UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2020
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:
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 | ||
Ontario, California | 91764 | |
(Address of principal executive offices) | (Zip Code) | |
(909) 980-4030 | ||
(Registrant's telephone number, including area code) |
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
Common Stock, No Par Value | CVBF | The Nasdaq Stock Market, LLC |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation(§ 232.405 (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, accelerated filer,
Large accelerated filer | | Accelerated filer | | |||
Non-accelerated filer | | Smaller reporting company | | |||
Emerging growth company | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ��
Indicate by check mark whether the registrant is a shell company (as defined in Rule
Yes ☐ No ☒
Number of shares of common stock of the registrant: 135,505,605135,521,535 outstanding as of October 30, 2020.
TABLE OF CONTENTS
PART I – | 3 | |||||
ITEM 1. | 5 | |||||
10 | ||||||
ITEM 2. | 36 | |||||
37 | ||||||
38 | ||||||
40 | ||||||
51 | ||||||
64 | ||||||
ITEM 3. | 67 | |||||
ITEM 4. | 67 | |||||
PART II – | 68 | |||||
ITEM 1. | 68 | |||||
ITEM | 68 | |||||
ITEM 2. | 70 | |||||
ITEM 3. | 70 | |||||
ITEM 4. | 70 | |||||
ITEM 5. | 70 | |||||
ITEM | 71 | |||||
72 |
2
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 the following:
• our ability to attract deposits and other sources of funding or liquidity; |
the costs or effects of mergers, acquisitions or dispositions we may make, whether we are able to obtain any required governmental approvals in connection with any such mergers, acquisitions or dispositions, and/or our ability to realize the contemplated financial or business benefits or cost savings associated with any such mergers, acquisitions or dispositions, including our recently announced agreement to acquire Suncrest Bank headquartered in Visalia, California; |
3
Among other risks, the ongoing COVID-19COVID-19 pandemic may significantly affect the banking industry, the health and safety of the Company’s employees, and the Company’s business prospects. The ultimate impact of the COVID-19 pandemic on our business and financial results will depend on future developments, which are highly uncertain and cannot be predicted, including the scope and duration of the pandemic, the impact on the economy, our customers, our employees and our business partners, the safety, effectiveness, distribution and acceptance of vaccines developed to mitigate the pandemic, and actions taken by governmental authorities in response to the pandemic.
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.
4
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, | |||||||
2020 | 2019 | |||||||
Assets | ||||||||
Cash and due from banks | $ | 145,455 | $ | 158,310 | ||||
Interest-earning balances due from Federal Reserve | 1,339,498 | 27,208 | ||||||
Total cash and cash equivalents | 1,484,953 | 185,518 | ||||||
Interest-earning balances due from depository institutions | 44,367 | 2,931 | ||||||
Investment securities available-for-sale, | 2,205,646 | 1,740,257 | ||||||
Investment securities held-to-maturity | 577,694 | 674,452 | ||||||
Total investment securities | 2,783,340 | 2,414,709 | ||||||
Investment in stock of Federal Home Loan Bank (FHLB) | 17,688 | 17,688 | ||||||
Loans and lease finance receivables | 8,407,872 | 7,564,577 | ||||||
Allowance for credit losses | (93,869 | ) | (68,660 | ) | ||||
Net loans and lease finance receivables | 8,314,003 | 7,495,917 | ||||||
Premises and equipment, net | 51,477 | 53,978 | ||||||
Bank owned life insurance (BOLI) | 228,132 | 226,281 | ||||||
Accrued interest receivable | 30,004 | 28,122 | ||||||
Intangibles | 35,804 | 42,986 | ||||||
Goodwill | 663,707 | 663,707 | ||||||
Other real estate owned (OREO) | 4,189 | 4,889 | ||||||
Income taxes | 21,412 | 35,587 | ||||||
Other assets | 139,635 | 110,137 | ||||||
Total assets | $ | 13,818,711 | $ | 11,282,450 | ||||
Liabilities and Stockholders’ Equity | ||||||||
Liabilities: | ||||||||
Deposits: | ||||||||
Noninterest-bearing | $ | 6,919,423 | $ | 5,245,517 | ||||
Interest-bearing | 4,249,411 | 3,459,411 | ||||||
Total deposits | 11,168,834 | 8,704,928 | ||||||
Customer repurchase agreements | 483,420 | 428,659 | ||||||
Other borrowings | 10,000 | - | ||||||
Deferred compensation | 21,259 | 22,666 | ||||||
Junior subordinated debentures | 25,774 | 25,774 | ||||||
Other liabilities | 127,467 | 106,325 | ||||||
Total liabilities | 11,836,754 | 9,288,352 | ||||||
Commitments and Contingencies | ||||||||
Stockholders’ Equity | ||||||||
Common stock, authorized, 225,000,000 shares without par; issued and outstanding 135,509,143 at September 30, 2020, and 140,102,480 at December 31, 2019 | 1,210,646 | 1,298,792 | ||||||
Retained earnings | 735,218 | 682,692 | ||||||
Accumulated other comprehensive income, net of tax | 36,093 | 12,614 | ||||||
Total stockholders’ equity | 1,981,957 | 1,994,098 | ||||||
Total liabilities and stockholders’ equity | $ | 13,818,711 | $ | 11,282,450 | ||||
|
| September 30, |
|
| December 31, |
| ||
|
| 2021 |
|
| 2020 |
| ||
Assets |
|
|
|
|
|
| ||
Cash and due from banks |
| $ | 159,563 |
|
| $ | 122,305 |
|
Interest-earning balances due from Federal Reserve |
|
| 2,401,800 |
|
|
| 1,835,855 |
|
Total cash and cash equivalents |
|
| 2,561,363 |
|
|
| 1,958,160 |
|
Interest-earning balances due from depository institutions |
|
| 27,260 |
|
|
| 43,563 |
|
Investment securities available-for-sale, at fair value (with amortized cost of |
|
| 2,925,060 |
|
|
| 2,398,923 |
|
Investment securities held-to-maturity (with fair value of $1,717,230 at |
|
| 1,710,938 |
|
|
| 578,626 |
|
Total investment securities |
|
| 4,635,998 |
|
|
| 2,977,549 |
|
Investment in stock of Federal Home Loan Bank (FHLB) |
|
| 17,688 |
|
|
| 17,688 |
|
Loans and lease finance receivables |
|
| 7,849,520 |
|
|
| 8,348,808 |
|
Allowance for credit losses |
|
| (65,364 | ) |
|
| (93,692 | ) |
Net loans and lease finance receivables |
|
| 7,784,156 |
|
|
| 8,255,116 |
|
Premises and equipment, net |
|
| 49,812 |
|
|
| 51,144 |
|
Bank owned life insurance (BOLI) |
|
| 251,781 |
|
|
| 226,818 |
|
Accrued interest receivable |
|
| 30,253 |
|
|
| 31,306 |
|
Intangibles |
|
| 27,286 |
|
|
| 33,634 |
|
Goodwill |
|
| 663,707 |
|
|
| 663,707 |
|
Other real estate owned (OREO) |
|
| 0 |
|
|
| 3,392 |
|
Income taxes |
|
| 36,870 |
|
|
| 29,540 |
|
Other assets |
|
| 115,424 |
|
|
| 127,697 |
|
Total assets |
| $ | 16,201,598 |
|
| $ | 14,419,314 |
|
|
|
|
|
|
|
| ||
Liabilities and Stockholders' Equity |
|
|
|
|
|
| ||
Liabilities: |
|
|
|
|
|
| ||
Deposits: |
|
|
|
|
|
| ||
Noninterest-bearing |
| $ | 8,310,709 |
|
| $ | 7,455,387 |
|
Interest-bearing |
|
| 4,619,507 |
|
|
| 4,281,114 |
|
Total deposits |
|
| 12,930,216 |
|
|
| 11,736,501 |
|
Customer repurchase agreements |
|
| 659,579 |
|
|
| 439,406 |
|
Other borrowings |
|
| 0 |
|
|
| 5,000 |
|
Deferred compensation |
|
| 20,675 |
|
|
| 21,611 |
|
Junior subordinated debentures |
|
| 0 |
|
|
| 25,774 |
|
Payable for securities purchased |
|
| 421,751 |
|
|
| 60,113 |
|
Other liabilities |
|
| 105,457 |
|
|
| 122,919 |
|
Total liabilities |
|
| 14,137,678 |
|
|
| 12,411,324 |
|
|
|
|
|
|
|
| ||
Commitments and Contingencies |
|
|
|
|
|
| ||
Stockholders' Equity |
|
|
|
|
|
| ||
Common stock, authorized, 225,000,000 shares without par; issued and |
|
| 1,208,569 |
|
|
| 1,211,780 |
|
Retained earnings |
|
| 852,273 |
|
|
| 760,861 |
|
Accumulated other comprehensive income, net of tax |
|
| 3,078 |
|
|
| 35,349 |
|
Total stockholders' equity |
|
| 2,063,920 |
|
|
| 2,007,990 |
|
Total liabilities and stockholders' equity |
| $ | 16,201,598 |
|
| $ | 14,419,314 |
|
See accompanying notes to the unaudited condensed consolidated financial statements.
5
CVB FINANCIAL CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS AND COMPREHENSIVE INCOME
(Dollars in thousands, except per share amounts)
(Unaudited)
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||
Interest income: | ||||||||||||||||
Loans and leases, including fees | $ | 94,200 | $ | 98,796 | $ | 281,669 | $ | 300,326 | ||||||||
Investment securities: | ||||||||||||||||
Investment securities available-for-sale | 8,447 | 9,222 | 26,945 | 29,985 | ||||||||||||
Investment securities held-to-maturity | 3,375 | 4,298 | 11,033 | 13,249 | ||||||||||||
Total investment income | 11,822 | 13,520 | 37,978 | 43,234 | ||||||||||||
Dividends from FHLB stock | 215 | 301 | 761 | 931 | ||||||||||||
Interest-earning deposits with other institutions | 389 | 946 | 1,285 | 1,140 | ||||||||||||
Total interest income | 106,626 | 113,563 | 321,693 | 345,631 | ||||||||||||
Interest expense: | ||||||||||||||||
Deposits | 2,958 | 4,589 | 10,077 | 12,553 | ||||||||||||
Borrowings and customer repurchase agreements | 232 | 568 | 972 | 3,555 | ||||||||||||
Junior subordinated debentures | 111 | 247 | 444 | 771 | ||||||||||||
Total interest expense | 3,301 | 5,404 | 11,493 | 16,879 | ||||||||||||
Net interest income before provision for credit losses | 103,325 | 108,159 | 310,200 | 328,752 | ||||||||||||
Provision for credit losses | - | 1,500 | 23,500 | 5,000 | ||||||||||||
Net interest income after provision for credit losses | 103,325 | 106,659 | 286,700 | 323,752 | ||||||||||||
Noninterest income: | ||||||||||||||||
Service charges on deposit accounts | 3,970 | 4,833 | 12,555 | 15,039 | ||||||||||||
Trust and investment services | 2,405 | 2,330 | 7,302 | 6,964 | ||||||||||||
Bankcard services | 456 | 637 | 1,438 | 2,614 | ||||||||||||
BOLI income | 1,469 | 1,797 | 5,211 | 4,482 | ||||||||||||
Gain on OREO, net | 13 | - | 23 | 129 | ||||||||||||
Gain on sale of building, net | 1,680 | - | 1,680 | 4,545 | ||||||||||||
Gain on eminent domain condemnation, net | - | - | - | 5,685 | ||||||||||||
Other | 3,160 | 2,297 | 8,736 | 6,944 | ||||||||||||
Total noninterest income | 13,153 | 11,894 | 36,945 | 46,402 | ||||||||||||
Noninterest expense: | ||||||||||||||||
Salaries and employee benefits | 31,034 | 30,122 | 90,617 | 88,286 | ||||||||||||
Occupancy and equipment | 5,275 | 4,879 | 15,143 | 15,730 | ||||||||||||
Professional services | 2,019 | 1,688 | 6,643 | 5,653 | ||||||||||||
Computer software expense | 2,837 | 2,663 | 8,407 | 8,032 | ||||||||||||
Marketing and promotion | 728 | 1,517 | 3,538 | 4,149 | ||||||||||||
Amortization of intangible assets | 2,292 | 2,648 | 7,182 | 8,338 | ||||||||||||
Acquisition related expenses | - | 244 | - | 6,005 | ||||||||||||
Other | 5,403 | 3,774 | 13,097 | 13,474 | ||||||||||||
Total noninterest expense | 49,588 | 47,535 | 144,627 | 149,667 | ||||||||||||
Earnings before income taxes | 66,890 | 71,018 | 179,018 | 220,487 | ||||||||||||
Income taxes | 19,398 | 20,595 | 51,915 | 63,941 | ||||||||||||
Net earnings | $ | 47,492 | $ | 50,423 | $ | 127,103 | $ | 156,546 | ||||||||
Other comprehensive income: | ||||||||||||||||
Unrealized (loss) gain on securities arising during the period, before tax | $ | (2,004 | ) | $ | 5,423 | $ | 33,334 | $ | 43,136 | |||||||
Less: Reclassification adjustment for net gain on securities included in net income | - | (5 | ) | - | (5 | ) | ||||||||||
Other comprehensive (loss) income, before tax | (2,004 | ) | 5,418 | 33,334 | 43,131 | |||||||||||
Less: Income tax benefit (expense) related to items of other comprehensive income | 593 | (1,602 | ) | (9,855 | ) | (12,751 | ) | |||||||||
Other comprehensive (loss) income, net of tax | (1,411 | ) | 3,816 | 23,479 | 30,380 | |||||||||||
Comprehensive income | $ | 46,081 | $ | 54,239 | $ | 150,582 | $ | 186,926 | ||||||||
Basic earnings per common share | $ | 0.35 | $ | 0.36 | $ | 0.93 | $ | 1.12 | ||||||||
Diluted earnings per common share | $ | 0.35 | $ | 0.36 | $ | 0.93 | $ | 1.12 |
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
|
| September 30, |
|
| September 30, |
| ||||||||||
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||
Interest income: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Loans and leases, including fees |
| $ | 88,390 |
|
| $ | 94,200 |
|
| $ | 271,911 |
|
| $ | 281,669 |
|
Investment securities: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Investment securities available-for-sale |
|
| 9,813 |
|
|
| 8,447 |
|
|
| 28,382 |
|
|
| 26,945 |
|
Investment securities held-to-maturity |
|
| 5,188 |
|
|
| 3,375 |
|
|
| 14,258 |
|
|
| 11,033 |
|
Total investment income |
|
| 15,001 |
|
|
| 11,822 |
|
|
| 42,640 |
|
|
| 37,978 |
|
Dividends from FHLB stock |
|
| 258 |
|
|
| 215 |
|
|
| 758 |
|
|
| 761 |
|
Interest-earning deposits with other institutions |
|
| 898 |
|
|
| 389 |
|
|
| 1,790 |
|
|
| 1,285 |
|
Total interest income |
|
| 104,547 |
|
|
| 106,626 |
|
|
| 317,099 |
|
|
| 321,693 |
|
Interest expense: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Deposits |
|
| 1,113 |
|
|
| 2,958 |
|
|
| 4,350 |
|
|
| 10,077 |
|
Borrowings and customer repurchase agreements |
|
| 135 |
|
|
| 232 |
|
|
| 408 |
|
|
| 972 |
|
Junior subordinated debentures |
|
| 0 |
|
|
| 111 |
|
|
| 186 |
|
|
| 444 |
|
Total interest expense |
|
| 1,248 |
|
|
| 3,301 |
|
|
| 4,944 |
|
|
| 11,493 |
|
Net interest income before (recapture of) provision for credit losses |
|
| 103,299 |
|
|
| 103,325 |
|
|
| 312,155 |
|
|
| 310,200 |
|
(Recapture of) provision for credit losses |
|
| (4,000 | ) |
|
| 0 |
|
|
| (25,500 | ) |
|
| 23,500 |
|
Net interest income after (recapture of) provision for credit losses |
|
| 107,299 |
|
|
| 103,325 |
|
|
| 337,655 |
|
|
| 286,700 |
|
Noninterest income: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Service charges on deposit accounts |
|
| 4,513 |
|
|
| 3,970 |
|
|
| 12,667 |
|
|
| 12,555 |
|
Trust and investment services |
|
| 2,681 |
|
|
| 2,405 |
|
|
| 8,459 |
|
|
| 7,302 |
|
Bankcard services |
|
| 479 |
|
|
| 456 |
|
|
| 1,362 |
|
|
| 1,438 |
|
BOLI income |
|
| 1,229 |
|
|
| 1,469 |
|
|
| 7,093 |
|
|
| 5,211 |
|
Gain on OREO, net |
|
| 0 |
|
|
| 13 |
|
|
| 477 |
|
|
| 23 |
|
Gain on sale of building, net |
|
|
|
|
| 1,680 |
|
|
|
|
|
| 1,680 |
| ||
Other |
|
| 1,581 |
|
|
| 3,160 |
|
|
| 4,942 |
|
|
| 8,736 |
|
Total noninterest income |
|
| 10,483 |
|
|
| 13,153 |
|
|
| 35,000 |
|
|
| 36,945 |
|
Noninterest expense: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Salaries and employee benefits |
|
| 29,741 |
|
|
| 31,034 |
|
|
| 88,283 |
|
|
| 90,617 |
|
Occupancy and equipment |
|
| 5,122 |
|
|
| 5,275 |
|
|
| 14,934 |
|
|
| 15,143 |
|
Professional services |
|
| 1,626 |
|
|
| 2,019 |
|
|
| 6,042 |
|
|
| 6,643 |
|
Computer software expense |
|
| 3,020 |
|
|
| 2,837 |
|
|
| 8,521 |
|
|
| 8,407 |
|
Marketing and promotion |
|
| 857 |
|
|
| 728 |
|
|
| 3,381 |
|
|
| 3,538 |
|
Amortization of intangible assets |
|
| 2,014 |
|
|
| 2,292 |
|
|
| 6,348 |
|
|
| 7,182 |
|
(Recapture of) provision for unfunded loan commitments |
|
| 0 |
|
|
| 0 |
|
|
| (1,000 | ) |
|
| 0 |
|
Acquisition related expenses |
|
| 809 |
|
|
| 0 |
|
|
| 809 |
|
|
| 0 |
|
Other |
|
| 4,910 |
|
|
| 5,403 |
|
|
| 14,489 |
|
|
| 13,097 |
|
Total noninterest expense |
|
| 48,099 |
|
|
| 49,588 |
|
|
| 141,807 |
|
|
| 144,627 |
|
Earnings before income taxes |
|
| 69,683 |
|
|
| 66,890 |
|
|
| 230,848 |
|
|
| 179,018 |
|
Income taxes |
|
| 19,930 |
|
|
| 19,398 |
|
|
| 66,023 |
|
|
| 51,915 |
|
Net earnings |
| $ | 49,753 |
|
| $ | 47,492 |
|
| $ | 164,825 |
|
| $ | 127,103 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Unrealized gain (loss) on securities arising during the period, before tax |
| $ | (14,443 | ) |
| $ | (2,004 | ) |
| $ | (45,816 | ) |
| $ | 33,334 |
|
Less: Income tax (expense) benefit related to items of other |
|
| 4,270 |
|
|
| 593 |
|
|
| 13,545 |
|
|
| (9,855 | ) |
Other comprehensive income (loss), net of tax |
|
| (10,173 | ) |
|
| (1,411 | ) |
|
| (32,271 | ) |
|
| 23,479 |
|
Comprehensive income |
| $ | 39,580 |
|
| $ | 46,081 |
|
| $ | 132,554 |
|
| $ | 150,582 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Basic earnings per common share |
| $ | 0.37 |
|
| $ | 0.35 |
|
| $ | 1.21 |
|
| $ | 0.93 |
|
Diluted earnings per common share |
| $ | 0.37 |
|
| $ | 0.35 |
|
| $ | 1.21 |
|
| $ | 0.93 |
|
See accompanying notes to the unaudited condensed consolidated financial statements.
