a potential modification in process, or on smaller balance non-collateral dependent loans.

 

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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, 2016, compared to zero and a $500,000 recapture of provision for unfunded loan commitments for the three and nine months ended September 30, 2015, respectively. As of September 30, 2016 and December 31, 2015, the balance in this reserve was $7.2 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, 2015 for a more detailed discussion regarding TDRs.

As of September 30, 2016, there were $30.0 million of loans classified as a TDR, of which $3.0 million were nonperforming and $27.0 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, 2016, performing TDRs were comprised of eight commercial real estate loans of $13.4 million, one construction loan of $7.7 million, 11 SFR mortgage loans of $3.3 million, two SBA loans of $854,000, five commercial and industrial loans of $806,000, one dairy & livestock and agribusiness loan of $659,000, and one consumer loan of $380,000. There were no loans removed from TDR classification during the three and nine months ended September 30, 2016 and 2015.

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 $472,000 and $607,000 of specific allowance to TDRs as of September 30, 2016 and December 31, 2015, 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,
     2016   2015   2016   2015
     (Dollars in thousands)

Performing TDRs:

        

Beginning balance

     $ 20,292        $ 45,166        $ 42,687        $ 53,589   

New modifications

     759        2,353        1,877        2,383   

Payoffs and payments, net

     (2,584     (2,306     (26,097     (11,275

TDRs returned to accrual status

     8,551        -        8,551        516   

TDRs placed on nonaccrual status

     -        -        -        -   
  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending balance

           27,018              45,213              27,018              45,213   
  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nonperforming TDRs:

        

Beginning balance

     12,029        15,167        12,622        20,285   

New modifications

     20        330        102        661   

Charge-offs

     -        -        (38     -   

Transfer to OREO

     -        -        -        (842

Payoffs and payments, net

     (465     (349     (1,102     (4,440

TDRs returned to accrual status

     (8,551     -        (8,551     (516

TDRs placed on nonaccrual status

     -        -        -        -   
  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending balance

     3,033        15,148        3,033        15,148   
  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total TDRs

     $ 30,051        $ 60,361        $ 30,051        $ 60,361   
  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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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        -   

SFR mortgage:

         

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        $ -   
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    For the Three Months Ended September 30, 2015
    Number of
Loans
  Pre-Modification
Outstanding
Recorded
Investment
  Post-Modification
Outstanding
Recorded
Investment
  Outstanding
Recorded
Investment at
September 30, 2015
  Financial Effect
Resulting From
Modifications (2)
    (Dollars in thousands)

Commercial and industrial:

         

Interest rate reduction

    -        $ -        $ -        $ -        $ -   

Change in amortization period or maturity

    -        -        -        -        -   

SBA:

         

Interest rate reduction

    -        -        -        -        -   

Change in amortization period or maturity

    -        -        -        -        -   

Real estate:

         

Commercial real estate:

         

Owner occupied

         

Interest rate reduction

    -        -        -        -        -   

Change in amortization period or maturity

    -        -        -        -        -   

Non-owner occupied

         

Interest rate reduction

    1        2,376        2,376        2,353        -   

Change in amortization period or maturity

    -        -        -        -        -   

SFR mortgage:

         

Interest rate reduction

    1        322        322        330        -   

Change in amortization period or maturity

    -        -        -        -        -   

Consumer:

         

Interest rate reduction

    -        -        -        -        -   

Change in amortization period or maturity

    -        -        -        -        -   
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total loans

    2        $ 2,698        $ 2,698        $ 2,683        $ -   
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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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        -   

SFR mortgage:

         

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   
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    For the Nine Months Ended September 30, 2015
    Number of
Loans
  Pre-Modification
Outstanding
Recorded
Investment
  Post-Modification
Outstanding
Recorded
Investment
  Outstanding
Recorded
Investment at
September 30, 2015
  Financial Effect
Resulting From
Modifications (2)
    (Dollars in thousands)