6
CVB FINANCIAL CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Dollars and shares in thousands)
(Unaudited)
Three Months Ended September 30, 20202021 and 2019
Accumulated | ||||||||||||||||||||
Common | Other | |||||||||||||||||||
Shares | Common | Retained | Comprehensive | |||||||||||||||||
Outstanding | Stock | Earnings | Income (Loss) | Total | ||||||||||||||||
Balance, July 1, 2020 | 135,516 | $ | 1,209,449 | $ | 712,145 | $ | 37,504 | $ | 1,959,098 | |||||||||||
Repurchase of common stock | (15 | ) | (257 | ) | - | - | (257 | ) | ||||||||||||
Exercise of stock options | 4 | 47 | - | - | 47 | |||||||||||||||
Shares issued pursuant to stock-based compensation plan | 4 | 1,407 | - | - | 1,407 | |||||||||||||||
Cash dividends declared on common stock ($0.18 per share) | - | - | (24,419 | ) | - | (24,419 | ) | |||||||||||||
Net earnings | - | - | 47,492 | - | 47,492 | |||||||||||||||
Other comprehensive loss | - | - | - | (1,411 | ) | (1,411 | ) | |||||||||||||
Balance, September 30, 2020 | 135,509 | $ | 1,210,646 | $ | 735,218 | $ | 36,093 | $ | 1,981,957 | |||||||||||
Balance, July 1, 2019 | 140,142 | $ | 1,296,885 | $ | 631,512 | $ | 8,280 | $ | 1,936,677 | |||||||||||
Repurchase of common stock | (34 | ) | (723 | ) | - | - | (723 | ) | ||||||||||||
Exercise of stock options | 15 | 155 | - | - | 155 | |||||||||||||||
Shares issued pursuant to stock-based compensation plan | 34 | 1,821 | - | - | 1,821 | |||||||||||||||
Cash dividends declared on common stock ($0.18 per share) | - | - | (25,276 | ) | - | (25,276 | ) | |||||||||||||
Net earnings | - | - | 50,423 | - | 50,423 | |||||||||||||||
Other comprehensive income | - | - | - | 3,816 | 3,816 | |||||||||||||||
Balance, September 30, 2019 | 140,157 | $ | 1,298,138 | $ | 656,659 | $ | 12,096 | $ | 1,966,893 | |||||||||||
�� |
| Common Shares Outstanding |
|
| Common Stock |
|
| Retained Earnings |
|
| Accumulated Other Comprehensive Income (Loss) |
|
| Total |
| |||||
Balance, July 1, 2021 |
| 135,927 |
|
| $ | 1,214,882 |
|
| $ | 826,941 |
|
| $ | 13,251 |
|
| $ | 2,055,074 |
|
Repurchase of common stock |
| (406 | ) |
|
| (7,712 | ) |
|
| - |
|
|
| - |
|
|
| (7,712 | ) |
Exercise of stock options |
| 1 |
|
|
| 22 |
|
|
| - |
|
|
| - |
|
|
| 22 |
|
Shares issued pursuant to stock-based |
| (5 | ) |
|
| 1,377 |
|
|
| - |
|
|
| - |
|
|
| 1,377 |
|
Cash dividends declared on common stock |
| - |
|
|
| - |
|
|
| (24,421 | ) |
|
| - |
|
|
| (24,421 | ) |
Net earnings |
| - |
|
|
| - |
|
|
| 49,753 |
|
|
| - |
|
|
| 49,753 |
|
Other comprehensive loss |
| - |
|
|
| - |
|
|
| - |
|
|
| (10,173 | ) |
|
| (10,173 | ) |
Balance, September 30, 2021 |
| 135,517 |
|
| $ | 1,208,569 |
|
| $ | 852,273 |
|
| $ | 3,078 |
|
| $ | 2,063,920 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Balance, July 1, 2020 |
| 135,516 |
|
| $ | 1,209,449 |
|
| $ | 712,145 |
|
| $ | 37,504 |
|
| $ | 1,959,098 |
|
Repurchase of common stock |
| (15 | ) |
|
| (257 | ) |
|
| - |
|
|
| - |
|
|
| (257 | ) |
Exercise of stock options |
| 4 |
|
|
| 47 |
|
|
| - |
|
|
| - |
|
|
| 47 |
|
Shares issued pursuant to stock-based |
| 4 |
|
|
| 1,407 |
|
|
| - |
|
|
| - |
|
|
| 1,407 |
|
Cash dividends declared on common stock |
| - |
|
|
| - |
|
|
| (24,419 | ) |
|
| - |
|
|
| (24,419 | ) |
Net earnings |
| - |
|
|
| - |
|
|
| 47,492 |
|
|
| - |
|
|
| 47,492 |
|
Other comprehensive loss |
| - |
|
|
| - |
|
|
| - |
|
|
| (1,411 | ) |
|
| (1,411 | ) |
Balance, September 30, 2020 |
| 135,509 |
|
| $ | 1,210,646 |
|
| $ | 735,218 |
|
| $ | 36,093 |
|
| $ | 1,981,957 |
|
Nine Months Ended September 30, 20202021 and 2019
Accumulated | ||||||||||||||||||||
Common | Other | |||||||||||||||||||
Shares | Common | Retained | Comprehensive | |||||||||||||||||
Outstanding | Stock | Earnings | Income (Loss) | Total | ||||||||||||||||
Balance, January 1, 2020 | 140,102 | $ | 1,298,792 | $ | 682,692 | $ | 12,614 | $ | 1,994,098 | |||||||||||
Cumulative adjustment upon adoption of ASU 2016-13 | - | - | (1,325 | ) | - | (1,325 | ) | |||||||||||||
Repurchase of common stock | (5,004 | ) | (92,687 | ) | - | - | (92,687 | ) | ||||||||||||
Exercise of stock options | 14 | 168 | - | - | 168 | |||||||||||||||
Shares issued pursuant to stock-based compensation plan | 397 | 4,373 | - | - | 4,373 | |||||||||||||||
Cash dividends declared on common stock ($0.54 per share) | - | - | (73,252 | ) | - | (73,252 | ) | |||||||||||||
Net earnings | - | - | 127,103 | - | 127,103 | |||||||||||||||
Other comprehensive income | - | - | - | 23,479 | 23,479 | |||||||||||||||
Balance, September 30, 2020 | 135,509 | $ | 1,210,646 | $ | 735,218 | $ | 36,093 | $ | 1,981,957 | |||||||||||
Balance, January 1, 2019 | 140,000 | $ | 1,293,669 | $ | 575,805 | $ | (18,284 | ) | $ | 1,851,190 | ||||||||||
Repurchase of common stock | (70 | ) | (1,535 | ) | - | - | (1,535 | ) | ||||||||||||
Exercise of stock options | 160 | 2,212 | - | - | 2,212 | |||||||||||||||
Shares issued pursuant to stock-based compensation plan | 67 | 3,792 | - | - | 3,792 | |||||||||||||||
Cash dividends declared on common stock ($0.54 per share) | - | - | (75,692 | ) | - | (75,692 | ) | |||||||||||||
Net earnings | - | - | 156,546 | - | 156,546 | |||||||||||||||
Other comprehensive income | - | - | - | 30,380 | 30,380 | |||||||||||||||
Balance, September 30, 2019 | 140,157 | $ | 1,298,138 | $ | 656,659 | $ | 12,096 | $ | 1,966,893 | |||||||||||
| Common Shares Outstanding |
|
| Common Stock |
|
| Retained Earnings |
|
| Accumulated Other Comprehensive Income (Loss) |
|
| Total |
| |||||
Balance, January 1, 2021 |
| 135,601 |
|
| $ | 1,211,780 |
|
| $ | 760,861 |
|
| $ | 35,349 |
|
| $ | 2,007,990 |
|
Repurchase of common stock |
| (430 | ) |
|
| (8,246 | ) |
|
| - |
|
|
| - |
|
|
| (8,246 | ) |
Exercise of stock options |
| 46 |
|
|
| 986 |
|
|
| - |
|
|
| - |
|
|
| 986 |
|
Shares issued pursuant to stock-based |
| 300 |
|
|
| 4,049 |
|
|
| - |
|
|
| - |
|
|
| 4,049 |
|
Cash dividends declared on common stock |
| - |
|
|
| - |
|
|
| (73,413 | ) |
|
| - |
|
|
| (73,413 | ) |
Net earnings |
| - |
|
|
| - |
|
|
| 164,825 |
|
|
| - |
|
|
| 164,825 |
|
Other comprehensive loss |
| - |
|
|
| - |
|
|
| - |
|
|
| (32,271 | ) |
|
| (32,271 | ) |
Balance, September 30, 2021 |
| 135,517 |
|
| $ | 1,208,569 |
|
| $ | 852,273 |
|
| $ | 3,078 |
|
| $ | 2,063,920 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Balance, January 1, 2020 |
| 140,102 |
|
| $ | 1,298,792 |
|
| $ | 682,692 |
|
| $ | 12,614 |
|
| $ | 1,994,098 |
|
Cumulative adjustment upon adoption of |
| - |
|
|
| - |
|
|
| (1,325 | ) |
|
| - |
|
|
| (1,325 | ) |
Repurchase of common stock |
| (5,004 | ) |
|
| (92,687 | ) |
|
| - |
|
|
| - |
|
|
| (92,687 | ) |
Exercise of stock options |
| 14 |
|
|
| 168 |
|
|
| - |
|
|
| - |
|
|
| 168 |
|
Shares issued pursuant to stock-based |
| 397 |
|
|
| 4,373 |
|
|
| - |
|
|
| - |
|
|
| 4,373 |
|
Cash dividends declared on common stock |
| - |
|
|
| - |
|
|
| (73,252 | ) |
|
| - |
|
|
| (73,252 | ) |
Net earnings |
| - |
|
|
| - |
|
|
| 127,103 |
|
|
| - |
|
|
| 127,103 |
|
Other comprehensive income |
| - |
|
|
| - |
|
|
| - |
|
|
| 23,479 |
|
|
| 23,479 |
|
Balance, September 30, 2020 |
| 135,509 |
|
| $ | 1,210,646 |
|
| $ | 735,218 |
|
| $ | 36,093 |
|
| $ | 1,981,957 |
|
See accompanying notes to the unaudited condensed consolidated financial statements.
7
CVB FINANCIAL CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
Nine Months Ended | ||||||||
September 30, | ||||||||
2020 | 2019 | |||||||
Cash Flows from Operating Activities | ||||||||
Interest and dividends received | $ | 301,634 | $ | 331,953 | ||||
Service charges and other fees received | 29,918 | 31,441 | ||||||
Interest paid | (10,975 | ) | (16,155 | ) | ||||
Net cash paid to vendors, employees and others | (136,948 | ) | (140,482 | ) | ||||
Income taxes | (45,610 | ) | (59,347 | ) | ||||
Net cash provided by operating activities | 138,019 | 147,410 | ||||||
Cash Flows from Investing Activities | ||||||||
Net change in interest-earning balances from depository institutions | (41,436 | ) | 1,997 | |||||
Proceeds from sale of investment securities held-for-sale | 0 | 152,644 | ||||||
Proceeds from repayment of investment securities available-for-sale | 426,684 | 268,766 | ||||||
Proceeds from maturity of investment securities available-for-sale | 3,506 | 6,059 | ||||||
Purchases of investment securities available-for-sale | (870,934 | ) | (225,416 | ) | ||||
Proceeds from repayment and maturity of investment securities held-to-maturity | 106,491 | 81,001 | ||||||
Purchases of investment securities held-to-maturity | (11,210 | ) | (42,917 | ) | ||||
Net increase in equity investments | (2,890 | ) | (3,511 | ) | ||||
Net (increase) decrease in loan and lease finance receivables | (815,151 | ) | 289,490 | |||||
Proceeds on eminent domain condemnation, net | 0 | 5,685 | ||||||
Proceeds from sale of building, net of selling costs | 2,131 | 5,487 | ||||||
Purchase of premises and equipment | (2,444 | ) | (3,061 | ) | ||||
Proceeds from BOLI death benefit | 4,589 | 1,509 | ||||||
Proceeds from sales of other real estate owned | 0 | 523 | ||||||
Net cash (used in) provided by investing activities | (1,200,664 | ) | 538,256 | |||||
Cash Flows from Financing Activities | ||||||||
Net increase in other deposits | 2,465,066 | 37,061 | ||||||
Net decrease in time deposits | (1,160 | ) | (70,221 | ) | ||||
Net increase (decrease) in other borrowings | 10,000 | (275,086 | ) | |||||
Net increase (decrease) in customer repurchase agreements | 54,761 | (34,405 | ) | |||||
Cash dividends on common stock | (74,068 | ) | (70,092 | ) | ||||
Repurchase of common stock | (92,687 | ) | (1,535 | ) | ||||
Proceeds from exercise of stock options | 168 | 2,212 | ||||||
Net cash provided by (used in) financing activities | 2,362,080 | (412,066 | ) | |||||
Net increase in cash and cash equivalents | 1,299,435 | 273,600 | ||||||
Cash and cash equivalents, beginning of period | 185,518 | 163,948 | ||||||
Cash and cash equivalents, end of period | $ | 1,484,953 | $ | 437,548 | ||||
| Nine Months Ended |
| |||||
| September 30, |
| |||||
| 2021 |
|
| 2020 |
| ||
Cash Flows from Operating Activities |
|
|
|
|
| ||
Interest and dividends received | $ | 308,061 |
|
| $ | 301,634 |
|
Service charges and other fees received |
| 27,427 |
|
|
| 29,918 |
|
Interest paid |
| (4,866 | ) |
|
| (10,975 | ) |
Net cash paid to vendors, employees and others |
| (135,640 | ) |
|
| (136,948 | ) |
Income taxes |
| (58,402 | ) |
|
| (45,610 | ) |
Net cash provided by operating activities |
| 136,580 |
|
|
| 138,019 |
|
Cash Flows from Investing Activities |
|
|
|
|
| ||
Net change in interest-earning balances from depository institutions |
| 16,303 |
|
|
| (41,436 | ) |
Proceeds from repayment of investment securities available-for-sale |
| 599,139 |
|
|
| 426,684 |
|
Proceeds from maturity of investment securities available-for-sale |
| 0 |
|
|
| 3,506 |
|
Purchases of investment securities available-for-sale |
| (1,247,286 | ) |
|
| (870,934 | ) |
Proceeds from repayment and maturity of investment securities held-to-maturity |
| 113,134 |
|
|
| 106,491 |
|
Purchases of investment securities held-to-maturity |
| (830,886 | ) |
|
| (11,210 | ) |
Net increase in equity investments |
| (4,934 | ) |
|
| (2,890 | ) |
Net decrease (increase) in loan and lease finance receivables |
| 529,771 |
|
|
| (815,151 | ) |
Proceeds from sale of building, net of selling costs |
| 1,157 |
|
|
| 2,131 |
|
Purchase of premises and equipment |
| (2,278 | ) |
|
| (2,444 | ) |
Purchase of BOLI |
| (25,000 | ) |
|
| 0 |
|
Proceeds from BOLI death benefit |
| 11,121 |
|
|
| 4,589 |
|
Proceeds from sales of other real estate owned |
| 3,869 |
|
|
| 0 |
|
Net cash used in investing activities |
| (835,890 | ) |
|
| (1,200,664 | ) |
Cash Flows from Financing Activities |
|
|
|
|
| ||
Net increase in other deposits |
| 1,250,970 |
|
|
| 2,465,066 |
|
Net decrease in time deposits |
| (57,255 | ) |
|
| (1,160 | ) |
Net (decrease) increase in other borrowings |
| (5,000 | ) |
|
| 10,000 |
|
Net increase in customer repurchase agreements |
| 220,173 |
|
|
| 54,761 |
|
Repayment of junior subordinated debentures |
| (25,774 | ) |
|
| 0 |
|
Cash dividends on common stock |
| (73,341 | ) |
|
| (74,068 | ) |
Repurchase of common stock |
| (8,246 | ) |
|
| (92,687 | ) |
Proceeds from exercise of stock options |
| 986 |
|
|
| 168 |
|
Net cash provided by financing activities |
| 1,302,513 |
|
|
| 2,362,080 |
|
Net increase in cash and cash equivalents |
| 603,203 |
|
|
| 1,299,435 |
|
|
|
|
|
|
| ||
Cash and cash equivalents, beginning of period |
| 1,958,160 |
|
|
| 185,518 |
|
Cash and cash equivalents, end of period | $ | 2,561,363 |
|
| $ | 1,484,953 |
|
See accompanying notes to the unaudited condensed consolidated financial statements.
8
CVB FINANCIAL CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Dollars in thousands)
(Unaudited)
Nine Months Ended | ||||||||
September 30, | ||||||||
2020 | 2019 | |||||||
Reconciliation of Net Earnings to Net Cash Provided by Operating Activities | ||||||||
Net earnings | $ | 127,103 | $ | 156,546 | ||||
Adjustments to reconcile net earnings to net cash provided by operating activities: | ||||||||
Gain on sale of investment securities, net | 0 | (5 | ) | |||||
Gain on eminent domain condemnation, net | 0 | (5,685 | ) | |||||
Gain on sale of building, net | (1,680 | ) | (4,545 | ) | ||||
Gain on sale of other real estate owned | 0 | (105 | ) | |||||
Increase in BOLI | (4,028 | ) | (5,592 | ) | ||||
Net amortization of premiums and discounts on investment securities | 10,181 | 7,593 | ||||||
Accretion of discount for acquired loans, net | (13,106 | ) | (22,369 | ) | ||||
Provision for credit losses | 23,500 | 5,000 | ||||||
Valuation allowance on other real estate owned | 700 | 0 | ||||||
Stock-based compensation | 4,373 | 3,792 | ||||||
Depreciation and amortization, net | 2,173 | 16,993 | ||||||
Change in other assets and liabilities | (11,197 | ) | (4,213 | ) | ||||
Total adjustments | 10,916 | (9,136 | ) | |||||
Net cash provided by operating activities | $ | 138,019 | $ | 147,410 | ||||
Supplemental Disclosure of Non-cash Investing Activities | ||||||||
Transfer of loans to other real estate owned | $ | 0 | $ | 9,450 |
| Nine Months Ended |
| |||||
| September 30, |
| |||||
| 2021 |
|
| 2020 |
| ||
Reconciliation of Net Earnings to Net Cash Provided by Operating Activities |
|
|
|
|
| ||
Net earnings | $ | 164,825 |
|
| $ | 127,103 |
|
Adjustments to reconcile net earnings to net cash provided by operating activities: |
|
|
|
|
| ||
Gain on sale of building, net |
| (189 | ) |
|
| (1,680 | ) |
Gain on sale of other real estate owned |
| (477 | ) |
|
| 0 |
|
Increase in BOLI |
| (7,093 | ) |
|
| (4,028 | ) |
Net amortization of premiums and discounts on investment securities |
| 23,221 |
|
|
| 10,181 |
|
Accretion of discount for acquired loans, net |
| (10,158 | ) |
|
| (13,106 | ) |
(Recapture of) provision for credit losses |
| (25,500 | ) |
|
| 23,500 |
|
(Recapture of) provision for unfunded loan commitments |
| (1,000 | ) |
|
| 0 |
|
Valuation allowance on other real estate owned |
| 0 |
|
|
| 700 |
|
Stock-based compensation |
| 4,049 |
|
|
| 4,373 |
|
Depreciation and amortization, net |
| (7,143 | ) |
|
| 2,173 |
|
Change in other assets and liabilities |
| (3,955 | ) |
|
| (11,197 | ) |
Total adjustments |
| (28,245 | ) |
|
| 10,916 |
|
Net cash provided by operating activities | $ | 136,580 |
|
| $ | 138,019 |
|
|
|
|
|
|
| ||
Supplemental Disclosure of Non-cash Investing Activities |
|
|
|
|
| ||
Securities purchased and not settled | $ | 421,751 |
|
| $ | 0 |
|
See accompanying notes to the unaudited condensed consolidated financial statements.
9
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,”“we”, “our” or the “Company”) and its wholly owned subsidiary,subsidiary: Citizens Business Bank (the “Bank” or “CBB”), after elimination of all intercompany transactions and balances. The Company has 1 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 to5758 banking centers 1 loan production office in Modesto, California and 3 trust office locations. The Company is headquartered in the city of Ontario, California.
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 Form20202021 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 Form2019,2020, 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
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Except as discussed below, our accounting policies are described in Note 3 –20192020 as filed with the SEC(“ (“Form 10-K”).
Use of Estimates in the Preparation of Financial Statements
10
4. INVESTMENT SECURITIES
The amortized cost and estimated fair value of investment securities are summarized below. The majority of securities held are
| September 30, 2021 |
| |||||||||||||||||
| Amortized Cost |
|
| Gross Unrealized Holding Gain |
|
| Gross Unrealized Holding Loss |
|
| Fair Value |
|
| Total Percent |
| |||||
| (Dollars in thousands) |
| |||||||||||||||||
Investment securities available-for-sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Mortgage-backed securities | $ | 2,256,252 |
|
| $ | 31,251 |
|
| $ | (18,430 | ) |
| $ | 2,269,073 |
|
|
| 77.57 | % |
CMO/REMIC |
| 630,351 |
|
|
| 2,846 |
|
|
| (8,030 | ) |
|
| 625,167 |
|
|
| 21.37 | % |
Municipal bonds |
| 28,697 |
|
|
| 1,123 |
|
|
| 0 |
|
|
| 29,820 |
|
|
| 1.02 | % |
Other securities |
| 1,000 |
|
|
| 0 |
|
|
| 0 |
|
|
| 1,000 |
|
|
| 0.04 | % |
Total available-for-sale securities | $ | 2,916,300 |
|
| $ | 35,220 |
|
| $ | (26,460 | ) |
| $ | 2,925,060 |
|
|
| 100.00 | % |
Investment securities held-to-maturity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Government agency/GSE | $ | 585,022 |
|
| $ | 6,785 |
|
| $ | (8,112 | ) |
| $ | 583,695 |
|
|
| 34.19 | % |
Mortgage-backed securities |
| 648,613 |
|
|
| 5,450 |
|
|
| (1,502 | ) |
|
| 652,561 |
|
|
| 37.91 | % |
CMO/REMIC |
| 264,324 |
|
|
| 1,642 |
|
|
| (1,118 | ) |
|
| 264,848 |
|
|
| 15.45 | % |
Municipal bonds |
| 212,979 |
|
|
| 4,761 |
|
|
| (1,614 | ) |
|
| 216,126 |
|
|
| 12.45 | % |
Total held-to-maturity securities | $ | 1,710,938 |
|
| $ | 18,638 |
|
| $ | (12,346 | ) |
| $ | 1,717,230 |
|
|
| 100.00 | % |
| December 31, 2020 |
| |||||||||||||||||
| Amortized Cost |
|
| Gross Unrealized Holding Gain |
|
| Gross Unrealized Holding Loss |
|
| Fair Value |
|
| Total Percent |
| |||||
| (Dollars in thousands) |
| |||||||||||||||||
Investment securities available-for-sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Mortgage-backed securities | $ | 1,857,030 |
|
| $ | 48,006 |
|
| $ | (101 | ) |
| $ | 1,904,935 |
|
|
| 79.41 | % |
CMO/REMIC |
| 457,548 |
|
|
| 5,515 |
|
|
| (249 | ) |
|
| 462,814 |
|
|
| 19.29 | % |
Municipal bonds |
| 28,707 |
|
|
| 1,578 |
|
|
| 0 |
|
|
| 30,285 |
|
|
| 1.26 | % |
Other securities |
| 889 |
|
|
| 0 |
|
|
| 0 |
|
|
| 889 |
|
|
| 0.04 | % |
Total available-for-sale securities | $ | 2,344,174 |
|
| $ | 55,099 |
|
| $ | (350 | ) |
| $ | 2,398,923 |
|
|
| 100.00 | % |
Investment securities held-to-maturity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Government agency/GSE | $ | 98,663 |
|
| $ | 5,877 |
|
| $ | 0 |
|
| $ | 104,540 |
|
|
| 17.05 | % |
Mortgage-backed securities |
| 146,382 |
|
|
| 7,644 |
|
|
| (32 | ) |
|
| 153,994 |
|
|
| 25.30 | % |
CMO/REMIC |
| 145,309 |
|
|
| 5,202 |
|
|
| 0 |
|
|
| 150,511 |
|
|
| 25.11 | % |
Municipal bonds |
| 188,272 |
|
|
| 6,980 |
|
|
| (74 | ) |
|
| 195,178 |
|
|
| 32.54 | % |
Total held-to-maturity securities | $ | 578,626 |
|
| $ | 25,703 |
|
| $ | (106 | ) |
| $ | 604,223 |
|
|
| 100.00 | % |
11
September 30, 2020 | ||||||||||||||||||||
Amortized Cost | Gross Unrealized Holding Gain | Gross Unrealized Holding Loss | Fair Value | Total Percent | ||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||
Investment securities available-for-sale: | ||||||||||||||||||||
Mortgage-backed securities | $ | 1,710,160 | $ | 46,713 | $ | (2) | $ | 1,756,871 | 79.65% | |||||||||||
CMO/REMIC | 404,380 | 7,326 | (212) | 411,494 | 18.66% | |||||||||||||||
Municipal bonds | 35,011 | 1,457 | - | 36,468 | 1.65% | |||||||||||||||
Other securities | 813 | - | - | 813 | 0.04% | |||||||||||||||
Total available-for-sale | $ | 2,150,364 | $ | 55,496 | $ | (214) | $ | 2,205,646 | 100.00% | |||||||||||
Investment securities held-to-maturity: | ||||||||||||||||||||
Government agency/GSE | $ | 103,317 | $ | 6,627 | $ | - | $ | 109,944 | 17.88% | |||||||||||
Mortgage-backed securities | 152,285 | 7,837 | - | 160,122 | 26.36% | |||||||||||||||
CMO/REMIC | 159,676 | 5,315 | - | 164,991 | 27.64% | |||||||||||||||
Municipal bonds | 162,416 | 6,387 | (338) | 168,465 | 28.12% | |||||||||||||||
Total held-to-maturity | $ | 577,694 | $ | 26,166 | $ | (338) | $ | 603,522 | 100.00% | |||||||||||
December 31, 2019 | ||||||||||||||||||||
Amortized Cost | Gross Unrealized Holding Gain | Gross Unrealized Holding Loss | Fair Value | Total Percent | ||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||
Investment securities available-for-sale: | ||||||||||||||||||||
Mortgage-backed securities | $ | 1,185,757 | $ | 21,306 | $ | (750) | $ | 1,206,313 | 69.32% | |||||||||||
CMO/REMIC | 493,214 | 1,392 | (896) | 493,710 | 28.37% | |||||||||||||||
Municipal bonds | 38,506 | 850 | (2) | 39,354 | 2.26% | |||||||||||||||
Other securities | 880 | - | - | 880 | 0.05% | |||||||||||||||
Total available-for-sale | $ | 1,718,357 | $ | 23,548 | $ | (1,648) | $ | 1,740,257 | 100.00% | |||||||||||
Investment securities held-to-maturity: | ||||||||||||||||||||
Government agency/GSE | $ | 117,366 | $ | 2,280 | $ | (657) | $ | 118,989 | 17.40% | |||||||||||
Mortgage-backed securities | 168,479 | 2,083 | (54) | 170,508 | 24.98% | |||||||||||||||
CMO/REMIC | 192,548 | - | (2,458) | 190,090 | 28.55% | |||||||||||||||
Municipal bonds | 196,059 | 3,867 | (565) | 199,361 | 29.07% | |||||||||||||||
Total held-to-maturity | $ | 674,452 | $ | 8,230 | $ | (3,734) | $ | 678,948 | 100.00% | |||||||||||
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.
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
| September 30, |
|
| September 30, |
| ||||||||||
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||
| (Dollars in thousands) |
| |||||||||||||
Investment securities available-for-sale: |
|
|
|
|
|
|
|
|
|
|
| ||||
Taxable | $ | 9,630 |
|
| $ | 8,244 |
|
| $ | 27,824 |
|
| $ | 26,313 |
|
Tax-advantaged |
| 183 |
|
|
| 203 |
|
|
| 558 |
|
|
| 632 |
|
Total interest income from available-for-sale securities |
| 9,813 |
|
|
| 8,447 |
|
|
| 28,382 |
|
|
| 26,945 |
|
Investment securities held-to-maturity: |
|
|
|
|
|
|
|
|
|
|
| ||||
Taxable |
| 4,099 |
|
|
| 2,265 |
|
|
| 10,917 |
|
|
| 7,410 |
|
Tax-advantaged |
| 1,089 |
|
|
| 1,110 |
|
|
| 3,341 |
|
|
| 3,623 |
|
Total interest income from held-to-maturity securities |
| 5,188 |
|
|
| 3,375 |
|
|
| 14,258 |
|
|
| 11,033 |
|
Total interest income from investment securities | $ | 15,001 |
|
| $ | 11,822 |
|
| $ | 42,640 |
|
| $ | 37,978 |
|
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||
(Dollars in thousands) | ||||||||||||||||
Investment securities available-for-sale: | ||||||||||||||||
Taxable | $ | 8,244 | $ | 8,949 | $ | 26,313 | $ | 29,079 | ||||||||
Tax-advantaged | 203 | 273 | 632 | 906 | ||||||||||||
Total interest income from available-for-sale | 8,447 | 9,222 | 26,945 | 29,985 | ||||||||||||
Investment securities held-to-maturity: | ||||||||||||||||
Taxable | 2,265 | 2,883 | 7,410 | 8,725 | ||||||||||||
Tax-advantaged | 1,110 | 1,415 | 3,623 | 4,524 | ||||||||||||
Total interest income from held-to-maturity | 3,375 | 4,298 | 11,033 | 13,249 | ||||||||||||
Total interest income from investment securities | $ | 11,822 | $ | 13,520 | $ | 37,978 | $ | 43,234 | ||||||||
The adoption of CECL did not and continues to not have a material impact on the accounting for investment securities, as approximately 93%95% of the total investment securities portfolio at September 30, 20202021 represents securities issued by the U.S. government or U.S. government-sponsored enterprises, with the implied guarantee of payment of principal and interest. The remaining securities are predominatelyzero 0at September 30, 2021 and December 31, 2020.
We adopted ASUprospectivemodified retrospective basis. Under the new guidance,this ASU, once it is determined that a credit loss has occurred, an allowance for credit losses is established on ouravailable-for-saleheld-to-maturityPrior to adoption of this standard, when a decline in fair value of a debt security was determined to be other than temporary, an impairment charge for the credit component was recorded, and a new cost basis in the investment was established. During the third quarter of 2020, managementManagement determined that there were 0credit losses did not exist for securities in an unrealized loss position.
The following table presents the Company’s2020.
September 30, 2020 | ||||||||||||||||||||||||
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: | ||||||||||||||||||||||||
Mortgage-backed securities | $ | 30,851 | $ | (2) | $ | - | $ | - | $ | 30,851 | $ | (2) | ||||||||||||
CMO/REMIC | 71,781 | (212) | - | - | 71,781 | (212) | ||||||||||||||||||
Municipal bonds | - | - | - | - | - | - | ||||||||||||||||||
Total available-for-sale | $ | 102,632 | $ | (214) | $ | - | $ | - | $ | 102,632 | $ | (214) | ||||||||||||
| September 30, 2021 |
| |||||||||||||||||||||
| 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: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Mortgage-backed securities | $ | 1,349,856 |
|
| $ | (18,243 | ) |
| $ | 21,273 |
|
| $ | (187 | ) |
| $ | 1,371,129 |
|
| $ | (18,430 | ) |
CMO/REMIC |
| 510,308 |
|
|
| (7,758 | ) |
|
| 11,162 |
|
|
| (272 | ) |
|
| 521,470 |
|
|
| (8,030 | ) |
Municipal bonds |
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
Total available-for-sale securities | $ | 1,860,164 |
|
| $ | (26,001 | ) |
| $ | 32,435 |
|
| $ | (459 | ) |
| $ | 1,892,599 |
|
| $ | (26,460 | ) |
| December 31, 2020 |
| |||||||||||||||||||||
| 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: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Mortgage-backed securities | $ | 72,219 |
|
| $ | (101 | ) |
| $ | 0 |
|
| $ | 0 |
|
| $ | 72,219 |
|
| $ | (101 | ) |
CMO/REMIC |
| 96,974 |
|
|
| (249 | ) |
|
| 0 |
|
|
| 0 |
|
|
| 96,974 |
|
|
| (249 | ) |
Municipal bonds |
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
Total available-for-sale securities | $ | 169,193 |
|
| $ | (350 | ) |
| $ | 0 |
|
| $ | 0 |
|
| $ | 169,193 |
|
| $ | (350 | ) |
12
December 31, 2019 | ||||||||||||||||||||||||
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: | ||||||||||||||||||||||||
Mortgage-backed securities | $ | 20,289 | $ | (6) | $ | 97,964 | $ | (744) | $ | 118,253 | $ | (750) | ||||||||||||
CMO/REMIC | 177,517 | (705) | 34,565 | (191) | 212,082 | (896) | ||||||||||||||||||
Municipal bonds | - | - | 563 | (2) | 563 | (2) | ||||||||||||||||||
Total available-for-sale | $ | 197,806 | $ | (711) | $ | 133,092 | $ | (937) | $ | 330,898 | $ | (1,648) | ||||||||||||
Investment securities held-to-maturity: | ||||||||||||||||||||||||
Government agency/GSE | $ | 28,359 | $ | (252) | $ | 19,405 | $ | (405) | $ | 47,764 | $ | (657) | ||||||||||||
Mortgage-backed securities | 10,411 | (54) | - | - | 10,411 | (54) | ||||||||||||||||||
CMO/REMIC | 23,897 | (104) | 166,193 | (2,354) | 190,090 | (2,458) | ||||||||||||||||||
Municipal bonds | 7,583 | (32) | 29,981 | (533) | 37,564 | (565) | ||||||||||||||||||
Total held-to-maturity | $ | 70,250 | $ | (442) | $ | 215,579 | $ | (3,292) | $ | 285,829 | $ | (3,734) | ||||||||||||
At September 30, 20202021 and December 31, 2019,2020, investment securities having a carrying value of approximately $1.86$2.20 billion and $1.64$1.81 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, 2020,2021, by contractual maturity, are shown in the table below. Although mortgage-backed and CMO/REMIC securities have weighted average remaining contractual maturities of approximately 17 22years, expected maturities will differ from contractual maturities because borrowers may have the right to prepay such obligations without penalty
| September 30, 2021 |
| |||||||||||||
| Available-for-sale |
|
| Held-to-maturity |
| ||||||||||
| Amortized Cost |
|
| Fair Value |
|
| Amortized Cost |
|
| Fair Value |
| ||||
|
|
|
| (Dollars in thousands) |
|
|
|
| |||||||
Due in one year or less | $ | 23,634 |
|
| $ | 23,919 |
|
| $ | 3,769 |
|
| $ | 3,834 |
|
Due after one year through five years |
| 1,803,142 |
|
|
| 1,820,712 |
|
|
| 270,074 |
|
|
| 276,504 |
|
Due after five years through ten years |
| 721,776 |
|
|
| 718,076 |
|
|
| 798,605 |
|
|
| 798,051 |
|
Due after ten years |
| 367,748 |
|
|
| 362,353 |
|
|
| 638,490 |
|
|
| 638,841 |
|
Total investment securities | $ | 2,916,300 |
|
| $ | 2,925,060 |
|
| $ | 1,710,938 |
|
| $ | 1,717,230 |
|
September 30, 2020 | ||||||||||||||||
Available-for-sale | Held-to-maturity | |||||||||||||||
Amortized Cost | Fair Value | Amortized Cost | Fair Value | |||||||||||||
(Dollars in thousands) | ||||||||||||||||
Due in one year or less | $ | 27,816 | $ | 27,968 | $ | 2,730 | $ | 2,764 | ||||||||
Due after one year through five years | 1,960,912 | 2,012,028 | 327,785 | 341,060 | ||||||||||||
Due after five years through ten years | 119,315 | 121,652 | 81,246 | 84,329 | ||||||||||||
Due after ten years | 42,321 | 43,998 | 165,933 | 175,369 | ||||||||||||
Total investment securities | $ | 2,150,364 | $ | 2,205,646 | $ | 577,694 | $ | 603,522 | ||||||||
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. NaN impairment losses have been recorded as ofthrough September 30, 2020.
5. LOANS AND LEASE FINANCE RECEIVABLES AND ALLOWANCE FOR CREDIT LOSSES
The following table provides a summary of total loans and lease finance receivables by type.
| September 30, 2021 |
|
| December 31, 2020 |
| ||
| (Dollars in thousands) |
| |||||
|
|
|
|
|
| ||
Commercial real estate | $ | 5,734,699 |
|
| $ | 5,501,509 |
|
Construction |
| 77,398 |
|
|
| 85,145 |
|
SBA |
| 307,533 |
|
|
| 303,896 |
|
SBA - Paycheck Protection Program (PPP) |
| 330,960 |
|
|
| 882,986 |
|
Commercial and industrial |
| 769,977 |
|
|
| 812,062 |
|
Dairy & livestock and agribusiness |
| 279,584 |
|
|
| 361,146 |
|
Municipal lease finance receivables |
| 47,305 |
|
|
| 45,547 |
|
SFR mortgage |
| 231,323 |
|
|
| 270,511 |
|
Consumer and other loans |
| 70,741 |
|
|
| 86,006 |
|
Total loans, at amortized cost |
| 7,849,520 |
|
|
| 8,348,808 |
|
Less: Allowance for credit losses |
| (65,364 | ) |
|
| (93,692 | ) |
Total loans and lease finance receivables, net | $ | 7,784,156 |
|
| $ | 8,255,116 |
|
September 30, 2020 | December 31, 2019 | |||||||
(Dollars in thousands) | ||||||||
Commercial and industrial | $ | 817,056 | $ | 935,127 | ||||
SBA | 304,987 | 305,008 | ||||||
SBA - Paycheck Protection Program (PPP) | 1,101,142 | - | ||||||
Real estate: | ||||||||
Commercial real estate | 5,428,223 | 5,374,617 | ||||||
Construction | 101,903 | 116,925 | ||||||
SFR mortgage | 274,731 | 283,468 | ||||||
Dairy & livestock and agribusiness | 252,802 | 383,709 | ||||||
Municipal lease finance receivables | 38,040 | 53,146 | ||||||
Consumer and other loans | 88,988 | 116,319 | ||||||
Total loans | 8,407,872 | 7,568,319 | ||||||
Less: Deferred loan fees, net (1) | - | (3,742 | ) | |||||
Total loans, net of deferred loan fees | 8,407,872 | 7,564,577 | ||||||
Less: Allowance for credit losses | (93,869 | ) | (68,660 | ) | ||||
Total loans and lease finance receivables, net | $ | 8,314,003 | $ | 7,495,917 | ||||
As of September 30, 2020, 69.04%2021, 76.99% of the Company’s total gross loan portfolio consisted of real estate loans, with commercial real estate loans representing 64.56%73.06% of total loans. Substantially all of theThe Company’s real estate loans and construction loans are secured by real properties primarily located in California. As of September 30, 2020, $271.22021, $354.3 million, or 5.00%6.18% of the total commercial real estate loans included loans secured by farmland, compared to $241.8$314.4 million, or 4.50%5.72%, at December 31, 2019.2020. The loans secured by farmland included $121.1$125.1 million for loans secured by dairy & livestock land and $150.2$229.2 million for loans secured by agricultural land at September 30, 2020,2021, compared to $125.9$132.9 million for loans secured by dairy & livestock land and $115.9$181.5 million for loans secured by agricultural land at December 31, 2019.2020. As of September 30, 2020,2021, dairy & livestock and agribusiness loans of $252.8$279.6 million were comprised of $210.4$242.0 million for dairy & livestock loans and $42.4$37.6 million for agribusiness loans, compared to $323.5$320.1 million for dairy & livestock loans and $60.2$41.0 million for agribusiness loans at December 31, 2019.
At September 30, 20202021 and December 31, 2019,2020, loans totaling $6.00$6.26 billion and $6.03$6.07 billion, respectively, were pledged to secure the borrowings and available lines of credit from the FHLB and the Federal Reserve Bank.
13
Credit Quality Indicators
We monitor credit quality by evaluating various risk attributes and utilize such information in our evaluation of the appropriateness of the allowance for credit losses. Internal credit risk ratings, within our loan risk rating system, are the credit quality indicators that we most closely monitor.
An important element of our approach to 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. LoansCredits are monitored by line and credit management personnel on an ongoing basis for deterioration or improvement 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):categories: Pass, Special Mention, Substandard, Doubtful and Loss. Each of these groups is assessed for the proper amount to be used in determining the adequacy of our allowance for losses. These categories can be described as follows:
Pass — These loans, including loans on the Bank’s internal watch list, range from minimal credit risk to lower than average, but still acceptable, credit risk. Watch list loans usually require more than normal management attention. Loans on the watch list may involve borrowers with adverse financial trends, higher debt/equity ratios, or weaker liquidity positions, but not to the degree of being considered a defined weakness or problem loan where risk of loss may be apparent.
Special Mention — Loans assigned to this category have potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in the deterioration of the repayment prospects for the asset or the Company’s credit position at some future date. Special mention assets are not adversely classified and do not expose the Company to sufficient risk to warrant adverse classification.
Substandard — Loans classified as substandard are inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any. Assets so classified must have a well-defined weakness, or weaknesses, that jeopardize the liquidation of the debt. Substandard loans are characterized by the distinct possibility that the Company will sustain some loss if deficiencies are not corrected.
Doubtful — Loans classified as doubtful have all the weaknesses inherent in those classified substandard with the added characteristic that the weaknesses make collection or the liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable.
Loss — Loans classified as loss are considered uncollectible and of such little value that their continuance as bankable assets is not warranted. This classification does not mean that the loan has absolutely no recovery or salvage value, but rather that it is not practical or desirable to defer writing off this asset with insignificant value even though partial recovery may be affected in the future.
14
The following table summarizes loans by type and origination year, according to our internal risk ratings as of the datedates presented.