Commercial and industrial:

         

Interest rate reduction

    -        $ -        $ -        $ -        $ -   

Change in amortization period or maturity

    1        30        30        15        12   

SBA:

         

Interest rate reduction

    -        -        -        -        -   

Change in amortization period or maturity

    1        330        330        325        -   

Real estate:

         

Commercial real estate:

         

Owner occupied

         

Interest rate reduction

    -        -        -        -        -   

Change in amortization period or maturity

    -        -        -        -        -   

Non-owner occupied

         

Interest rate reduction

    1        2,376        2,376        2,353        -   

Change in amortization period or maturity

    -        -        -        -        -   

SFR mortgage:

         

Interest rate reduction

    1        322        322        330        -   

Change in amortization period or maturity

    -        -        -        -        -   

Consumer:

         

Interest rate reduction

    -        -        -        -        -   

Change in amortization period or maturity

                -        -        -        -        -   
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total loans

    4        $ 3,058        $ 3,058        $ 3,023        $ 12   
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  (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, 2016, there were no loans that were previously modified as a TDR within the previous 12 months that subsequently defaulted during the three and nine months ended September 30, 2016.

 

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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, 2016, shares deemed to be antidilutive, and thus excluded from the computation of earnings per common share were 299,000 and 281,000, respectively. For the three and nine months ended September 30, 2015, shares deemed to be antidilutive, and thus excluded from the computation of earnings per common share were 251,000 and 234,000, 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,
     2016    2015    2016    2015
     (In thousands, except per share amounts)

Earnings per common share:

           

Net earnings

     $ 25,448         $ 27,886         $ 74,353         $ 70,532   

Less: Net earnings allocated to restricted stock

     98         149         305         371   
  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

Net earnings allocated to common shareholders

     $ 25,350         $ 27,737         $ 74,048         $ 70,161   
  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

Weighted average shares outstanding

     108,984         105,783         107,144         105,672   

Basic earnings per common share

     $ 0.23         $ 0.26         $ 0.69         $ 0.66   
  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

Diluted earnings per common share:

           

Net income allocated to common shareholders

     $ 25,350         $ 27,737         $ 74,048         $ 70,161   
  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

Weighted average shares outstanding

     108,984         105,783         107,144         105,672   

Incremental shares from assumed exercise of outstanding options

     386         498         403         467   
  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

Diluted weighted average shares outstanding

     109,370         106,281         107,547         106,139   

Diluted earnings per common share

     $ 0.23         $ 0.26         $ 0.69         $ 0.66   
  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

 

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9. FAIR VALUE INFORMATION

Fair Value Hierarchy

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

The following disclosure provides the fair value information for financial assets and liabilities as of September 30, 2016. 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, 2016 and 2015.

 

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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, 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

    $ 3,757          $ -        $ 3,757        $ -   

Residential mortgage-backed securities

    1,737,676        -        1,737,676        -   

CMO/REMIC - residential

    383,096        -        383,096        -   

Municipal bonds

    97,534        -        97,534        -   

Other securities

    5,488        -        5,488        -   
 

 

 

   

 

 

   

 

 

   

 

 

 

Total investment securities - AFS

    2,227,551        -        2,227,551        -   

Interest rate swaps

    13,201        -        13,201        -   
 

 

 

   

 

 

   

 

 

   

 

 

 

Total assets

    $ 2,240,752        $ -        $ 2,240,752        $ -   
 

 

 

   

 

 

   

 

 

   

 

 

 

Description of liability

       

Interest rate swaps

    $ 13,201        $ -        $ 13,201        $ -   
 

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities

    $ 13,201        $  -        $ 13,201        $  -   
 

 

 

   

 

 

   

 

 

   

 

 

 
    Carrying Value at
December 31, 2015
    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