| Origination Year |
|
| Revolving loans amortized |
|
| Revolving loans converted to |
|
|
|
| ||||||||||||||||||||||||
September 30, 2021 | 2021 |
|
| 2020 |
|
| 2019 |
|
| 2018 |
|
| 2017 |
|
| Prior |
|
| cost basis |
|
| term loans |
|
| Total |
| |||||||||
| (Dollars in thousands) |
| |||||||||||||||||||||||||||||||||
Commercial real estate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Risk Rating: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Pass | $ | 878,859 |
|
| $ | 979,652 |
|
| $ | 622,674 |
|
| $ | 547,936 |
|
| $ | 511,804 |
|
| $ | 1,812,200 |
|
| $ | 169,358 |
|
| $ | 44,792 |
|
| $ | 5,567,275 |
|
Special Mention |
| 11,986 |
|
|
| 5,575 |
|
|
| 9,078 |
|
|
| 21,902 |
|
|
| 43,612 |
|
|
| 46,359 |
|
|
| 6,418 |
|
|
| 5,500 |
|
|
| 150,430 |
|
Substandard |
| 2,446 |
|
|
| 0 |
|
|
| 463 |
|
|
| 0 |
|
|
| 4,877 |
|
|
| 8,892 |
|
|
| 0 |
|
|
| 316 |
|
|
| 16,994 |
|
Doubtful & Loss |
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
Total Commercial real | $ | 893,291 |
|
| $ | 985,227 |
|
| $ | 632,215 |
|
| $ | 569,838 |
|
| $ | 560,293 |
|
| $ | 1,867,451 |
|
| $ | 175,776 |
|
| $ | 50,608 |
|
| $ | 5,734,699 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Construction loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Risk Rating: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Pass | $ | 7,465 |
|
| $ | 22,258 |
|
| $ | 7,148 |
|
| $ | 3,142 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 37,385 |
|
| $ | 0 |
|
| $ | 77,398 |
|
Special Mention |
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
Substandard |
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
Doubtful & Loss |
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
Total Construction | $ | 7,465 |
|
| $ | 22,258 |
|
| $ | 7,148 |
|
| $ | 3,142 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 37,385 |
|
| $ | 0 |
|
| $ | 77,398 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
SBA loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Risk Rating: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Pass | $ | 63,286 |
|
| $ | 42,468 |
|
| $ | 11,233 |
|
| $ | 38,918 |
|
| $ | 43,891 |
|
| $ | 88,592 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 288,388 |
|
Special Mention |
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 4,121 |
|
|
| 6,075 |
|
|
| 0 |
|
|
| 0 |
|
|
| 10,196 |
|
Substandard |
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 840 |
|
|
| 5,471 |
|
|
| 2,638 |
|
|
| 0 |
|
|
| 0 |
|
|
| 8,949 |
|
Doubtful & Loss |
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
Total SBA loans: | $ | 63,286 |
|
| $ | 42,468 |
|
| $ | 11,233 |
|
| $ | 39,758 |
|
| $ | 53,483 |
|
| $ | 97,305 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 307,533 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
SBA - PPP loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Risk Rating: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Pass | $ | 278,560 |
|
| $ | 50,877 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 329,437 |
|
Special Mention |
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
Substandard |
| 0 |
|
|
| 1,523 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 1,523 |
|
Doubtful & Loss |
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
Total SBA - PPP loans: | $ | 278,560 |
|
| $ | 52,400 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 330,960 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Commercial and |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Risk Rating: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Pass | $ | 100,677 |
|
| $ | 87,523 |
|
| $ | 134,219 |
|
| $ | 59,713 |
|
| $ | 38,121 |
|
| $ | 81,999 |
|
| $ | 237,284 |
|
| $ | 5,919 |
|
| $ | 745,455 |
|
Special Mention |
| 921 |
|
|
| 2,353 |
|
|
| 1,001 |
|
|
| 1,481 |
|
|
| 515 |
|
|
| 140 |
|
|
| 7,597 |
|
|
| 198 |
|
|
| 14,206 |
|
Substandard |
| 2,643 |
|
|
| 7 |
|
|
| 106 |
|
|
| 2,016 |
|
|
| 1,142 |
|
|
| 612 |
|
|
| 343 |
|
|
| 3,447 |
|
|
| 10,316 |
|
Doubtful & Loss |
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
Total Commercial and | $ | 104,241 |
|
| $ | 89,883 |
|
| $ | 135,326 |
|
| $ | 63,210 |
|
| $ | 39,778 |
|
| $ | 82,751 |
|
| $ | 245,224 |
|
| $ | 9,564 |
|
| $ | 769,977 |
|
15
| Origination Year |
|
| Revolving loans amortized |
|
| Revolving loans converted to |
|
|
|
| ||||||||||||||||||||||||
September 30, 2021 | 2021 |
|
| 2020 |
|
| 2019 |
|
| 2018 |
|
| 2017 |
|
| Prior |
|
| cost basis |
|
| term loans |
|
| Total |
| |||||||||
| (Dollars in thousands) |
| |||||||||||||||||||||||||||||||||
Dairy & livestock and |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Risk Rating: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Pass | $ | 13 |
|
| $ | 988 |
|
| $ | 1,420 |
|
| $ | 1,152 |
|
| $ | 126 |
|
| $ | 322 |
|
| $ | 258,432 |
|
| $ | 886 |
|
| $ | 263,339 |
|
Special Mention |
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 5,094 |
|
|
| 2,300 |
|
|
| 7,394 |
|
Substandard |
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 119 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 8,732 |
|
|
| 8,851 |
|
Doubtful & Loss |
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
Total Dairy & livestock | $ | 13 |
|
| $ | 988 |
|
| $ | 1,420 |
|
| $ | 1,271 |
|
| $ | 126 |
|
| $ | 322 |
|
| $ | 263,526 |
|
| $ | 11,918 |
|
| $ | 279,584 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Municipal lease finance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Risk Rating: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Pass | $ | 9,557 |
|
| $ | 7,875 |
|
| $ | 0 |
|
| $ | 279 |
|
| $ | 9,720 |
|
| $ | 19,498 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 46,929 |
|
Special Mention |
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 376 |
|
|
| 0 |
|
|
| 0 |
|
|
| 376 |
|
Substandard |
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
Doubtful & Loss |
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
Total Municipal lease | $ | 9,557 |
|
| $ | 7,875 |
|
| $ | 0 |
|
| $ | 279 |
|
| $ | 9,720 |
|
| $ | 19,874 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 47,305 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
SFR mortgage loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Risk Rating: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Pass | $ | 27,356 |
|
| $ | 52,771 |
|
| $ | 44,447 |
|
| $ | 20,072 |
|
| $ | 17,176 |
|
| $ | 66,847 |
|
| $ | 152 |
|
| $ | 0 |
|
| $ | 228,821 |
|
Special Mention |
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
Substandard |
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 2,088 |
|
|
| 0 |
|
|
| 414 |
|
|
| 2,502 |
|
Doubtful & Loss |
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
Total SFR mortgage | $ | 27,356 |
|
| $ | 52,771 |
|
| $ | 44,447 |
|
| $ | 20,072 |
|
| $ | 17,176 |
|
| $ | 68,935 |
|
| $ | 152 |
|
| $ | 414 |
|
| $ | 231,323 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Consumer and other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Risk Rating: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Pass | $ | 5,196 |
|
| $ | 2,825 |
|
| $ | 1,539 |
|
| $ | 558 |
|
| $ | 454 |
|
| $ | 1,901 |
|
| $ | 53,550 |
|
| $ | 2,195 |
|
| $ | 68,218 |
|
Special Mention |
| 909 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 591 |
|
|
| 403 |
|
|
| 1,903 |
|
Substandard |
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 167 |
|
|
| 5 |
|
|
| 448 |
|
|
| 620 |
|
Doubtful & Loss |
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
Total Consumer and | $ | 6,105 |
|
| $ | 2,825 |
|
| $ | 1,539 |
|
| $ | 558 |
|
| $ | 454 |
|
| $ | 2,068 |
|
| $ | 54,146 |
|
| $ | 3,046 |
|
| $ | 70,741 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Total Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Risk Rating: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Pass | $ | 1,370,969 |
|
| $ | 1,247,237 |
|
| $ | 822,680 |
|
| $ | 671,770 |
|
| $ | 621,292 |
|
| $ | 2,071,359 |
|
| $ | 756,161 |
|
| $ | 53,792 |
|
| $ | 7,615,260 |
|
Special Mention |
| 13,816 |
|
|
| 7,928 |
|
|
| 10,079 |
|
|
| 23,383 |
|
|
| 48,248 |
|
|
| 52,950 |
|
|
| 19,700 |
|
|
| 8,401 |
|
|
| 184,505 |
|
Substandard |
| 5,089 |
|
|
| 1,530 |
|
|
| 569 |
|
|
| 2,975 |
|
|
| 11,490 |
|
|
| 14,397 |
|
|
| 348 |
|
|
| 13,357 |
|
|
| 49,755 |
|
Doubtful & Loss |
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
Total Loans: | $ | 1,389,874 |
|
| $ | 1,256,695 |
|
| $ | 833,328 |
|
| $ | 698,128 |
|
| $ | 681,030 |
|
| $ | 2,138,706 |
|
| $ | 776,209 |
|
| $ | 75,550 |
|
| $ | 7,849,520 |
|
16
| Origination Year |
|
| Revolving loans amortized |
|
| Revolving loans converted to |
|
|
|
| ||||||||||||||||||||||||
December 31, 2020 | 2020 |
|
| 2019 |
|
| 2018 |
|
| 2017 |
|
| 2016 |
|
| Prior |
|
| cost basis |
|
| term loans |
|
| Total |
| |||||||||
| (Dollars in thousands) |
| |||||||||||||||||||||||||||||||||
Commercial real estate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Risk Rating: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Pass | $ | 979,499 |
|
| $ | 691,091 |
|
| $ | 607,753 |
|
| $ | 617,640 |
|
| $ | 550,105 |
|
| $ | 1,646,876 |
|
| $ | 192,583 |
|
| $ | 24,548 |
|
| $ | 5,310,095 |
|
Special Mention |
| 9,332 |
|
|
| 7,162 |
|
|
| 30,049 |
|
|
| 43,870 |
|
|
| 17,398 |
|
|
| 49,840 |
|
|
| 5,720 |
|
|
| 994 |
|
|
| 164,365 |
|
Substandard |
| 0 |
|
|
| 491 |
|
|
| 2,157 |
|
|
| 7,382 |
|
|
| 2,528 |
|
|
| 13,790 |
|
|
| 360 |
|
|
| 341 |
|
|
| 27,049 |
|
Doubtful & Loss |
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
Total Commercial real | $ | 988,831 |
|
| $ | 698,744 |
|
| $ | 639,959 |
|
| $ | 668,892 |
|
| $ | 570,031 |
|
| $ | 1,710,506 |
|
| $ | 198,663 |
|
| $ | 25,883 |
|
| $ | 5,501,509 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Construction loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Risk Rating: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Pass | $ | 14,511 |
|
| $ | 9,350 |
|
| $ | 14,945 |
|
| $ | 2,258 |
|
| $ | 0 |
|
| $ | 4 |
|
| $ | 44,077 |
|
| $ | 0 |
|
| $ | 85,145 |
|
Special Mention |
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
Substandard |
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
Doubtful & Loss |
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
Total Construction | $ | 14,511 |
|
| $ | 9,350 |
|
| $ | 14,945 |
|
| $ | 2,258 |
|
| $ | 0 |
|
| $ | 4 |
|
| $ | 44,077 |
|
| $ | 0 |
|
| $ | 85,145 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
SBA loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Risk Rating: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Pass | $ | 47,901 |
|
| $ | 12,821 |
|
| $ | 44,950 |
|
| $ | 58,839 |
|
| $ | 26,136 |
|
| $ | 86,085 |
|
| $ | 0 |
|
| $ | 2,976 |
|
| $ | 279,708 |
|
Special Mention |
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 5,446 |
|
|
| 1,336 |
|
|
| 5,648 |
|
|
| 0 |
|
|
| 0 |
|
|
| 12,430 |
|
Substandard |
| 0 |
|
|
| 0 |
|
|
| 904 |
|
|
| 5,503 |
|
|
| 1,554 |
|
|
| 3,797 |
|
|
| 0 |
|
|
| 0 |
|
|
| 11,758 |
|
Doubtful & Loss |
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
Total SBA loans: | $ | 47,901 |
|
| $ | 12,821 |
|
| $ | 45,854 |
|
| $ | 69,788 |
|
| $ | 29,026 |
|
| $ | 95,530 |
|
| $ | 0 |
|
| $ | 2,976 |
|
| $ | 303,896 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
SBA - PPP loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Risk Rating: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Pass | $ | 882,986 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 882,986 |
|
Special Mention |
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
Substandard |
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
Doubtful & Loss |
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
Total SBA - PPP loans: | $ | 882,986 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 882,986 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Commercial and |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Risk Rating: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Pass | $ | 104,478 |
|
| $ | 168,050 |
|
| $ | 62,453 |
|
| $ | 56,043 |
|
| $ | 32,149 |
|
| $ | 76,019 |
|
| $ | 257,250 |
|
| $ | 6,058 |
|
| $ | 762,500 |
|
Special Mention |
| 1,995 |
|
|
| 1,081 |
|
|
| 1,892 |
|
|
| 1,028 |
|
|
| 95 |
|
|
| 4,882 |
|
|
| 17,395 |
|
|
| 1,132 |
|
|
| 29,500 |
|
Substandard |
| 4,346 |
|
|
| 860 |
|
|
| 3,996 |
|
|
| 2,282 |
|
|
| 285 |
|
|
| 94 |
|
|
| 6,677 |
|
|
| 1,522 |
|
|
| 20,062 |
|
Doubtful & Loss |
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
Total Commercial and | $ | 110,819 |
|
| $ | 169,991 |
|
| $ | 68,341 |
|
| $ | 59,353 |
|
| $ | 32,529 |
|
| $ | 80,995 |
|
| $ | 281,322 |
|
| $ | 8,712 |
|
| $ | 812,062 |
|
17
| Origination Year |
|
| Revolving loans amortized |
|
| Revolving loans converted to |
|
|
|
| ||||||||||||||||||||||||
December 31, 2020 | 2020 |
|
| 2019 |
|
| 2018 |
|
| 2017 |
|
| 2016 |
|
| Prior |
|
| cost basis |
|
| term loans |
|
| Total |
| |||||||||
| (Dollars in thousands) |
| |||||||||||||||||||||||||||||||||
Dairy & livestock and |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Risk Rating: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Pass | $ | 1,041 |
|
| $ | 1,765 |
|
| $ | 1,199 |
|
| $ | 5,680 |
|
| $ | 120 |
|
| $ | 320 |
|
| $ | 319,211 |
|
| $ | 363 |
|
| $ | 329,699 |
|
Special Mention |
| 878 |
|
|
| 0 |
|
|
| 364 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 13,255 |
|
|
| 1,511 |
|
|
| 16,008 |
|
Substandard |
| 0 |
|
|
| 0 |
|
|
| 784 |
|
|
| 693 |
|
|
| 2,285 |
|
|
| 0 |
|
|
| 0 |
|
|
| 11,677 |
|
|
| 15,439 |
|
Doubtful & Loss |
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
Total Dairy & livestock | $ | 1,919 |
|
| $ | 1,765 |
|
| $ | 2,347 |
|
| $ | 6,373 |
|
| $ | 2,405 |
|
| $ | 320 |
|
| $ | 332,466 |
|
| $ | 13,551 |
|
| $ | 361,146 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Municipal lease finance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Risk Rating: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Pass | $ | 8,478 |
|
| $ | 0 |
|
| $ | 2,556 |
|
| $ | 10,249 |
|
| $ | 3,586 |
|
| $ | 20,266 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 45,135 |
|
Special Mention |
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 412 |
|
|
| 0 |
|
|
| 0 |
|
|
| 412 |
|
Substandard |
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
Doubtful & Loss |
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
Total Municipal lease | $ | 8,478 |
|
| $ | 0 |
|
| $ | 2,556 |
|
| $ | 10,249 |
|
| $ | 3,586 |
|
| $ | 20,678 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 45,547 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
SFR mortgage loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Risk Rating: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Pass | $ | 65,463 |
|
| $ | 59,596 |
|
| $ | 29,142 |
|
| $ | 22,452 |
|
| $ | 27,192 |
|
| $ | 62,593 |
|
| $ | 3 |
|
| $ | 0 |
|
| $ | 266,441 |
|
Special Mention |
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 452 |
|
|
| 0 |
|
|
| 0 |
|
|
| 452 |
|
Substandard |
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 229 |
|
|
| 2,957 |
|
|
| 0 |
|
|
| 432 |
|
|
| 3,618 |
|
Doubtful & Loss |
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
Total SFR mortgage | $ | 65,463 |
|
| $ | 59,596 |
|
| $ | 29,142 |
|
| $ | 22,452 |
|
| $ | 27,421 |
|
| $ | 66,002 |
|
| $ | 3 |
|
| $ | 432 |
|
| $ | 270,511 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Consumer and other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Risk Rating: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Pass | $ | 8,557 |
|
| $ | 2,077 |
|
| $ | 871 |
|
| $ | 969 |
|
| $ | 1,586 |
|
| $ | 961 |
|
| $ | 67,774 |
|
| $ | 1,688 |
|
| $ | 84,483 |
|
Special Mention |
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 91 |
|
|
| 517 |
|
|
| 22 |
|
|
| 630 |
|
Substandard |
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 172 |
|
|
| 0 |
|
|
| 721 |
|
|
| 893 |
|
Doubtful & Loss |
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
Total Consumer and | $ | 8,557 |
|
| $ | 2,077 |
|
| $ | 871 |
|
| $ | 969 |
|
| $ | 1,586 |
|
| $ | 1,224 |
|
| $ | 68,291 |
|
| $ | 2,431 |
|
| $ | 86,006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Total Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Risk Rating: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Pass | $ | 2,112,914 |
|
| $ | 944,750 |
|
| $ | 763,869 |
|
| $ | 774,130 |
|
| $ | 640,874 |
|
| $ | 1,893,124 |
|
| $ | 880,898 |
|
| $ | 35,633 |
|
| $ | 8,046,192 |
|
Special Mention |
| 12,205 |
|
|
| 8,243 |
|
|
| 32,305 |
|
|
| 50,344 |
|
|
| 18,829 |
|
|
| 61,325 |
|
|
| 36,887 |
|
|
| 3,659 |
|
|
| 223,797 |
|
Substandard |
| 4,346 |
|
|
| 1,351 |
|
|
| 7,841 |
|
|
| 15,860 |
|
|
| 6,881 |
|
|
| 20,810 |
|
|
| 7,037 |
|
|
| 14,693 |
|
|
| 78,819 |
|
Doubtful & Loss |
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
Total Loans: | $ | 2,129,465 |
|
| $ | 954,344 |
|
| $ | 804,015 |
|
| $ | 840,334 |
|
| $ | 666,584 |
|
| $ | 1,975,259 |
|
| $ | 924,822 |
|
| $ | 53,985 |
|
| $ | 8,348,808 |
|
Origination Year | Revolving loans amortized cost basis | Revolving loans converted to term loans | ||||||||||||||||||||||||||||||||||
September 30, 2020 | 2020 | 2019 | 2018 | 2017 | 2016 | Prior | Total | |||||||||||||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||||||||||||||
Commercial and industrial loans: | ||||||||||||||||||||||||||||||||||||
Risk Rating: | ||||||||||||||||||||||||||||||||||||
Pass | $ | 81,480 | $ | 170,738 | $ | 72,345 | $ | 62,918 | $ | 41,860 | $ | 80,669 | $ | 255,407 | $ | 8,153 | $ | 773,570 | ||||||||||||||||||
Special Mention | 0 | 1,235 | 3,087 | 814 | 241 | 5,015 | 15,970 | 1,022 | 27,384 | |||||||||||||||||||||||||||
Substandard | 4,545 | 111 | 1,500 | 1,815 | 448 | 8 | 6,472 | 1,203 | 16,102 | |||||||||||||||||||||||||||
Doubtful & Loss | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | |||||||||||||||||||||||||||
Total Commercial and industrial loans: | $ | 86,025 | $ | 172,084 | $ | 76,932 | $ | 65,547 | $ | 42,549 | $ | 85,692 | $ | 277,849 | $ | 10,378 | $ | 817,056 | ||||||||||||||||||
SBA loans: | ||||||||||||||||||||||||||||||||||||
Risk Rating: | ||||||||||||||||||||||||||||||||||||
Pass | $ | 37,389 | $ | 13,394 | $ | 46,193 | $ | 72,665 | $ | 26,687 | $ | 88,255 | $ | 0 | $ | 2,873 | $ | 287,456 | ||||||||||||||||||
Special Mention | 0 | 0 | 0 | 1,113 | 1,352 | 6,910 | 0 | 0 | 9,375 | |||||||||||||||||||||||||||
Substandard | 0 | 0 | 955 | 1,998 | 1,546 | 3,657 | 0 | 0 | 8,156 | |||||||||||||||||||||||||||
Doubtful & Loss | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | |||||||||||||||||||||||||||
Total SBA loans: | $ | 37,389 | $ | 13,394 | $ | 47,148 | $ | 75,776 | $ | 29,585 | $ | 98,822 | $ | 0 | $ | 2,873 | $ | 304,987 | ||||||||||||||||||
SBA - PPP loans: | ||||||||||||||||||||||||||||||||||||
Risk Rating: | ||||||||||||||||||||||||||||||||||||
Pass | $ | 1,101,142 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 1,101,142 | ||||||||||||||||||
Special Mention | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | |||||||||||||||||||||||||||
Substandard | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | |||||||||||||||||||||||||||
Doubtful & Loss | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | |||||||||||||||||||||||||||
Total SBA - PPP loans: | $ | 1,101,142 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 1,101,142 | ||||||||||||||||||
Commercial real estate loans: | ||||||||||||||||||||||||||||||||||||
Risk Rating: | ||||||||||||||||||||||||||||||||||||
Pass | $ | 617,068 | $ | 701,648 | $ | 680,997 | $ | 684,519 | $ | 589,553 | $ | 1,776,989 | $ | 201,021 | $ | 26,329 | $ | 5,278,124 | ||||||||||||||||||
Special Mention | 4,619 | 11,125 | 18,168 | 21,767 | 13,865 | 48,591 | 5,447 | 297 | 123,879 | |||||||||||||||||||||||||||
Substandard | 0 | 793 | 3,815 | 5,497 | 1,281 | 14,597 | 237 | 0 | 26,220 | |||||||||||||||||||||||||||
Doubtful & Loss | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | |||||||||||||||||||||||||||
Total Commercial real estate loans: | $ | 621,687 | $ | 713,566 | $ | 702,980 | $ | 711,783 | $ | 604,699 | $ | 1,840,177 | $ | 206,705 | $ | 26,626 | $ | 5,428,223 | ||||||||||||||||||
Construction loans: | ||||||||||||||||||||||||||||||||||||
Risk Rating: | ||||||||||||||||||||||||||||||||||||
Pass | $ | 11,160 | $ | 8,614 | $ | 14,399 | $ | 15,667 | $ | 10,592 | $ | 4 | $ | 41,467 | $ | 0 | $ | 101,903 | ||||||||||||||||||
Special Mention | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | |||||||||||||||||||||||||||
Substandard | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | |||||||||||||||||||||||||||
Doubtful & Loss | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | |||||||||||||||||||||||||||
Total Construction loans: | $ | 11,160 | $ | 8,614 | $ | 14,399 | $ | 15,667 | $ | 10,592 | $ | 4 | $ | 41,467 | $ | 0 | $ | 101,903 | ||||||||||||||||||
SFR mortgage loans: | ||||||||||||||||||||||||||||||||||||
Risk Rating: | ||||||||||||||||||||||||||||||||||||
Pass | $ | 52,050 | $ | 62,087 | $ | 33,614 | $ | 25,069 | $ | 28,344 | $ | 69,215 | $ | 0 | $ | 0 | $ | 270,379 | ||||||||||||||||||
Special Mention | 15 | 0 | 0 | 0 | 0 | 456 | 0 | 0 | 471 | |||||||||||||||||||||||||||
Substandard | 0 | 238 | 0 | 0 | 229 | 2,974 | 0 | 440 | 3,881 | |||||||||||||||||||||||||||
Doubtful & Loss | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | |||||||||||||||||||||||||||
Total SFR mortgage loans: | $ | 52,065 | $ | 62,325 | $ | 33,614 | $ | 25,069 | $ | 28,573 | $ | 72,645 | $ | 0 | $ | 440 | $ | 274,731 | ||||||||||||||||||
Origination Year | Revolving loans amortized cost basis | Revolving loans converted to term loans | ||||||||||||||||||||||||||||||||||
September 30, 2020 | 2020 | 2019 | 2018 | 2017 | 2016 | Prior | Total | |||||||||||||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||||||||||||||
Dairy & livestock and agribusiness loans: | ||||||||||||||||||||||||||||||||||||
Risk Rating: | ||||||||||||||||||||||||||||||||||||
Pass | $ | 742 | $ | 2,201 | $ | 1,675 | $ | 5,709 | $ | 152 | $ | 341 | $ | 210,610 | $ | 494 | $ | 221,924 | ||||||||||||||||||
Special Mention | 13 | 0 | 0 | 0 | 0 | 0 | 11,596 | 1,631 | 13,240 | |||||||||||||||||||||||||||
Substandard | 0 | 0 | 849 | 703 | 2,985 | 0 | 824 | 12,277 | 17,638 | |||||||||||||||||||||||||||
Doubtful & Loss | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | |||||||||||||||||||||||||||
Total Dairy & livestock and agribusiness loans: | $ | 755 | $ | 2,201 | $ | 2,524 | $ | 6,412 | $ | 3,137 | $ | 341 | $ | 223,030 | $ | 14,402 | $ | 252,802 | ||||||||||||||||||
Municipal lease finance receivables loans: | ||||||||||||||||||||||||||||||||||||
Risk Rating: | ||||||||||||||||||||||||||||||||||||
Pass | $ | 123 | $ | 0 | $ | 2,556 | $ | 10,436 | $ | 3,587 | $ | 20,926 | $ | 0 | $ | 0 | $ | 37,628 | ||||||||||||||||||
Special Mention | 0 | 0 | 0 | 0 | 0 | 412 | 0 | 0 | 412 | |||||||||||||||||||||||||||
Substandard | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | |||||||||||||||||||||||||||
Doubtful & Loss | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | |||||||||||||||||||||||||||
Total Municipal lease finance receivables loans: | $ | 123 | $ | 0 | $ | 2,556 | $ | 10,436 | $ | 3,587 | $ | 21,338 | $ | 0 | $ | 0 | $ | 38,040 | ||||||||||||||||||
Consumer and other loans: | ||||||||||||||||||||||||||||||||||||
Risk Rating: | ||||||||||||||||||||||||||||||||||||
Pass | $ | 5,483 | $ | 2,334 | $ | 971 | $ | 1,068 | $ | 1,714 | $ | 1,380 | $ | 72,501 | $ | 1,994 | $ | 87,445 | ||||||||||||||||||
Special Mention | 0 | 0 | 0 | 0 | 0 | 91 | 737 | 0 | 828 | |||||||||||||||||||||||||||
Substandard | 0 | 0 | 0 | 0 | 0 | 174 | 0 | 541 | 715 | |||||||||||||||||||||||||||
Doubtful & Loss | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | |||||||||||||||||||||||||||
Total Consumer and other loans: | $ | 5,483 | $ | 2,334 | $ | 971 | $ | 1,068 | $ | 1,714 | $ | 1,645 | $ | 73,238 | $ | 2,535 | $ | 88,988 | ||||||||||||||||||
Gross loans: | ||||||||||||||||||||||||||||||||||||
Risk Rating: | ||||||||||||||||||||||||||||||||||||
Pass | $ | 1,906,637 | $ | 961,016 | $ | 852,750 | $ | 878,051 | $ | 702,489 | $ | 2,037,779 | $ | 781,006 | $ | 39,843 | $ | 8,159,571 | ||||||||||||||||||
Special Mention | 4,647 | 12,360 | 21,255 | 23,694 | 15,458 | 61,475 | 33,750 | 2,950 | 175,589 | |||||||||||||||||||||||||||
Substandard | 4,545 | 1,142 | 7,119 | 10,013 | 6,489 | 21,410 | 7,533 | 14,461 | 72,712 | |||||||||||||||||||||||||||
Doubtful & Loss | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | |||||||||||||||||||||||||||
Total Gross loans: | $ | 1,915,829 | $ | 974,518 | $ | 881,124 | $ | 911,758 | $ | 724,436 | $ | 2,120,664 | $ | 822,289 | $ | 57,254 | $ | 8,407,872 | ||||||||||||||||||
December 31, 2019 | ||||||||||||||||||||
Pass | Special Mention | Substandard | Doubtful & Loss | Total | ||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||
Commercial and industrial | $ | 895,234 | $ | 35,473 | $ | 4,420 | $ | 0 | $ | 935,127 | ||||||||||
SBA | 283,430 | 11,032 | 10,546 | 0 | 305,008 | |||||||||||||||
Real estate: | ||||||||||||||||||||
Commercial real estate | ||||||||||||||||||||
Owner occupied | 1,977,007 | 78,208 | 28,435 | 0 | 2,083,650 | |||||||||||||||
Non-owner occupied | 3,280,580 | 10,005 | 382 | 0 | 3,290,967 | |||||||||||||||
Construction | ||||||||||||||||||||
Speculative | 106,895 | 0 | 0 | 0 | 106,895 | |||||||||||||||
Non-speculative | 10,030 | 0 | 0 | 0 | 10,030 | |||||||||||||||
SFR mortgage | 280,010 | 1,957 | 1,501 | 0 | 283,468 | |||||||||||||||
Dairy & livestock and agribusiness | 320,670 | 35,920 | 27,119 | 0 | 383,709 | |||||||||||||||
Municipal lease finance receivables | 52,676 | 470 | 0 | 0 | 53,146 | |||||||||||||||
Consumer and other loans | 114,870 | 421 | 1,028 | 0 | 116,319 | |||||||||||||||
Total gross loans | $ | 7,321,402 | $ | 173,486 | $ | 73,431 | $ | 0 | $ | 7,568,319 | ||||||||||
Allowance for Credit Losses
Our allowance for credit losses for 2020 is based upon historical lifetime loss rate models segregated bydeveloped from an estimation framework that uses historical lifetime loss experiences to derive loss rates at a collective pool level. We measure the expected credit losses on a collective (pooled) basis for those loans that share similar risk characteristics. We have three collective loan segments:pools: Commercial Real Estate, Commercial and Industrial, and Consumer. Our ACL amounts are largely driven by portfolio characteristics, including loss history and various risk attributes, and the economic outlook for certain macroeconomic variables. Risk attributes for commercial real estate loans include OLTV, origination year, loan seasoning, and macroeconomic variables that include GDP growth, commercial real estate price index and unemployment rate. Risk attributes for commercial and industrial loans include internal risk ratings, borrower industry sector, loan credit spreads and macroeconomic variables that include unemployment rate and BBB spread. The macroeconomic variables for Consumer include unemployment rate and GDP. The Commercial Real Estate methodology is applied over commercial real estate loans, a portion of construction loans, and a portion of SBA loans (excluding Payment Protection Program loans). The Commercial and Industrial methodology is applied over a substantial portion of the Company’s commercial and industrial loans, all dairy & livestock and agribusiness loans, municipal lease receivables, as well as the remaining portion of SBA loans (excluding Payment Protection Program loans). The Consumer Retail.methodology is applied to SFR mortgage loans, consumer loans, as well as the remaining construction loans. In addition to determining the quantitative life of loan loss rate to be applied against the amortized cost basis of the portfolio segments, management reviews current conditions and forecasts to determine whether adjustments are needed to ensure that the life of loan loss rates reflect both the current state of the
18
portfolio, and expectations for macroeconomic changes. Our methodology for assessing the appropriateness of the allowance is reviewed on a regular basis and considers overall risks in the Bank’s loan portfolio. Refer to Note 3 –
Our allowance for credit losses at September 30, 20202021 decreased from the prior quarter end by $4.0 million, due to a $4.0 million recapture of provision for credit losses, primarily due to a modest improvement in our economic forecast. In comparison, the second quarter of 2021 included $2.0 million in recapture of provision that was $93.9also a result of an improving forecast of macroeconomic variables. Based on the magnitude of government economic stimulus and the wide availability of vaccines, our economic forecasts have continued to reflect improvements in key macroeconomic variables, including GDP, the commercial real estate price index and the unemployment rate. As a result, a $25.5 million or 1.12%recapture of total loans. Forprovision for credit losses was recorded for the nine months ended September 30, 2021. In comparison, $23.5 million in provision for credit losses was recorded for the nine months ended September 30, 2020 the ACL increased by $25.2 million, including a $1.8 million increase from the adoption of CECL on January 1, 2020. The increase in the ACL was primarily due to $23.5 million in provision for credit losses recorded in the first halfsevere economic forecast at that time as a result of 2020 resulting from the forecasted changes in macroeconomic variables related to theCOVID-19Moody’sThese U.S. economic forecasts include a baseline forecast, continues to represent more than a 50% weighting in our multi-weightedas well as upside and downside forecasts. Our weighted forecast scenario. This U.S. baseline forecastat the end of the third quarter of 2021, assumes GDP will increase by 27% in the third quarter, 2.9% in the fourth quarter and then grow by 3.5%5.7% in 2021 and 5%then grows by more than 2% in 2022.both 2022 and 2023. The forecast for the unemployment ratethis baseline forecast is forecasted to be 8.9%2021 and then 5.6% in the third quarter of 2021, stay at an elevated level over 8% through 2021,2022, before declining to 6.4% percent5.3% in 2022. With California slowlyre-openingits economy2023. At September 30, 2021, the allowance for credit losses of $65.4 million was 0.83% of total loans, compared to 1.12% andcurrentlyhaving an unemployment rate greater than 11% percent, our forecast includes a partial weighting of downside economic forecast scenarios from Moody’s.
Management believes that the ACL was appropriate at September 30, 20202021 and December 31, 2019. There is a high2020. Due to the degree of uncertainty around the epidemiological assumptions and on-going impact of government responses to the pandemic that impact our economic forecast, so no assurance can be given that economic conditions that adversely affect the Company’s service areas or other circumstances will not be reflected in increased provisions for credit losses in the future.
The following tables present the balance and activity related to the allowance for credit losses for
Three Months Ended September 30, 2020 | ||||||||||||||||||||
Ending Balance June 30, 2020 | Charge-offs | Recoveries | Provision for (Recapture of) Credit Losses | Ending Balance September 30, 2020 | ||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||
Commercial and industrial | $ | 7,991 | $ | (161 | ) | $ | 2 | $ | 761 | $ | 8,593 | |||||||||
SBA | 3,651 | (47 | ) | 69 | (169 | ) | 3,504 | |||||||||||||
SBA - PPP | 0 | 0 | 0 | 0 | 0 | |||||||||||||||
Real estate: | ||||||||||||||||||||
Commercial real estate | 74,928 | 0 | 0 | (473 | ) | 74,455 | ||||||||||||||
Construction | 2,290 | 0 | 3 | (355 | ) | 1,938 | ||||||||||||||
SFR mortgage | 222 | 0 | 0 | 15 | 237 | |||||||||||||||
Dairy & livestock and agribusiness | 3,379 | 0 | 0 | 330 | 3,709 | |||||||||||||||
Municipal lease finance receivables | 302 | 0 | 0 | (153 | ) | 149 | ||||||||||||||
Consumer and other loans | 1,220 | (23 | ) | 43 | 44 | 1,284 | ||||||||||||||
Total allowance for credit losses | $ | 93,983 | $ | (231 | ) | $ | 117 | $ | 0 | $ | 93,869 | |||||||||
Three Months Ended September 30, 2019 | ||||||||||||||||||||
Ending Balance June 30, 2019 | Charge-offs | Recoveries | Provision for (Recapture of) Loan Losses | Ending Balance September 30, 2019 | ||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||
Commercial and industrial | $ | 7,857 | $ | 0 | $ | 94 | $ | 287 | $ | 8,238 | ||||||||||
SBA | 1,119 | (65 | ) | 0 | 412 | 1,466 | ||||||||||||||
Real estate: | ||||||||||||||||||||
Commercial real estate | 48,287 | 0 | 0 | 624 | 48,911 | |||||||||||||||
Construction | 871 | 0 | 3 | 55 | 929 | |||||||||||||||
SFR mortgage | 2,323 | 0 | 8 | 44 | 2,375 | |||||||||||||||
Dairy & livestock and agribusiness | 5,341 | 0 | 0 | 88 | 5,429 | |||||||||||||||
Municipal lease finance receivables | 726 | 0 | 0 | (64 | ) | 662 | ||||||||||||||
Consumer and other loans | 608 | (3 | ) | 3 | 54 | 662 | ||||||||||||||
Total allowance for loan losses | $ | 67,132 | $ | (68 | ) | $ | 108 | $ | 1,500 | $ | 68,672 | |||||||||
Nine Months Ended September 30, 2020 | ||||||||||||||||||||||||
Ending Balance, prior to adoption of ASU 2016-13 December 31, 2019 | Impact of Adoption of ASU 2016-13 | Charge-offs | Recoveries | Provision for (Recapture of) Credit Losses | Ending Balance September 30, 2020 | |||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||
Commercial and industrial | $ | 8,880 | $ | (2,442 | ) | $ | (172 | ) | $ | 7 | $ | 2,320 | $ | 8,593 | ||||||||||
SBA | 1,453 | 1,818 | (203 | ) | 72 | 364 | 3,504 | |||||||||||||||||
SBA - PPP | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||
Real estate: | ||||||||||||||||||||||||
Commercial real estate | 48,629 | 3,547 | 0 | 0 | 22,279 | 74,455 | ||||||||||||||||||
Construction | 858 | 655 | 0 | 9 | 416 | 1,938 | ||||||||||||||||||
SFR mortgage | 2,339 | (2,043 | ) | 0 | 206 | (265 | ) | 237 | ||||||||||||||||
Dairy & livestock and agribusiness | 5,255 | (186 | ) | 0 | 0 | (1,360 | ) | 3,709 | ||||||||||||||||
Municipal lease finance receivables | 623 | (416 | ) | 0 | 0 | (58 | ) | 149 | ||||||||||||||||
Consumer and other loans | 623 | 907 | (109 | ) | 59 | (196 | ) | 1,284 | ||||||||||||||||
Total allowance for credit losses | $ | 68,660 | $ | 1,840 | $ | (484 | ) | $ | 353 | $ | 23,500 | $ | 93,869 | |||||||||||
| Three Months Ended September 30, 2021 |
| |||||||||||||||||
| Ending Balance June 30, 2021 |
|
| Charge-offs |
|
| Recoveries |
|
| (Recapture of) |
|
| Ending Balance September 30, 2021 |
| |||||
| (Dollars in thousands) |
| |||||||||||||||||
Commercial real estate | $ | 55,200 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | (2,888 | ) |
| $ | 52,312 |
|
Construction |
| 1,825 |
|
|
| 0 |
|
|
| 11 |
|
|
| (775 | ) |
|
| 1,061 |
|
SBA |
| 2,546 |
|
|
| 0 |
|
|
| 5 |
|
|
| 376 |
|
|
| 2,927 |
|
Commercial and industrial |
| 5,667 |
|
|
| (10 | ) |
|
| 6 |
|
|
| (755 | ) |
|
| 4,908 |
|
Dairy & livestock and agribusiness |
| 2,775 |
|
|
| 0 |
|
|
| 0 |
|
|
| 391 |
|
|
| 3,166 |
|
Municipal lease finance receivables |
| 67 |
|
|
| 0 |
|
|
| 0 |
|
|
| 18 |
|
|
| 85 |
|
SFR mortgage |
| 284 |
|
|
| 0 |
|
|
| 0 |
|
|
| (94 | ) |
|
| 190 |
|
Consumer and other loans |
| 978 |
|
|
| (1 | ) |
|
| 11 |
|
|
| (273 | ) |
|
| 715 |
|
Total allowance for credit losses | $ | 69,342 |
|
| $ | (11 | ) |
| $ | 33 |
|
| $ | (4,000 | ) |
| $ | 65,364 |
|
| Three Months Ended September 30, 2020 |
| |||||||||||||||||
| Ending Balance June 30, 2020 |
|
| Charge-offs |
|
| Recoveries |
|
| Provision for |
|
| Ending Balance September 30, 2020 |
| |||||
| (Dollars in thousands) |
| |||||||||||||||||
Commercial real estate | $ | 74,928 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | (473 | ) |
| $ | 74,455 |
|
Construction |
| 2,290 |
|
|
| 0 |
|
|
| 3 |
|
|
| (355 | ) |
|
| 1,938 |
|
SBA |
| 3,651 |
|
|
| (47 | ) |
|
| 69 |
|
|
| (169 | ) |
|
| 3,504 |
|
Commercial and industrial |
| 7,991 |
|
|
| (161 | ) |
|
| 2 |
|
|
| 761 |
|
|
| 8,593 |
|
Dairy & livestock and agribusiness |
| 3,379 |
|
|
| 0 |
|
|
| 0 |
|
|
| 330 |
|
|
| 3,709 |
|
Municipal lease finance receivables |
| 302 |
|
|
| 0 |
|
|
| 0 |
|
|
| (153 | ) |
|
| 149 |
|
SFR mortgage |
| 222 |
|
|
| 0 |
|
|
| 0 |
|
|
| 15 |
|
|
| 237 |
|
Consumer and other loans |
| 1,220 |
|
|
| (23 | ) |
|
| 43 |
|
|
| 44 |
|
|
| 1,284 |
|
Total allowance for credit losses | $ | 93,983 |
|
| $ | (231 | ) |
| $ | 117 |
|
| $ | 0 |
|
| $ | 93,869 |
|
19
Nine Months Ended September 30, 2019 | ||||||||||||||||||||
Ending Balance December 31, 2018 | Charge-offs | Recoveries | Provision for (Recapture of) Loan Losses | Ending Balance September 30, 2019 | ||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||
Commercial and industrial | $ | 7,528 | $ | (48 | ) | $ | 253 | $ | 505 | $ | 8,238 | |||||||||
SBA | 1,078 | (295 | ) | 9 | 674 | 1,466 | ||||||||||||||
Real estate: | ||||||||||||||||||||
Commercial real estate | 45,097 | 0 | 0 | 3,814 | 48,911 | |||||||||||||||
Construction | 981 | 0 | 9 | (61 | ) | 929 | ||||||||||||||
SFR mortgage | 2,197 | 0 | 191 | (13 | ) | 2,375 | ||||||||||||||
Dairy & livestock and agribusiness | 5,225 | (78 | ) | 19 | 263 | 5,429 | ||||||||||||||
Municipal lease finance receivables | 775 | 0 | 0 | (113 | ) | 662 | ||||||||||||||
Consumer and other loans | 732 | (7 | ) | 6 | (69 | ) | 662 | |||||||||||||
Total allowance for loan losses | $ | 63,613 | $ | (428 | ) | $ | 487 | $ | 5,000 | $ | 68,672 | |||||||||
September 30, 2019 | ||||||||||||||||
Recorded Investment in Loans | Allowance for Loan Losses | |||||||||||||||
Individually Evaluated for Impairment | Collectively Evaluated for Impairment | Individually Evaluated for Impairment | Collectively Evaluated for Impairment | |||||||||||||
(Dollars in thousands) | ||||||||||||||||
Commercial and industrial | $ | 1,638 | $ | 920,040 | $ | 254 | $ | 7,984 | ||||||||
SBA | 3,248 | 316,323 | 286 | 1,180 | ||||||||||||
Real estate: | ||||||||||||||||
Commercial real estate | 1,500 | 5,374,168 | 0 | 48,911 | ||||||||||||
Construction | 0 | 119,931 | 0 | 929 | ||||||||||||
SFR mortgage | 3,009 | 275,635 | 0 | 2,375 | ||||||||||||
Dairy & livestock and agribusiness | 0 | 311,229 | 0 | 5,429 | ||||||||||||
Municipal lease finance receivables | 0 | 54,468 | 0 | 662 | ||||||||||||
Consumer and other loans | 385 | 116,743 | 0 | 662 | ||||||||||||
Total | $ | 9,780 | $ | 7,488,537 | $ | 540 | $ | 68,132 | ||||||||
20
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 loancredit losses, and to determine the adequacy of the ACL, 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 loancredit losses, growth in the loan portfolio, prevailing economic conditions and other factors. Refer to Note 3 –2019,2020, for additional discussion concerning the Bank’s policy for past due and nonperforming loans.
The following table presents the recorded investment in, and the aging of, past due loans (including nonaccrual loans), by type of loans as of the datedates presented.
| September 30, 2021 |
| |||||||||||||||||||||
| 30-59 Days Past Due |
|
| 60-89 Days Past Due |
|
| Greater than 89 Days |
|
| Total Past Due |
|
| Loans Not Past Due |
|
| Total Loans and Financing Receivables |
| ||||||
| (Dollars in thousands) |
| |||||||||||||||||||||
Commercial real estate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Owner occupied | $ | 0 |
|
| $ | 199 |
|
| $ | 3,641 |
|
| $ | 3,840 |
|
| $ | 2,115,928 |
|
| $ | 2,119,768 |
|
Non-owner occupied |
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 3,614,931 |
|
|
| 3,614,931 |
|
Construction |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Speculative (1) |
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 52,856 |
|
|
| 52,856 |
|
Non-speculative |
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 24,542 |
|
|
| 24,542 |
|
SBA |
| 0 |
|
|
| 0 |
|
|
| 1,218 |
|
|
| 1,218 |
|
|
| 306,315 |
|
|
| 307,533 |
|
SBA - PPP |
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 330,960 |
|
|
| 330,960 |
|
Commercial and industrial |
| 584 |
|
|
| 382 |
|
|
| 1,013 |
|
|
| 1,979 |
|
|
| 767,998 |
|
|
| 769,977 |
|
Dairy & livestock and agribusiness |
| 1,000 |
|
|
| 0 |
|
|
| 118 |
|
|
| 1,118 |
|
|
| 278,466 |
|
|
| 279,584 |
|
Municipal lease finance receivables |
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 47,305 |
|
|
| 47,305 |
|
SFR mortgage |
| 0 |
|
|
| 0 |
|
|
| 218 |
|
|
| 218 |
|
|
| 231,105 |
|
|
| 231,323 |
|
Consumer and other loans |
| 0 |
|
|
| 0 |
|
|
| 188 |
|
|
| 188 |
|
|
| 70,553 |
|
|
| 70,741 |
|
Total loans | $ | 1,584 |
|
| $ | 581 |
|
| $ | 6,396 |
|
| $ | 8,561 |
|
| $ | 7,840,959 |
|
| $ | 7,849,520 |
|
| December 31, 2020 |
| |||||||||||||||||||||
| 30-59 Days Past Due |
|
| 60-89 Days Past Due |
|
| Greater than 89 Days |
|
| Total Past Due |
|
| Loans Not Past Due |
|
| Total Loans and Financing Receivables |
| ||||||
| (Dollars in thousands) |
| |||||||||||||||||||||
Commercial real estate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Owner occupied | $ | 0 |
|
| $ | 0 |
|
| $ | 7,208 |
|
| $ | 7,208 |
|
| $ | 2,136,051 |
|
| $ | 2,143,259 |
|
Non-owner occupied |
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 3,358,250 |
|
|
| 3,358,250 |
|
Construction |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Speculative (1) |
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 72,126 |
|
|
| 72,126 |
|
Non-speculative |
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 13,019 |
|
|
| 13,019 |
|
SBA |
| 531 |
|
|
| 2,415 |
|
|
| 1,025 |
|
|
| 3,971 |
|
|
| 299,925 |
|
|
| 303,896 |
|
SBA - PPP |
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 882,986 |
|
|
| 882,986 |
|
Commercial and industrial |
| 608 |
|
|
| 811 |
|
|
| 2,338 |
|
|
| 3,757 |
|
|
| 808,305 |
|
|
| 812,062 |
|
Dairy & livestock and agribusiness |
| 0 |
|
|
| 0 |
|
|
| 784 |
|
|
| 784 |
|
|
| 360,362 |
|
|
| 361,146 |
|
Municipal lease finance receivables |
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 45,547 |
|
|
| 45,547 |
|
SFR mortgage |
| 0 |
|
|
| 0 |
|
|
| 229 |
|
|
| 229 |
|
|
| 270,282 |
|
|
| 270,511 |
|
Consumer and other loans |
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 86,006 |
|
|
| 86,006 |
|
Total loans | $ | 1,139 |
|
| $ | 3,226 |
|
| $ | 11,584 |
|
| $ | 15,949 |
|
| $ | 8,332,859 |
|
| $ | 8,348,808 |
|
September 30, 2020 | ||||||||||||||||||||||||
30-59 Days Past Due | 60-89 Days Past Due | Greater than 89 Days Past Due | Total Past Due | Loans Not Past Due | Total Loans and Financing Receivables | |||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||
Commercial and industrial | $ | 3,582 | $ | 1,209 | $ | 560 | $ | 5,351 | $ | 811,705 | $ | 817,056 | ||||||||||||
SBA | 468 | 270 | 777 | 1,515 | 303,472 | 304,987 | ||||||||||||||||||
SBA - PPP | 0 | 0 | 0 | 0 | 1,101,142 | 1,101,142 | ||||||||||||||||||
Real estate: | ||||||||||||||||||||||||
Commercial real estate | ||||||||||||||||||||||||
Owner occupied | 0 | 0 | 3,770 | 3,770 | 2,121,430 | 2,125,200 | ||||||||||||||||||
Non-owner occupied | 0 | 0 | 1,715 | 1,715 | 3,301,308 | 3,303,023 | ||||||||||||||||||
Construction | ||||||||||||||||||||||||
Speculative (1) | 0 | 0 | 0 | 0 | 94,232 | 94,232 | ||||||||||||||||||
Non-speculative | 0 | 0 | 0 | 0 | 7,671 | 7,671 | ||||||||||||||||||
SFR mortgage | 0 | 0 | 467 | 467 | 274,264 | 274,731 | ||||||||||||||||||
Dairy & livestock and agribusiness | 0 | 849 | 0 | 849 | 251,953 | 252,802 | ||||||||||||||||||
Municipal lease finance receivables | 0 | 0 | 0 | 0 | 38,040 | 38,040 | ||||||||||||||||||
Consumer and other loans | 68 | 0 | 34 | 102 | 88,886 | 88,988 | ||||||||||||||||||
Total gross loans | $ | 4,118 | $ | 2,328 | $ | 7,323 | $ | 13,769 | $ | 8,394,103 | $ | 8,407,872 | ||||||||||||
21
Amortized cost of our finance receivables and loans that are on nonaccrual status, including loans with no allowance are presented as of September 30, 2021 and December 31, 2020 by type of loan.