    $ 5,745        $ -        $ 5,745        $ -   

Residential mortgage-backed securities

    1,813,097        -        1,813,097        -   

CMO/REMIC - residential

    383,781        -        383,781        -   

Municipal bonds

    160,973        -        160,973        -   

Other securities

    5,050        -        5,050        -   
 

 

 

   

 

 

   

 

 

   

 

 

 

Total investment securities - AFS

    2,368,646        -        2,368,646        -   

Interest rate swaps

    9,344        -        9,344        -   
 

 

 

   

 

 

   

 

 

   

 

 

 

Total assets

    $ 2,377,990        $ -        $ 2,377,990        $ -   
 

 

 

   

 

 

   

 

 

   

 

 

 

Description of liability

       

Interest rate swaps

    $ 9,344        $ -        $ 9,344        $ -   
 

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities

    $ 9,344        $ -        $ 9,344        $ -   
 

 

 

   

 

 

   

 

 

   

 

 

 

 

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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, 2016 and December 31, 2015, 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, 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 Nine
Months Ended
September 30, 2016
 
    (Dollars in thousands)  

Description of assets

         

Impaired loans, excluding PCI loans:

         

Commercial and industrial

    $ 144        $ -        $ -        $ 144        $ 73   

SBA

    202        -        -        202        33   

Real estate:

         

Commercial real estate

    -        -        -        -        -   

Construction

    -        -        -        -        -   

SFR mortgage

    -        -        -        -        -   

Dairy & livestock and agribusiness

    -        -        -        -        -   

Consumer and other loans

    19        -        -        19        18   

Other real estate owned

    313        -        -        313        28   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total assets

    $ 678        $  -        $  -        $ 678        $ 152   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    Carrying Value at
December 31, 2015
    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, 2015
 
    (Dollars in thousands)  

Description of assets

         

Impaired loans, excluding PCI loans:

         

Commercial and industrial

    $ 228        $ -        $ -        $ 228        $ 228   

SBA

    41        -        -        41        15   

Real estate:

         

Commercial real estate

    -        -        -        -        -   

Construction

    7,651        -        -        7,651        13   

SFR mortgage

    588        -        -        588        20   

Dairy & livestock and agribusiness

    -        -        -        -        -   

Consumer and other loans

    258        -        -        258        101   

Other real estate owned

    948        -        -        948        162   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total assets

    $ 9,714        $ -        $ -        $ 9,714        $ 539   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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Table of Contents

Fair Value of Financial Instruments

The following disclosure presents estimated fair value of our financial instruments. The estimated fair value amounts have been determined by the Company using available market information and appropriate valuation methodologies. However, considerable judgment is required to develop the estimates of fair value. Accordingly, the estimates presented below are not necessarily indicative of the amounts the Company may realize in a current market exchange as of September 30, 2016 and December 31, 2015, respectively. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.

 

                                                                               
     September 30, 2016
          Estimated Fair Value
     Carrying
Amount
   Level 1    Level 2    Level 3    Total
     (Dollars in thousands)

Assets

              

Total cash and cash equivalents

     $ 119,420         $ 119,420         $ -       $ -         $ 119,420   

Interest-earning balances due from depository institutions

     139,739         -         139,739         -         139,739   

FHLB stock

     17,688         -         17,688         -         17,688   

Investment securities available-for-sale

     2,227,551         -         2,227,551         -         2,227,551   

Investment securities held-to-maturity

     878,953         -         893,706         -         893,706   

Total loans, net of allowance for loan losses

     4,234,166         -         -         4,280,285         4,280,285   

Swaps

     13,201         -         13,201         -         13,201   

Liabilities

              

Deposits:

              

Noninterest-bearing

     $ 3,657,610         $ 3,657,610         $ -       $ -         $ 3,657,610   

Interest-bearing

     2,663,385         -         2,663,178         -         2,663,178   

Borrowings

     577,990         -         577,872         -         577,872   

Junior subordinated debentures

     25,774         -         -         18,031         18,031   

Swaps

     13,201         -         13,201         -         13,201