| September 30, 2021 |
| |||||||||
| Nonaccrual with No Allowance for Credit Losses |
|
| Total |
|
| Loans Past Due Over 89 Days Still Accruing |
| |||
| (Dollars in thousands) |
| |||||||||
Commercial real estate |
|
|
|
|
|
|
|
| |||
Owner occupied | $ | 3,521 |
|
| $ | 4,073 |
|
| $ | 0 |
|
Non-owner occupied |
| 0 |
|
|
| 0 |
|
|
| 0 |
|
Construction |
|
|
|
|
|
|
|
| |||
Speculative (2) |
| 0 |
|
|
| 0 |
|
|
| 0 |
|
Non-speculative |
| 0 |
|
|
| 0 |
|
|
| 0 |
|
SBA |
| 804 |
|
|
| 1,513 |
|
|
| 0 |
|
SBA - PPP |
| 0 |
|
|
| 0 |
|
|
| 0 |
|
Commercial and industrial |
| 370 |
|
|
| 2,038 |
|
|
| 0 |
|
Dairy & livestock and agribusiness |
| 0 |
|
|
| 118 |
|
|
| 0 |
|
Municipal lease finance receivables |
| 0 |
|
|
| 0 |
|
|
| 0 |
|
SFR mortgage |
| 400 |
|
|
| 399 |
|
|
| 0 |
|
Consumer and other loans |
| 305 |
|
|
| 305 |
|
|
| 0 |
|
Total loans | $ | 5,400 |
|
| $ | 8,446 |
|
| $ | 0 |
|
September 30, 2020 | ||||||||||||
Nonaccrual with No Allowance for Credit Losses | Total Nonaccrual (1) (3) | Loans Past Due Over 89 Days Still Accruing | ||||||||||
(Dollars in thousands) | ||||||||||||
Commercial and industrial | $ | 1,421 | $ | 1,822 | $ | 0 | ||||||
SBA | 850 | 1,724 | 0 | |||||||||
SBA - PPP | 0 | 0 | 0 | |||||||||
Real estate: | ||||||||||||
Commercial real estate | ||||||||||||
Owner occupied | 4,766 | 4,766 | 0 | |||||||||
Non-owner occupied | 0 | 1,715 | 0 | |||||||||
Construction | ||||||||||||
Speculative (2) | 0 | 0 | 0 | |||||||||
Non-speculative | 0 | 0 | 0 | |||||||||
SFR mortgage | 675 | 675 | 0 | |||||||||
Dairy & livestock and agribusiness | 849 | 849 | 0 | |||||||||
Municipal lease finance receivables | 0 | 0 | 0 | |||||||||
Consumer and other loans | 224 | 224 | 0 | |||||||||
Total gross loans | $ | 8,785 | $ | 11,775 | $ | 0 | ||||||
As |
| December 31, 2020 |
| |||||||||
| Nonaccrual with No Allowance for Credit Losses |
|
| Total |
|
| Loans Past Due Over 89 Days Still Accruing |
| |||
| (Dollars in thousands) |
| |||||||||
Commercial real estate |
|
|
|
|
|
|
|
| |||
Owner occupied | $ | 7,563 |
|
| $ | 7,563 |
|
| $ | 0 |
|
Non-owner occupied |
| 0 |
|
|
| 0 |
|
|
| 0 |
|
Construction |
|
|
|
|
|
|
|
| |||
Speculative (2) |
| 0 |
|
|
| 0 |
|
|
| 0 |
|
Non-speculative |
| 0 |
|
|
| 0 |
|
|
| 0 |
|
SBA |
| 2,035 |
|
|
| 2,273 |
|
|
| 0 |
|
SBA - PPP |
| 0 |
|
|
| 0 |
|
|
| 0 |
|
Commercial and industrial |
| 1,576 |
|
|
| 3,129 |
|
|
| 0 |
|
Dairy & livestock and agribusiness |
| 785 |
|
|
| 785 |
|
|
| 0 |
|
Municipal lease finance receivables |
| 430 |
|
|
| 0 |
|
|
| 0 |
|
SFR mortgage |
| 0 |
|
|
| 430 |
|
|
| 0 |
|
Consumer and other loans |
| 167 |
|
|
| 167 |
|
|
| 0 |
|
Total loans | $ | 12,556 |
|
| $ | 14,347 |
|
| $ | 0 |
|
December 31, 2019 | ||||||||||||||||||||||||
30-59 Days Past Due | 60-89 Days Past Due | Total Past Due and Accruing | Nonaccrual (1) (3) | Current | Total Loans and Financing Receivables | |||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||
Commercial and industrial | $ | 2 | $ | 0 | $ | 2 | $ | 1,266 | $ | 933,859 | $ | 935,127 | ||||||||||||
SBA | 870 | 532 | 1,402 | 2,032 | 301,574 | 305,008 | ||||||||||||||||||
Real estate: | ||||||||||||||||||||||||
Commercial real estate | ||||||||||||||||||||||||
Owner occupied | 0 | 0 | 0 | 479 | 2,083,171 | 2,083,650 | ||||||||||||||||||
Non-owner occupied | 0 | 0 | 0 | 245 | 3,290,722 | 3,290,967 | ||||||||||||||||||
Construction | ||||||||||||||||||||||||
Speculative (2) | 0 | 0 | 0 | 0 | 106,895 | 106,895 | ||||||||||||||||||
Non-speculative | 0 | 0 | 0 | 0 | 10,030 | 10,030 | ||||||||||||||||||
SFR mortgage | 6 | 243 | 249 | 878 | 282,341 | 283,468 | ||||||||||||||||||
Dairy & livestock and agribusiness | 0 | 0 | 0 | 0 | 383,709 | 383,709 | ||||||||||||||||||
Municipal lease finance receivables | 0 | 0 | 0 | 0 | 53,146 | 53,146 | ||||||||||||||||||
Consumer and other loans | 0 | 0 | 0 | 377 | 115,942 | 116,319 | ||||||||||||||||||
Total gross loans | $ | 878 | $ | 775 | $ | 1,653 | $ | 5,277 | $ | 7,561,389 | $ | 7,568,319 | ||||||||||||
As of |
As of and For the Nine Months Ended September 30, 2019 | ||||||||||||||||||||
Recorded Investment | Unpaid Principal Balance | Related Allowance | Average Recorded Investment | Interest Income Recognized | ||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||
With no related allowance recorded: | ||||||||||||||||||||
Commercial and industrial | $ | 1,382 | $ | 1,537 | $ | 0 | $ | 1,560 | $ | 4 | ||||||||||
SBA | 2,447 | 3,554 | 0 | 2,606 | 31 | |||||||||||||||
Real estate: | ||||||||||||||||||||
Commercial real estate | ||||||||||||||||||||
Owner occupied | 494 | 614 | 0 | 508 | 0 | |||||||||||||||
Non-owner occupied | 1,006 | 1,190 | 0 | 1,052 | 21 | |||||||||||||||
Construction | ||||||||||||||||||||
Speculative | 0 | 0 | 0 | 0 | 0 | |||||||||||||||
Non-speculative | 0 | 0 | 0 | 0 | 0 | |||||||||||||||
SFR mortgage | 3,009 | 3,338 | 0 | 3,059 | 62 | |||||||||||||||
Dairy & livestock and agribusiness | 0 | 0 | 0 | 0 | 0 | |||||||||||||||
Municipal lease finance receivables | 0 | 0 | 0 | 0 | 0 | |||||||||||||||
Consumer and other loans | 385 | 516 | 0 | 401 | 0 | |||||||||||||||
Total | 8,723 | 10,749 | 0 | 9,186 | 118 | |||||||||||||||
With a related allowance recorded: | ||||||||||||||||||||
Commercial and industrial | 256 | 345 | 254 | 829 | 0 | |||||||||||||||
SBA | 801 | 816 | 286 | 816 | 0 | |||||||||||||||
Real estate: | ||||||||||||||||||||
Commercial real estate | ||||||||||||||||||||
Owner occupied | 0 | 0 | 0 | 0 | 0 | |||||||||||||||
Non-owner occupied | 0 | 0 | 0 | 0 | 0 | |||||||||||||||
Construction | ||||||||||||||||||||
Speculative | 0 | 0 | 0 | 0 | 0 | |||||||||||||||
Non-speculative | 0 | 0 | 0 | 0 | 0 | |||||||||||||||
SFR mortgage | 0 | 0 | 0 | 0 | 0 | |||||||||||||||
Dairy & livestock and agribusiness | 0 | 0 | 0 | 0 | 0 | |||||||||||||||
Municipal lease finance receivables | 0 | 0 | 0 | 0 | 0 | |||||||||||||||
Consumer and other loans | 0 | 0 | 0 | 0 | 0 | |||||||||||||||
Total | 1,057 | 1,161 | 540 | 1,645 | 0 | |||||||||||||||
Total impaired loans | $ | 9,780 | $ | 11,910 | $ | 540 | $ | 10,831 | $ | 118 | ||||||||||
22
December 31, 2019 | ||||||||||||
Recorded Investment | Unpaid Principal Balance | Related Allowance | ||||||||||
(Dollars in thousands) | ||||||||||||
With no related allowance recorded: | ||||||||||||
Commercial and industrial | $ | 1,091 | $ | 1,261 | $ | 0 | ||||||
SBA | 2,243 | 2,734 | 0 | |||||||||
Real estate: | ||||||||||||
Commercial real estate | ||||||||||||
Owner occupied | 479 | 613 | 0 | |||||||||
Non-owner occupied | 642 | 643 | 0 | |||||||||
Construction | ||||||||||||
Speculative | 0 | 0 | 0 | |||||||||
Non-speculative | 0 | 0 | 0 | |||||||||
SFR mortgage | 2,979 | 3,310 | 0 | |||||||||
Dairy & livestock and agribusiness | 0 | 0 | 0 | |||||||||
Municipal lease finance receivables | 0 | 0 | 0 | |||||||||
Consumer and other loans | 377 | 514 | 0 | |||||||||
Total | 7,811 | 9,075 | 0 | |||||||||
With a related allowance recorded: | ||||||||||||
Commercial and industrial | 253 | 347 | 251 | |||||||||
SBA | 325 | 324 | 257 | |||||||||
Real estate: | ||||||||||||
Commercial real estate | ||||||||||||
Owner occupied | 0 | 0 | 0 | |||||||||
Non-owner occupied | 0 | 0 | 0 | |||||||||
Construction | ||||||||||||
Speculative | 0 | 0 | 0 | |||||||||
Non-speculative | 0 | 0 | 0 | |||||||||
SFR mortgage | 0 | 0 | 0 | |||||||||
Dairy & livestock and agribusiness | 0 | 0 | 0 | |||||||||
Municipal lease finance receivables | 0 | 0 | 0 | |||||||||
Consumer and other loans | 0 | 0 | 0 | |||||||||
Total | 578 | 671 | 508 | |||||||||
Total impaired loans | $ | 8,389 | $ | 9,746 | $ | 508 | ||||||
Collateral Dependent Loans
A loan is considered collateral-dependent when the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the operation or sale of the collateral. The following table presents the recorded investment in collateral-dependent loans by type of loans as of the datedates presented.
| September 30, 2021 |
|
| Number of Loans |
| ||||||||||
| Real Estate |
|
| Business Assets |
|
| Other |
|
| Dependent on |
| ||||
| (Dollars in thousands) |
| |||||||||||||
Commercial real estate | $ | 6,705 |
|
| $ | 0 |
|
| $ | 0 |
|
|
| 8 |
|
Construction |
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
SBA |
| 608 |
|
|
| 775 |
|
|
| 130 |
|
|
| 11 |
|
SBA - PPP |
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
Commercial and industrial |
| 743 |
|
|
| 6,088 |
|
|
| 132 |
|
|
| 19 |
|
Dairy & livestock and agribusiness |
| 0 |
|
|
| 118 |
|
|
| 0 |
|
|
| 1 |
|
Municipal lease finance receivables |
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
SFR mortgage |
| 1,143 |
|
|
| 0 |
|
|
| 0 |
|
|
| 6 |
|
Consumer and other loans |
| 305 |
|
|
| 0 |
|
|
| 0 |
|
|
| 3 |
|
Total collateral-dependent loans | $ | 9,504 |
|
| $ | 6,981 |
|
| $ | 262 |
|
|
| 48 |
|
| December 31, 2020 |
|
| Number of Loans |
| ||||||||||
| Real Estate |
|
| Business Assets |
|
| Other |
|
| Dependent on |
| ||||
| (Dollars in thousands) |
| |||||||||||||
Commercial real estate | $ | 7,883 |
|
| $ | 0 |
|
| $ | 0 |
|
|
| 8 |
|
Construction |
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
SBA |
| 1,761 |
|
|
| 326 |
|
|
| 185 |
|
|
| 10 |
|
SBA - PPP |
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
Commercial and industrial |
| 470 |
|
|
| 5,542 |
|
|
| 95 |
|
|
| 18 |
|
Dairy & livestock and agribusiness |
| 0 |
|
|
| 785 |
|
|
| 0 |
|
|
| 1 |
|
Municipal lease finance receivables |
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
SFR mortgage |
| 430 |
|
|
| 0 |
|
|
| 0 |
|
|
| 2 |
|
Consumer and other loans |
| 168 |
|
|
| 0 |
|
|
| 0 |
|
|
| 2 |
|
Total collateral-dependent loans | $ | 10,712 |
|
| $ | 6,653 |
|
| $ | 280 |
|
|
| 41 |
|
September 30, 2020 | Number of Loans Dependent on Collateral | |||||||||||||||
Real Estate | Business Assets | Other | ||||||||||||||
(Dollars in thousands) | ||||||||||||||||
Commercial and industrial | $ | 145 | $ | 4,703 | $ | 62 | 14 | |||||||||
SBA | 1,015 | 497 | 7 | 11 | ||||||||||||
SBA - PPP | 0 | 0 | 0 | 0 | ||||||||||||
Real estate: | ||||||||||||||||
Commercial real estate | 6,836 | 0 | 0 | 7 | ||||||||||||
Construction | 0 | 0 | 0 | 0 | ||||||||||||
SFR mortgage | 675 | 0 | 0 | 3 | ||||||||||||
Dairy & livestock and agribusiness | 0 | 849 | 0 | 1 | ||||||||||||
Municipal lease finance receivables | 0 | 0 | 0 | 0 | ||||||||||||
Consumer and other loans | 203 | 0 | 20 | 4 | ||||||||||||
Total collateral-dependent loans | $ | 8,874 | $ | 6,049 | $ | 89 | 40 | |||||||||
Reserve for Unfunded Loan Commitments
The allowance foratin the same timemanner as it evaluates credit risk associated with the loan and lease portfolio. As a resultThe Bank's ACL methodology produced an allowance of $8.0 million for the adoption of ASU2016-13,the reserve for unfunded loan commitments included a transition adjustment of $41,000off-balance sheet credit exposures as of January 1, 2020.September 30, 2021. There was 0 provision or recapture of provision for unfunded loan commitments for the three months ended September 30, 2021, compared to a $1.0 million recapture of provision for unfunded loan commitments for the three months ended June 30, 2021, and 0 provision or recapture of provision for unfunded loan commitments for the nine months ended September 30, 2020. As of September 30, 20202021 and December 31, 2019,2020, the balance in this reserve was $9.0$8.0 million and $9.0 million, respectively, and was included in other liabilities.
23
Troubled Debt Restructurings (“TDRs”)
Loans that are reported as TDRs are considered nonperformingimpaired and20192020 for a more detailed discussion regarding TDRs.
As of September 30, 2020,2021, there were $2.2$8.0 million of loans classified as a TDR, all of2020,2021, performing TDRs were comprised of seventhree commercial and industrial loans of $4.3 million, two commercial real estate loans of $2.6 million, and five SFR mortgage loans of $1.8 million, one commercial real estate loan of $354,000, and one commercial and industrial loan of $47,000.
The majority of TDRs have no specific allowance allocated as any impairment amount is normally charged off at the time a probable lossthe loan is determined.considered uncollectible. We have 0 allocated allowance to TDRs as of September 30, 20202021 and December 31, 2019.
The following table provides a summary of the activity related to TDRs for the periods presented.
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||
| (Dollars in thousands) |
| |||||||||||||
Performing TDRs: |
|
|
|
|
|
|
|
|
|
|
| ||||
Beginning balance | $ | 8,215 |
|
| $ | 2,771 |
|
| $ | 2,159 |
|
| $ | 3,112 |
|
New modifications |
| 0 |
|
|
| 0 |
|
|
| 7,096 |
|
|
| 0 |
|
Payoffs/payments, net and other |
| (240 | ) |
|
| (554 | ) |
|
| (1,280 | ) |
|
| (895 | ) |
TDRs returned to accrual status |
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
TDRs placed on nonaccrual status |
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
Ending balance | $ | 7,975 |
|
| $ | 2,217 |
|
| $ | 7,975 |
|
| $ | 2,217 |
|
Nonperforming TDRs: |
|
|
|
|
|
|
|
|
|
|
| ||||
Beginning balance | $ | 0 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 244 |
|
New modifications |
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
Charge-offs |
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
Payoffs/payments, net and other |
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| (244 | ) |
TDRs returned to accrual status |
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
TDRs placed on nonaccrual status |
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
Ending balance | $ | 0 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 0 |
|
Total TDRs | $ | 7,975 |
|
| $ | 2,217 |
|
| $ | 7,975 |
|
| $ | 2,217 |
|
24
The following tables summarize loans modified as TDRs for the period presented.
Modifications (1)
| For the Three Months Ended September 30, 2021 |
| |||||||||||||||||
| Number of Loans |
|
| Pre-Modification Outstanding Recorded Investment |
|
| Post-Modification Outstanding Recorded |
|
| Outstanding Recorded Investment at September 30, 2021 |
|
| Financial Effect Resulting From Modifications (2) |
| |||||
| (Dollars in thousands) |
| |||||||||||||||||
Commercial real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Interest rate reduction |
| 0 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 0 |
|
Change in amortization period |
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
Commercial and industrial: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Interest rate reduction |
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
Change in amortization period |
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
SFR mortgage: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Interest rate reduction |
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
Change in amortization period |
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
Total loans |
| 0 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 0 |
|
| For the Nine Months Ended September 30, 2021 |
| |||||||||||||||||
| Number of Loans |
|
| Pre-Modification Outstanding Recorded Investment |
|
| Post-Modification Outstanding Recorded |
|
| Outstanding Recorded Investment at September 30, 2021 |
|
| Financial Effect Resulting From Modifications (2) |
| |||||
| (Dollars in thousands) |
| |||||||||||||||||
Commercial real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Interest rate reduction |
| 1 |
|
| $ | 2,453 |
|
| $ | 2,453 |
|
| $ | 2,446 |
|
| $ | 0 |
|
Change in amortization period |
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
Commercial and industrial: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Interest rate reduction |
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
Change in amortization period |
| 2 |
|
|
| 4,643 |
|
|
| 4,643 |
|
|
| 4,293 |
|
|
| 0 |
|
SFR mortgage: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Interest rate reduction |
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
Change in amortization period |
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
Total loans |
| 3 |
|
| $ | 7,096 |
|
| $ | 7,096 |
|
| $ | 6,739 |
|
| $ | 0 |
|
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||
(Dollars in thousands) | ||||||||||||||||
Performing TDRs: | ||||||||||||||||
Beginning balance | $ | 2,771 | $ | 3,219 | $ | 3,112 | $ | 3,594 | ||||||||
New modifications | 0 | 0 | 0 | 0 | ||||||||||||
Payoffs/payments, net and other | (554 | ) | (51 | ) | (895 | ) | (426 | ) | ||||||||
TDRs returned to accrual status | 0 | 0 | 0 | 0 | ||||||||||||
TDRs placed on nonaccrual status | 0 | 0 | 0 | 0 | ||||||||||||
Ending balance | $ | 2,217 | $ | 3,168 | $ | 2,217 | $ | 3,168 | ||||||||
Nonperforming TDRs: | ||||||||||||||||
Beginning balance | $ | 0 | $ | 263 | $ | 244 | $ | 3,509 | ||||||||
New modifications | 0 | 0 | 0 | 0 | ||||||||||||
Charge-offs | 0 | 0 | 0 | (78 | ) | |||||||||||
Transfer to OREO | 0 | 0 | 0 | (2,275 | ) | |||||||||||
Payoffs/payments, net and other | 0 | (14 | ) | (244 | ) | (907 | ) | |||||||||
TDRs returned to accrual status | 0 | 0 | 0 | 0 | ||||||||||||
TDRs placed on nonaccrual status | 0 | 0 | 0 | 0 | ||||||||||||
Ending balance | $ | 0 | $ | 249 | $ | 0 | $ | 249 | ||||||||
Total TDRs | $ | 2,217 | $ | 3,417 | $ | 2,217 | $ | 3,417 | ||||||||
As of September 30, 20202021 and 2019,2020, there were no0 loans that were modified as TDRs during the nine months ended September 30, 2020 and 2019, respectively.
25
6. EARNINGS PER SHARE RECONCILIATION
Basic earnings per common share are computed by dividing income allocated to common stockholders by the weighted-average number of common shares outstanding during each period. The computation of diluted earnings per common share considers the number of shares issuable upon the assumed exercise of outstanding common stock options. Antidilutive common shares are not included in the calculation of diluted earnings per common share. For the three and nine months ended September 30, 2021, shares deemed to be antidilutive, and thus excluded from the computation of earnings per common share, were 321,000 and 114,000, respectively. For the three and nine months ended September 30, 2020, shares deemed to be antidilutive, and thus excluded from the computation of earnings per common share, were 517,000 and 361,000, respectively. For the three and nine months ended September 30, 2019, shares deemed to be antidilutive, and thus excluded from the computation of earnings per common share, were 240,000 and 184,000, 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.
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||
|
| (In thousands, except per share amounts) |
| |||||||||||||
Earnings per common share: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Net earnings |
| $ | 49,753 |
|
| $ | 47,492 |
|
| $ | 164,825 |
|
| $ | 127,103 |
|
Less: Net earnings allocated to restricted stock |
|
| 227 |
|
|
| 175 |
|
|
| 773 |
|
|
| 407 |
|
Net earnings allocated to common shareholders |
| $ | 49,526 |
|
| $ | 47,317 |
|
| $ | 164,052 |
|
| $ | 126,696 |
|
Weighted average shares outstanding |
|
| 135,200 |
|
|
| 135,017 |
|
|
| 135,226 |
|
|
| 136,369 |
|
Basic earnings per common share |
| $ | 0.37 |
|
| $ | 0.35 |
|
| $ | 1.21 |
|
| $ | 0.93 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Diluted earnings per common share: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Net income allocated to common shareholders |
| $ | 49,526 |
|
| $ | 47,317 |
|
| $ | 164,052 |
|
| $ | 126,696 |
|
Weighted average shares outstanding |
|
| 135,200 |
|
|
| 135,017 |
|
|
| 135,226 |
|
|
| 136,369 |
|
Incremental shares from assumed exercise of |
|
| 184 |
|
|
| 167 |
|
|
| 215 |
|
|
| 167 |
|
Diluted weighted average shares outstanding |
|
| 135,384 |
|
|
| 135,184 |
|
|
| 135,441 |
|
|
| 136,536 |
|
Diluted earnings per common share |
| $ | 0.37 |
|
| $ | 0.35 |
|
| $ | 1.21 |
|
| $ | 0.93 |
|
26
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||
(In thousands, except per share amounts) | ||||||||||||||||
Earnings per common share: | ||||||||||||||||
Net earnings | $ | 47,492 | $ | 50,423 | $ | 127,103 | $ | 156,546 | ||||||||
Less: Net earnings allocated to restricted stock | 175 | 116 | 407 | 390 | ||||||||||||
Net earnings allocated to common shareholders | $ | 47,317 | $ | 50,307 | $ | 126,696 | $ | 156,156 | ||||||||
Weighted average shares outstanding | 135,017 | 139,824 | 136,369 | 139,730 | ||||||||||||
Basic earnings per common share | $ | 0.35 | $ | 0.36 | $ | 0.93 | $ | 1.12 | ||||||||
Diluted earnings per common share: | ||||||||||||||||
Net income allocated to common shareholders | $ | 47,317 | $ | 50,307 | $ | 126,696 | $ | 156,156 | ||||||||
Weighted average shares outstanding | 135,017 | 139,824 | 136,369 | 139,730 | ||||||||||||
Incremental shares from assumed exercise of outstanding options | 167 | 151 | 167 | 217 | ||||||||||||
Diluted weighted average shares outstanding | 135,184 | 139,975 | 136,536 | 139,947 | ||||||||||||
Diluted earnings per common share | $ | 0.35 | $ | 0.36 | $ | 0.93 | $ | 1.12 | ||||||||
7. 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 informationvaluation methodologies for financial assets and liabilities as of September 30, 2020. Themeasured at fair value hierarchy prioritizeson a recurring and non-recurring basis are described in Note 19 — Fair Value Information, included in our Annual Report on Form 10-K for the inputs to valuation techniques used to measure fair value into three broad levels (Level 1, Level 2 and Level 3).
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 as of the dates presented.
|
| Carrying Value at |
|
| Quoted Prices |
|
| Significant Other Observable Inputs |
|
| Significant Unobservable Inputs |
| ||||
|
| (Dollars in thousands) |
| |||||||||||||
Description of assets |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Investment securities - AFS: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Mortgage-backed securities |
| $ | 2,269,073 |
|
| $ | 0 |
|
| $ | 2,269,073 |
|
| $ | 0 |
|
CMO/REMIC |
|
| 625,167 |
|
|
| 0 |
|
|
| 625,167 |
|
|
| 0 |
|
Municipal bonds |
|
| 29,820 |
|
|
| 0 |
|
|
| 29,820 |
|
|
| 0 |
|
Other securities |
|
| 1,000 |
|
|
| 0 |
|
|
| 1,000 |
|
|
| 0 |
|
Total investment securities - AFS |
|
| 2,925,060 |
|
|
| 0 |
|
|
| 2,925,060 |
|
|
| 0 |
|
Interest rate swaps |
|
| 16,176 |
|
|
| 0 |
|
|
| 16,176 |
|
|
| 0 |
|
Total assets |
| $ | 2,941,236 |
|
| $ | 0 |
|
| $ | 2,941,236 |
|
| $ | 0 |
|
Description of liability |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Interest rate swaps |
| $ | 16,176 |
|
| $ | 0 |
|
| $ | 16,176 |
|
| $ | 0 |
|
Total liabilities |
| $ | 16,176 |
|
| $ | 0 |
|
| $ | 16,176 |
|
| $ | 0 |
|
|
| Carrying Value at |
|
| Quoted Prices |
|
| Significant Other Observable Inputs |
|
| Significant Unobservable Inputs |
| ||||
|
| (Dollars in thousands) |
| |||||||||||||
Description of assets |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Investment securities - AFS: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Mortgage-backed securities |
| $ | 1,904,935 |
|
| $ | 0 |
|
| $ | 1,904,935 |
|
| $ | 0 |
|
CMO/REMIC |
|
| 462,814 |
|
|
| 0 |
|
|
| 462,814 |
|
|
| 0 |
|
Municipal bonds |
|
| 30,285 |
|
|
| 0 |
|
|
| 30,285 |
|
|
| 0 |
|
Other securities |
|
| 889 |
|
|
| 0 |
|
|
| 889 |
|
|
| 0 |
|
Total investment securities - AFS |
|
| 2,398,923 |
|
|
| 0 |
|
|
| 2,398,923 |
|
|
| 0 |
|
Interest rate swaps |
|
| 30,181 |
|
|
| 0 |
|
|
| 30,181 |
|
|
| 0 |
|
Total assets |
| $ | 2,429,104 |
|
| $ | 0 |
|
| $ | 2,429,104 |
|
| $ | 0 |
|
Description of liability |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Interest rate swaps |
| $ | 30,181 |
|
| $ | 0 |
|
| $ | 30,181 |
|
| $ | 0 |
|
Total liabilities |
| $ | 30,181 |
|
| $ | 0 |
|
| $ | 30,181 |
|
| $ | 0 |
|
Carrying Value at September 30, 2020 | 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: | ||||||||||||||||
Mortgage-backed securities | $ | 1,756,871 | $ | 0 | $ | 1,756,871 | $ | 0 | ||||||||
CMO/REMIC | 411,494 | 0 | 411,494 | 0 | ||||||||||||
Municipal bonds | 36,468 | 0 | 36,468 | 0 | ||||||||||||
Other securities | 813 | 0 | 813 | 0 | ||||||||||||
Total investment securities - AFS | 2,205,646 | 0 | 2,205,646 | 0 | ||||||||||||
Interest rate swaps | 37,255 | 0 | 37,255 | 0 | ||||||||||||
Total assets | $ | 2,242,901 | $ | 0 | $ | 2,242,901 | $ | 0 | ||||||||
Description of liability | ||||||||||||||||
Interest rate swaps | $ | 37,255 | $ | 0 | $ | 37,255 | $ | 0 | ||||||||
Total liabilities | $ | 37,255 | $ | 0 | $ | 37,255 | $ | 0 | ||||||||
Carrying Value at December 31, 2019 | 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: | ||||||||||||||||
Mortgage-backed securities | $ | 1,206,313 | $ | 0 | $ | 1,206,313 | $ | 0 | ||||||||
CMO/REMIC | 493,710 | 0 | 493,710 | 0 | ||||||||||||
Municipal bonds | 39,354 | 0 | 39,354 | 0 | ||||||||||||
Other securities | 880 | 0 | 880 | 0 | ||||||||||||
Total investment securities - AFS | 1,740,257 | 0 | 1,740,257 | 0 | ||||||||||||
Interest rate swaps | 11,502 | 0 | 11,502 | 0 | ||||||||||||
Total assets | $ | 1,751,759 | $ | 0 | $ | 1,751,759 | $ | 0 | ||||||||
Description of liability | ||||||||||||||||
Interest rate swaps | $ | 11,502 | $ | 0 | $ | 11,502 | $ | 0 | ||||||||
Total liabilities | $ | 11,502 | $ | 0 | $ | 11,502 | $ | 0 | ||||||||
27
Assets and Liabilities Measured at Fair Value on a
We may be required to measure certain assets at fair value on a
For assets measured at fair value on a20202021 and December 31, 2019,2020, 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, 2020 | 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, 2020 | ||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||
Description of assets | ||||||||||||||||||||
Loans: | ||||||||||||||||||||
Commercial and industrial | $ | 3,273 | $ | 0 | $ | 0 | $ | 3,273 | $ | 2,034 | ||||||||||
SBA | 712 | 0 | 0 | 712 | 203 | |||||||||||||||
Real estate: | ||||||||||||||||||||
Commercial real estate | 1,715 | 0 | 0 | 1,715 | 1,295 | |||||||||||||||
Construction | 0 | 0 | 0 | 0 | 0 | |||||||||||||||
SFR mortgage | 0 | 0 | 0 | 0 | 0 | |||||||||||||||
Dairy & livestock and agribusiness | 0 | 0 | 0 | 0 | 0 | |||||||||||||||
Consumer and other loans | 0 | 0 | 0 | 0 | 0 | |||||||||||||||
Other real estate owned | 2,275 | 0 | 0 | 2,275 | 700 | |||||||||||||||
Asset held-for-sale | 0 | 0 | 0 | 0 | 0 | |||||||||||||||
Total assets | $ | 7,975 | $ | 0 | $ | 0 | $ | 7,975 | $ | 4,232 | ||||||||||
Carrying Value at December 31, 2019 | 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, 2019 | ||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||
Description of assets | ||||||||||||||||||||
Impaired loans: | ||||||||||||||||||||
Commercial and industrial | $ | 253 | $ | 0 | $ | 0 | $ | 253 | $ | 251 | ||||||||||
SBA | 359 | 0 | 0 | 359 | 513 | |||||||||||||||
Real estate: | ||||||||||||||||||||
Commercial real estate | 0 | 0 | 0 | 0 | 0 | |||||||||||||||
Construction | 0 | 0 | 0 | 0 | 0 | |||||||||||||||
SFR mortgage | 0 | 0 | 0 | 0 | 0 | |||||||||||||||
Dairy & livestock and agribusiness | 0 | 0 | 0 | 0 | 0 | |||||||||||||||
Consumer and other loans | 0 | 0 | 0 | 0 | 0 | |||||||||||||||
Other real estate owned | 444 | 0 | 0 | 444 | 64 | |||||||||||||||
Asset held-for-sale | 0 | 0 | 0 | 0 | 0 | |||||||||||||||
Total assets | $ | 1,056 | $ | 0 | $ | 0 | $ | 1,056 | $ | 828 | ||||||||||
|
| Carrying |
|
| Quoted Prices |
|
| Significant Other Observable Inputs |
|
| Significant Unobservable Inputs |
|
| Total Losses |
| |||||
|
| (Dollars in thousands) |
| |||||||||||||||||
Description of assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Commercial real estate |
| $ | 0 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 0 |
|
Construction |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
SBA |
|
| 678 |
|
|
| 0 |
|
|
| 0 |
|
|
| 678 |
|
|
| 150 |
|
Commercial and industrial |
|
| 43 |
|
|
| 0 |
|
|
| 0 |
|
|
| 43 |
|
|
| 3,020 |
|
Dairy & livestock and |
|
| 119 |
|
|
| 0 |
|
|
| 0 |
|
|
| 119 |
|
|
| 60 |
|
Municipal lease finance |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
SFR mortgage |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
Consumer and other loans |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 11 |
|
Other real estate owned |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
Asset held-for-sale |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
Total assets |
| $ | 840 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 840 |
|
| $ | 3,241 |
|
|
| Carrying |
|
| Quoted Prices |
|
| Significant Other Observable Inputs |
|
| Significant Unobservable Inputs |
|
| Total Losses For |
| |||||
|
| (Dollars in thousands) |
| |||||||||||||||||
Description of assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Commercial real estate |
| $ | 0 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 0 |
|
Construction |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
SBA |
|
| 76 |
|
|
| 0 |
|
|
| 0 |
|
|
| 76 |
|
|
| 24 |
|
Commercial and industrial |
|
| 4,266 |
|
|
| 0 |
|
|
| 0 |
|
|
| 4,266 |
|
|
| 2,316 |
|
Dairy & livestock and |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
Municipal lease finance |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
SFR mortgage |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
Consumer and other loans |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
Other real estate owned |
|
| 2,275 |
|
|
| 0 |
|
|
| 0 |
|
|
| 2,275 |
|
|
| 700 |
|
Asset held-for-sale |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
Total assets |
| $ | 6,617 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 6,617 |
|
| $ | 3,040 |
|
28
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, 20202021 and December 31, 2019,2020, respectively. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.
| September 30, 2021 |
| |||||||||||||||||
| Carrying |
|
| Estimated Fair Value |
| ||||||||||||||
| Amount |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Total |
| |||||
| (Dollars in thousands) |
| |||||||||||||||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Total cash and cash equivalents | $ | 2,561,363 |
|
| $ | 2,561,363 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 2,561,363 |
|
Interest-earning balances due from |
| 27,260 |
|
|
| 0 |
|
|
| 27,260 |
|
|
| 0 |
|
|
| 27,260 |
|
Investment securities available-for-sale |
| 2,925,060 |
|
|
| 0 |
|
|
| 2,925,060 |
|
|
| 0 |
|
|
| 2,925,060 |
|
Investment securities held-to-maturity |
| 1,710,938 |
|
|
| 0 |
|
|
| 1,717,230 |
|
|
| 0 |
|
|
| 1,717,230 |
|
Total loans, net of allowance for credit |
| 7,784,156 |
|
|
| 0 |
|
|
| 0 |
|
|
| 7,739,732 |
|
|
| 7,739,732 |
|
Swaps |
| 16,176 |
|
|
| 0 |
|
|
| 16,176 |
|
|
| 0 |
|
|
| 16,176 |
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Deposits: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Interest-bearing | $ | 4,619,507 |
|
| $ | 0 |
|
| $ | 4,619,178 |
|
| $ | 0 |
|
| $ | 4,619,178 |
|
Borrowings |
| 659,579 |
|
|
| 0 |
|
|
| 609,580 |
|
|
| 0 |
|
|
| 609,580 |
|
Junior subordinated debentures |
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
Swaps |
| 16,176 |
|
|
| 0 |
|
|
| 16,176 |
|
|
| 0 |
|
|
| 16,176 |
|
| December 31, 2020 |
| |||||||||||||||||
| Carrying |
|
| Estimated Fair Value |
| ||||||||||||||
| Amount |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Total |
| |||||
| (Dollars in thousands) |
| |||||||||||||||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Total cash and cash equivalents | $ | 1,958,160 |
|
| $ | 1,958,160 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 1,958,160 |
|
Interest-earning balances due from |
| 43,563 |
|
|
| 0 |
|
|
| 43,600 |
|
|
| 0 |
|
|
| 43,600 |
|
Investment securities available-for-sale |
| 2,398,923 |
|
|
| 0 |
|
|
| 2,398,923 |
|
|
| 0 |
|
|
| 2,398,923 |
|
Investment securities held-to-maturity |
| 578,626 |
|
|
| 0 |
|
|
| 604,223 |
|
|
| 0 |
|
|
| 604,223 |
|
Total loans, net of allowance for credit |
| 8,255,116 |
|
|
| 0 |
|
|
| 0 |
|
|
| 8,256,178 |
|
|
| 8,256,178 |
|
Swaps |
| 30,181 |
|
|
| 0 |
|
|
| 30,181 |
|
|
| 0 |
|
|
| 30,181 |
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Deposits: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Interest-bearing | $ | 4,281,114 |
|
| $ | 0 |
|
| $ | 4,281,952 |
|
| $ | 0 |
|
| $ | 4,281,952 |
|
Borrowings |
| 444,406 |
|
|
| 0 |
|
|
| 444,349 |
|
|
| 0 |
|
|
| 444,349 |
|
Junior subordinated debentures |
| 25,774 |
|
|
| 0 |
|
|
| 0 |
|
|
| 19,431 |
|
|
| 19,431 |
|
Swaps |
| 30,181 |
|
|
| 0 |
|
|
| 30,181 |
|
|
| 0 |
|
|
| 30,181 |
|
September 30, 2020 | ||||||||||||||||||||
Carrying Amount | Estimated Fair Value | |||||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||
Assets | ||||||||||||||||||||
Total cash and cash equivalents | $ | 1,484,953 | $ | 1,484,953 | $ | 0 | $ | 0 | $ | 1,484,953 | ||||||||||
Interest-earning balances due from depository institutions | 44,367 | 0 | 44,414 | 0 | 44,414 | |||||||||||||||
Investment securities available-for-sale | 2,205,646 | 0 | 2,205,646 | 0 | 2,205,646 | |||||||||||||||
Investment securities held-to-maturity | 577,694 | 0 | 603,522 | 0 | 603,522 | |||||||||||||||
Total loans, net of allowance for credit losses | 8,314,003 | 0 | 0 | 8,326,796 | 8,326,796 | |||||||||||||||
Swaps | 37,255 | 0 | 37,255 | 0 | 37,255 | |||||||||||||||
Liabilities | ||||||||||||||||||||
Deposits: | ||||||||||||||||||||
Interest-bearing | $ | 4,249,411 | $ | 0 | $ | 4,250,728 | $ | 0 | $ | 4,250,728 | ||||||||||
Borrowings | 493,420 | 0 | 493,344 | 0 | 493,344 | |||||||||||||||
Junior subordinated debentures | 25,774 | 0 | 0 | 18,917 | 18,917 | |||||||||||||||
Swaps | 37,255 | 0 | 37,255 | 0 | 37,255 |
December 31, 2019 | ||||||||||||||||||||
Carrying Amount | Estimated Fair Value | |||||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||
Assets | ||||||||||||||||||||
Total cash and cash equivalents | $ | 185,518 | $ | 185,518 | $ | 0 | $ | 0 | $ | 185,518 | ||||||||||
Interest-earning balances due from depository institutions | 2,931 | 0 | 2,938 | 0 | 2,938 | |||||||||||||||
Investment securities available-for-sale | 1,740,257 | 0 | 1,740,257 | 0 | 1,740,257 | |||||||||||||||
Investment securities held-to-maturity | 674,452 | 0 | 678,948 | 0 | 678,948 | |||||||||||||||
Total loans, net of allowance for loan losses | 7,495,917 | 0 | 0 | 7,343,167 | 7,343,167 | |||||||||||||||
Swaps | 11,502 | 0 | 11,502 | 0 | 11,502 | |||||||||||||||
Liabilities | ||||||||||||||||||||
Deposits: | ||||||||||||||||||||
Interest-bearing | $ | 3,459,411 | $ | 0 | $ | 3,457,922 | $ | 0 | $ | 3,457,922 | ||||||||||
Borrowings | 428,659 | 0 | 428,330 | 0 | 428,330 | |||||||||||||||
Junior subordinated debentures | 25,774 | 0 | 0 | 20,669 | 20,669 | |||||||||||||||
Swaps | 11,502 | 0 | 11,502 | 0 | 11,502 |
The fair value estimates presented herein are based on pertinent information available to management as of September 30, 20202021 and December 31, 2019.2020. Although management is not aware of any factors that would significantly affect the estimated fair value amounts, such amounts have not been comprehensively revalued for purposes of these financial statements since that date, and therefore, current estimates of fair value may differ significantly from the amounts presented above.
29
8. DERIVATIVE FINANCIAL INSTRUMENTS
The Bank is exposed to certain risks relating to its ongoing business operations and utilizes interest rate swap agreements (“swaps”) as part of its asset/liability management strategy to help manage its interest rate risk position. As of September 30, 2020,2021, the Bank has entered into 133 144interest-rate swap agreements with customers with a notional amount totaling $455.2$502.4 million. The Bank then entered into identical offsetting swaps with a counterparty. The swap agreements are not designated as hedging instruments. The purpose of entering into offsetting derivatives not designated as a hedging instrument is to provide the Bank a variable-rate loan receivable and to provide the customer the financial effects of a fixed-rate loan without creating significant volatility in the Bank’s earnings.
The structure of the swaps is as follows. The Bank enters into an interest rate swap with its customers in which the Bank pays the customer a variable rate and the customer pays the Bank a fixed rate, therefore allowing customers to convert variable rate loans to fixed rate loans. At the same time, the Bank enters into a swap with the counterparty bank in which the Bank pays the counterparty a fixed rate and the counterparty in return pays the Bank a variable rate. The net effect of the transaction allows the Bank to receive interest on the loan from the customer at a variable rate based on LIBOR plus a spread. The changes in the fair value of the swaps primarily offset each other and therefore should not have a significant impact on the Company’s results of operations, although the Company does incur credit and counterparty risk with respect to performance on the swap agreements by the Bank’s customer and counterparty, respectively. As a result of the Bank exceeding $10 billion in assets, federal regulations required the Bank, beginning in January 2019, to clear most interest rate swaps through a clearing house (“centrally cleared”). These instruments contain language outlining collateral pledging requirements for each counterparty, in which collateral must be posted if market value exceeds certain agreed upon threshold limits. Cash or securities are pledged as collateral. Our interest rate swap derivatives are subject to a master netting arrangement with our counterparties. NaNneNaN of our derivative assets and liabilities are offset in the Company’s condensed consolidated balance sheet.
We believe our risk of loss associated with our counterparty borrowers related to interest rate swaps is mitigated as the loans with swaps are underwritten to take into account potential additional exposure, although there can be no assurances in this regard since the performance of our swaps is subject to market and counterparty risk.
30
Balance Sheet Classification of Derivative Financial Instruments
As of September 30, 20202021 and December 31, 2019,2020, the total notional amount of the Company’s swaps was $455.2$502.4 million, and $260.0$503.8 million, respectively. The location of the asset and liability, and their respective fair values, are summarized in the tables below.
|
| September 30, 2021 |
| |||||||||
|
| Asset Derivatives |
|
| Liability Derivatives |
| ||||||
|
| Balance Sheet Location |
| Fair Value |
|
| Balance Sheet Location |
| Fair Value |
| ||
|
| (Dollars in thousands) |
| |||||||||
Derivatives not designated as hedging instruments: |
|
|
|
|
|
|
|
|
|
| ||
Interest rate swaps |
| Other assets |
| $ | 16,176 |
|
| Other liabilities |
| $ | 16,176 |
|
Total derivatives |
|
|
| $ | 16,176 |
|
|
|
| $ | 16,176 |
|
|
| December 31, 2020 |
| |||||||||
|
| Asset Derivatives |
|
| Liability Derivatives |
| ||||||
|
| Balance Sheet Location |
| Fair Value |
|
| Balance Sheet Location |
| Fair Value |
| ||
|
| (Dollars in thousands) |
| |||||||||
Derivatives not designated as hedging instruments: |
|
|
|
|
|
|
|
|
|
| ||
Interest rate swaps |
| Other assets |
| $ | 30,181 |
|
| Other liabilities |
| $ | 30,181 |
|
Total derivatives |
|
|
| $ | 30,181 |
|
|
|
| $ | 30,181 |
|
September 30, 2020 | ||||||||||||||||
Asset Derivatives | Liability Derivatives | |||||||||||||||
Balance Sheet Location | Fair Value | Balance Sheet Location | Fair Value | |||||||||||||
(Dollars in thousands) | ||||||||||||||||
Derivatives not designated as hedging instruments: | ||||||||||||||||
Interest rate swaps | Other assets | $ | 37,255 | Other liabilities | $ | 37,255 | ||||||||||
Total derivatives | $ | 37,255 | $ | 37,255 | ||||||||||||
December 31, 2019 | ||||||||||||||||
Asset Derivatives | Liability Derivatives | |||||||||||||||
Balance Sheet Location | Fair Value | Balance Sheet Location | Fair Value | |||||||||||||
(Dollars in thousands) | ||||||||||||||||
Derivatives not designated as hedging instruments: | ||||||||||||||||
Interest rate swaps | Other assets | $ | 11,502 | Other liabilities | $ | 11,502 | ||||||||||
Total derivatives | $ | 11,502 | $ | 11,502 | ||||||||||||
The Effect of Derivative Financial Instruments on the Condensed Consolidated Statements of Earnings
The following table summarizes the effect of derivative financial instruments on the condensed consolidated statementstatements of earnings for the periods presented.
Derivatives Not Designated |
| Location of Gain Recognized in |
| Amount of Gain Recognized in |
| |||||||||||||
|
|
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
|
|
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||
|
|
|
| (Dollars in thousands) |
| |||||||||||||
Interest rate swaps |
| Other income |
| $ | 167 |
|
| $ | 1,591 |
|
| $ | 382 |
|
| $ | 4,149 |
|
Total |
|
|
| $ | 167 |
|
| $ | 1,591 |
|
| $ | 382 |
|
| $ | 4,149 |
|
31
9. OTHER COMPREHENSIVE INCOME
Derivatives Not Designated as Hedging Instruments | Location of Gain Recognized in Income on Derivative Instruments | Amount of Gain Recognized in Income on Derivative Instruments | ||||||||||||||||||
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||
Interest rate swaps | Other income | $ | 1,591 | $ | 378 | $ | 4,149 | $ | 1,135 | |||||||||||
Total | $ | 1,591 | $ | 378 | $ | 4,149 | $ | 1,135 | ||||||||||||
The table below provides a summary of the components of other comprehensive income (“OCI”) for the periods presented.
|
| Three Months Ended September 30, |
| |||||||||||||||||||||
|
| 2021 |
|
| 2020 |
| ||||||||||||||||||
|
| Before-tax |
|
| Tax effect |
|
| After-tax |
|
| Before-tax |
|
| Tax effect |
|
| After-tax |
| ||||||
|
| (Dollars in thousands) |
| |||||||||||||||||||||
Investment securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net change in fair value recorded in accumulated OCI |
| $ | (14,515 | ) |
| $ | 4,291 |
|
| $ | (10,224 | ) |
| $ | (1,974 | ) |
| $ | 584 |
|
| $ | (1,390 | ) |
Amortization of net unrealized losses on securities |
|
| 72 |
|
|
| (21 | ) |
|
| 51 |
|
|
| (30 | ) |
|
| 9 |
|
|
| (21 | ) |
Net change |
| $ | (14,443 | ) |
| $ | 4,270 |
|
| $ | (10,173 | ) |
| $ | (2,004 | ) |
| $ | 593 |
|
| $ | (1,411 | ) |
|
| Nine Months Ended September 30, |
| |||||||||||||||||||||
|
| 2021 |
|
| 2020 |
| ||||||||||||||||||
|
| Before-tax |
|
| Tax effect |
|
| After-tax |
|
| Before-tax |
|
| Tax effect |
|
| After-tax |
| ||||||
|
| (Dollars in thousands) |
| |||||||||||||||||||||
Investment securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net change in fair value recorded in accumulated OCI |
| $ | (45,989 | ) |
| $ | 13,596 |
|
| $ | (32,393 | ) |
| $ | 33,382 |
|
| $ | (9,869 | ) |
| $ | 23,513 |
|
Amortization of net unrealized losses on securities |
|
| 173 |
|
|
| (51 | ) |
|
| 122 |
|
|
| (48 | ) |
|
| 14 |
|
|
| (34 | ) |
Net change |
| $ | (45,816 | ) |
| $ | 13,545 |
|
| $ | (32,271 | ) |
| $ | 33,334 |
|
| $ | (9,855 | ) |
| $ | 23,479 |
|
32
Three Months Ended September 30, | ||||||||||||||||||||||||
2020 | 2019 | |||||||||||||||||||||||
Before-tax | Tax effect | After-tax | Before-tax | Tax effect | After-tax | |||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||
Investment securities: | ||||||||||||||||||||||||
Net change in fair value recorded in accumulated OCI | $ | (1,974 | ) | $ | 584 | $ | (1,390 | ) | $ | 5,672 | $ | (1,677 | ) | $ | 3,995 | |||||||||
Amortization of net unrealized losses on securities transferred from available-for-sale held-to-maturity | (30 | ) | 9 | (21 | ) | (249 | ) | 74 | (175 | ) | ||||||||||||||
Net realized gain reclassified into earnings (1) | 0 | 0 | 0 | (5 | ) | 1 | (4 | ) | ||||||||||||||||
Net change | $ | (2,004 | ) | $ | 593 | $ | (1,411 | ) | $ | 5,418 | $ | (1,602 | ) | $ | 3,816 | |||||||||
Nine Months Ended September 30, | ||||||||||||||||||||||||
2020 | 2019 | |||||||||||||||||||||||
Before-tax | Tax effect | After-tax | Before-tax | Tax effect | After-tax | |||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||
Investment securities: | ||||||||||||||||||||||||
Net change in fair value recorded in accumulated OCI | $ | 33,382 | $ | (9,869 | ) | $ | 23,513 | $ | 44,586 | $ | (13,181 | ) | $ | 31,405 | ||||||||||
Amortization of net unrealized losses on securities transferred from available-for-sale held-to-maturity | (48 | ) | 14 | (34 | ) | (1,450 | ) | 429 | (1,021 | ) | ||||||||||||||
Net realized gain reclassified into earnings (1) | 0 | 0 | 0 | (5 | ) | 1 | (4 | ) | ||||||||||||||||
Net change | $ | 33,334 | $ | (9,855 | ) | $ | 23,479 | $ | 43,131 | $ | (12,751 | ) | $ | 30,380 | ||||||||||
10. BALANCE SHEET OFFSETTING
Assets and liabilities relating to certain financial instruments, including, derivatives and securities sold under repurchase agreements (“repurchase agreements”), may be eligible for offset in the condensed consolidated balance sheets as permitted under accounting guidance. As noted above, our interest rate swap derivatives are subject to master netting arrangements. Our interest rate swap derivatives require the Company to pledge investment securities as collateral based on certain risk thresholds. Investment securities that have been pledged by the Company to counterparties continue to be reported in the Company’s condensed consolidated balance sheets unless the Company defaults. We offer a repurchase agreement product to our customers, which include master netting agreements that allow for the netting of collateral positions. This product, known as Citizens Sweep Manager, sells certain of our securities overnight to our customers under an agreement to repurchase them the next day. The repurchase agreements are not offset in the Company’s condensed consolidated balances.
| Gross Amounts Recognized in the Condensed |
|
| Gross Amounts Offset in the Condensed |
|
| Net Amounts Presented in the Condensed |
|
| Gross Amounts Not Offset |
|
|
|
| |||||||||
| Consolidated Balance Sheets |
|
| Consolidated Balance Sheets |
|
| Consolidated Balance Sheets |
|
| Financial Instruments |
|
| Collateral Pledged |
|
| Net Amount |
| ||||||
| (Dollars in thousands) |
| |||||||||||||||||||||
September 30, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Financial assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Derivatives not designated as | $ | 16,176 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 16,176 |
|
| $ | 0 |
|
| $ | 16,176 |
|
Total | $ | 16,176 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 16,176 |
|
| $ | 0 |
|
| $ | 16,176 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Financial liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Derivatives not designated as | $ | 24,451 |
|
| $ | (8,275 | ) |
| $ | 16,176 |
|
| $ | 8,275 |
|
| $ | (39,063 | ) |
| $ | (14,612 | ) |
Repurchase agreements |
| 659,579 |
|
|
| 0 |
|
|
| 659,579 |
|
|
| 0 |
|
|
| (697,207 | ) |
|
| (37,628 | ) |
Total | $ | 684,030 |
|
| $ | (8,275 | ) |
| $ | 675,755 |
|
| $ | 8,275 |
|
| $ | (736,270 | ) |
| $ | (52,240 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
December 31, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Financial assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Derivatives not designated as | $ | 30,181 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 30,181 |
|
| $ | 0 |
|
| $ | 30,181 |
|
Total | $ | 30,181 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 30,181 |
|
| $ | 0 |
|
| $ | 30,181 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Financial liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Derivatives not designated as | $ | 30,434 |
|
| $ | (253 | ) |
| $ | 30,181 |
|
| $ | 253 |
|
| $ | (63,730 | ) |
| $ | (33,296 | ) |
Repurchase agreements |
| 439,406 |
|
|
| 0 |
|
|
| 439,406 |
|
|
| 0 |
|
|
| (483,603 | ) |
|
| (44,197 | ) |
Total | $ | 469,840 |
|
| $ | (253 | ) |
| $ | 469,587 |
|
| $ | 253 |
|
| $ | (547,333 | ) |
| $ | (77,493 | ) |
33
Gross Amounts Recognized in the Condensed Consolidated Balance Sheets | Gross Amounts Offset in the Condensed Consolidated Balance Sheets | Net Amounts Presented in the Condensed Consolidated Balance Sheets | Gross Amounts Not Offset in the Condensed Consolidated Balance Sheets | Net Amount | ||||||||||||||||||||
Financial Instruments | Collateral Pledged | |||||||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||
September 30, 2020 | ||||||||||||||||||||||||
Financial assets: | ||||||||||||||||||||||||
Derivatives not designated as hedging instruments | $ | 37,255 | $ | - | $ | - | $ | 37,255 | $ | - | $ | 37,255 | ||||||||||||
Total | $ | 37,255 | $ | - | $ | - | $ | 37,255 | $ | - | $ | 37,255 | ||||||||||||
Financial liabilities: | ||||||||||||||||||||||||
Derivatives not designated as hedging instruments | $ | 37,255 | $ | - | $ | 37,255 | $ | - | $ | (66,946 | ) | $ | (29,691 | ) | ||||||||||
Repurchase agreements | 483,420 | - | 483,420 | - | (498,535 | ) | (15,115 | ) | ||||||||||||||||
Total | $ | 520,675 | $ | - | $ | 520,675 | $ | - | $ | (565,481 | ) | $ | (44,806 | ) | ||||||||||
December 31, 2019 | ||||||||||||||||||||||||
Financial assets: | ||||||||||||||||||||||||
Derivatives not designated as hedging instruments | $ | 11,502 | $ | - | $ | - | $ | 11,502 | $ | - | $ | 11,502 | ||||||||||||
Total | $ | 11,502 | $ | - | $ | - | $ | 11,502 | $ | - | $ | 11,502 | ||||||||||||
Financial liabilities: | ||||||||||||||||||||||||
Derivatives not designated as hedging instruments | $ | 11,619 | $ | (117 | ) | $ | 11,502 | $ | 117 | $ | (23,312 | ) | $ | (11,693 | ) | |||||||||
Repurchase agreements | 428,659 | - | 428,659 | - | (510,138 | ) | (81,479 | ) | ||||||||||||||||
Total | $ | 440,278 | $ | (117 | ) | $ | 440,161 | $ | 117 | $ | (533,450 | ) | $ | (93,172 | ) | |||||||||
11. LEASES
The Company’s operating leases, where the Company is a lessee, include real estate, such as office space and banking centers. Lease expense for operating leases is recognized on a straight-line basis over the term of the lease and is reflected in the consolidated statement of earnings.
While the Company has, as a lessor, certain equipment finance leases, such leases are not material to the Company’s consolidated financial statements.
The tables below present the components of lease costs and supplemental information related to leases as of and for the periods presented.
|
|
|
|
|
| September 30, |
|
| December 31, |
| ||
|
|
|
|
|
| (Dollars in thousands) |
| |||||
Lease Assets and Liabilities |
|
|
|
|
|
|
|
|
|
| ||
ROU assets |
|
|
|
|
| $ | 19,403 |
|
| $ | 19,112 |
|
Total lease liabilities |
|
|
|
|
|
| 21,073 |
|
|
| 21,164 |
|
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||
|
| (Dollars in thousands) |
| |||||||||||||
Lease Cost |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Operating lease expense (1) |
| $ | 1,634 |
|
| $ | 1,654 |
|
| $ | 4,977 |
|
| $ | 4,900 |
|
Sublease income |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
Total lease expense |
| $ | 1,634 |
|
| $ | 1,654 |
|
| $ | 4,977 |
|
| $ | 4,900 |
|
34
Other Information |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Cash paid for amounts included in the |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Operating cash outflows from operating |
| $ | 1,700 |
|
| $ | 1,826 |
|
| $ | 5,364 |
|
| $ | 5,630 |
|
|
|
|
|
|
| September 30, |
|
| December 31, |
| ||
Lease Term and Discount Rate |
|
|
|
|
|
|
|
|
|
| ||
Weighted average remaining lease term |
|
|
|
|
|
| 4.33 |
|
|
| 4.16 |
|
Weighted average discount rate |
|
|
|
|
|
| 2.47 | % |
|
| 2.80 | % |
September 30, 2020 | December 31, 2019 | |||||||
(Dollars in thousands) | ||||||||
Lease Assets and Liabilities | ||||||||
ROU assets | $ | 19,771 | $ | 18,522 | ||||
Total lease liabilities | 21,939 | 21,392 |
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||
(Dollars in thousands) | ||||||||||||||||
Lease Cost | ||||||||||||||||
Operating lease expense (1) | $ | 1,654 | $ | 1,628 | $ | 4,900 | $ | 5,634 | ||||||||
Sublease income | 0 | 0 | - | 0 | ||||||||||||
Total lease expense | $ | 1,654 | $ | 1,628 | $ | 4,900 | $ | 5,634 | ||||||||
(1) Includes short-term leases and variable lease costs, which are immaterial. | ||||||||||||||||
Other Information | ||||||||||||||||
Cash paid for amounts included in the measurement of lease liabilities: | ||||||||||||||||
Operating cash outflows from operating leases, net | $ | 1,826 | $ | 1,640 | $ | 5,630 | $ | 6,499 |
Lease Term and Discount Rate | September 30, 2020 | December 31, 2019 | ||||||
Weighted average remaining lease term (years) | 4.29 | 4.18 | ||||||
Weighted average discount rate | 2.86 | % | 3.34 | % |
The Company’s lease arrangements that have not yet commenced as of September 30, 20202021 and the Company’s short-term lease costs and variable lease costs, for the nine months ended September 30, 2021 and 2020 are not material to the consolidated financial statements. The future lease payments required for leases that have initial or remaining2020,2021, excluding property taxes and insurance, are as follows:
|
| September 30, |
| |
|
| (Dollars in thousands) |
| |
Year: |
|
|
| |
2021 (excluding the nine months ended September 30, 2021) |
| $ | 1,713 |
|
2022 |
|
| 6,392 |
|
2023 |
|
| 4,660 |
|
2024 |
|
| 3,498 |
|
2025 |
|
| 2,806 |
|
Thereafter |
|
| 3,085 |
|
Total future lease payments |
|
| 22,154 |
|
Less: Imputed interest |
|
| (1,081 | ) |
Present value of lease liabilities |
| $ | 21,073 |
|
September 30, 2020 | ||||
(Dollars in thousands) | ||||
Year: | ||||
2020 (excluding the nine months ended September 30, 2020) | $ | 1,781 | ||
2021 | 6,656 | |||
2022 | 5,475 | |||
2023 | 3,615 | |||
2024 | 2,428 | |||
Thereafter | 3,461 | |||
Total future lease payments | 23,416 | |||
Less: Imputed interest | (1,477 | ) | ||
Present value of lease liabilities | $ | 21,939 | ||
12. REVENUE RECOGNITION
The following presents noninterest income, segregated by revenue streams in-scope and out-of-scope of ASU“Revenue “Revenue from Contracts with Customers (Topic 606)” and all subsequent ASUs that modified Topic 606. , for the periods indicated.
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||
|
| (Dollars in thousands) |
| |||||||||||||
Noninterest income: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
In-scope of Topic 606: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Service charges on deposit accounts |
| $ | 4,513 |
|
| $ | 3,970 |
|
| $ | 12,667 |
|
| $ | 12,555 |
|
Trust and investment services |
|
| 2,681 |
|
|
| 2,405 |
|
|
| 8,459 |
|
|
| 7,302 |
|
Bankcard services |
|
| 479 |
|
|
| 456 |
|
|
| 1,362 |
|
|
| 1,438 |
|
Gain on OREO, net |
|
| 0 |
|
|
| 13 |
|
|
| 477 |
|
|
| 23 |
|
Other |
|
| 1,581 |
|
|
| 3,160 |
|
|
| 4,753 |
|
|
| 8,736 |
|
Noninterest Income (in-scope of Topic 606) |
|
| 9,254 |
|
|
| 10,004 |
|
|
| 27,718 |
|
|
| 30,054 |
|
Noninterest Income (out-of-scope of Topic 606) |
|
| 1,229 |
|
|
| 3,149 |
|
|
| 7,282 |
|
|
| 6,891 |
|
Total noninterest income |
| $ | 10,483 |
|
| $ | 13,153 |
|
| $ | 35,000 |
|
| $ | 36,945 |
|
Refer to Note 3 –of 2019 Annual Report on Form20192020 for a more detailed discussion about noninterest revenue streams that are
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||
(Dollars in thousands) | ||||||||||||||||
Noninterest income: | ||||||||||||||||
In-scope of Topic 606: | ||||||||||||||||
Service charges on deposit accounts | $ | 3,970 | $ | 4,833 | $ | 12,555 | $ | 15,039 | ||||||||
Trust and investment services | 2,405 | 2,330 | 7,302 | 6,964 | ||||||||||||
Bankcard services | 456 | 637 | 1,438 | 2,614 | ||||||||||||
Gain on OREO, net | 13 | 0 | 23 | 129 | ||||||||||||
Other | 3,160 | 2,292 | 8,736 | 6,939 | ||||||||||||
Noninterest Income (in-scope of Topic 606) | 10,004 | 10,092 | 30,054 | 31,685 | ||||||||||||
Noninterest Income (out-of-scope | 3,149 | 1,802 | 6,891 | 14,717 | ||||||||||||
Total noninterest income | $ | 13,153 | $ | 11,894 | $ | 36,945 | $ | 46,402 | ||||||||
35
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion provides information about the results of operations, financial condition, liquidity and capital resources of 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 bank subsidiary, Citizens Business Bank (the “Bank” or “CBB”). This information is intended to facilitate the understanding and assessment of significant changes and trends related to our financial condition and the results of our operations. This discussion and analysis should be read in conjunction with our Annual Report on Form2019,2020 and the unaudited condensed consolidated financial statements and accompanying notes presented elsewhere in this report.
IMPACT OF
The spread ofalready affected our customers and the communities we serve and depending on the duration of the crisis and government actions, the adverse impact on our financial position and results of operations could be significant. In response to the anticipated effects of the pandemic on the U.S. economy, the Board of Governors of the Federal Reserve System (“FRB”) has taken significant actions, including a reduction in the target range of the federal funds rate to 0.0% to 0.25% and an indeterminate amount of purchases of Treasury and mortgage-backed securities.
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act was signed into law. It containscontain substantial tax and spending provisions intended to address the impact of theSBASmall Business Administration (“SBA”) guaranteed loans distributed through banks. These loans were intended to guarantee 24 weeks of payroll and other costs to help those businesses remain viable and keep their workers employed. The SBA exhausted the initial funding for this program on April 15, 2020, but legislationLegislation passed on April 24, 2020 to provideprovided additional PPP funds of $310 billion. WeDuring 2020, we originated and funded aboutapproximately 4,100 loans, totaling approximately $1.10 billion, as of September 30, 2020.billion. In response to the have also implemented a short-term loan modification program to provide temporary payment relief to certain of our borrowers who meet the program’s qualifications. This program allowsOn January 13, 2021, the SBA reopened the PPP for Second Draw loans to small businesses and non-profit organizations that did receive a deferralloan through the initial PPP phase. At least $25 billion has been set aside for Second Draw (“round two”) PPP loans to eligible borrowers with a maximum of payments10 employees or for 90 days. The deferred payments alongloans of $250,000 or less to eligible borrowers in low or moderate income neighborhoods. Generally speaking, businesses with interest accrued during the deferral periodmore than 300 employees and/or less than a 25% reduction in gross receipts between comparable quarters in 2019 and 2020 are duenot eligible for Second Draw loans. Further, maximum loan amounts have been increased for accommodation and payable on the maturity date of the existing loan.food service businesses. As of October 9, 2020,September 30, 2021, we have remaining temporary payment defermentsoriginated approximately 1,900 round two loans totaling $420 million in outstanding borrowings. The Paycheck Protection Program officially ended on May 31, 2021. As of principal, interest or of principal and interestSeptember 30, 2021, approximately 4,800 loans, representing approximately $1.2 billion in responsePPP loan balances were submitted to the CARES Act for 33 loans totaling $68.6 million. These deferments were primarily for 90 days, with 89% of these loans being pass rated. Of these loans, 27 have received a second defermentSBA and the remaining six loans are first deferments.
The third quarter of 2020 did not include a2021 included $4.0 million in recapture of provision for credit losses, as theprimarily due to a modest improvement in our economic outlook is generally consistent with the forecast from the prior quarter end.forecast. In comparison, the Company recorded a provisionsecond quarter of 2021 included $2.0 million in recapture of provision. The Company’s allowance for credit losses at September 30, 2021 of $23.5$65.4 million, incompares to the first halfpre-pandemic allowance of 2020, including $11.5$68.7 million in the second quarter.at December 31, 2019. We continue to monitor the impact ofclosely, as well as any effects that may result from the CARES Act. closely. The extent to which thethe fourth quarter of 20202021 is highly uncertain, but we may experience increasedcontinued volatility in the provision for credit losses if this pandemic results in economic stress greater than forecasted on our borrowers and loan portfolios and lower interest income if the current low interest rate environment continues.
36
CRITICAL ACCOUNTING POLICIES
The discussion and analysis of the Company’s unaudited condensed consolidated financial statements are based upon the Company’s unaudited condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these unaudited condensed consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities at the date of our financial statements. Actual results may differ from these estimates under different assumptions or conditions.
Critical accounting policies are defined as those that are reflective of significant judgments and uncertainties, and are essential to understanding Management’s Discussion and Analysis of Financial Condition and Results of Operations. The following is a summary of the more judgmental and complex accounting estimates and principles. In each area, we have identified the variables we believe are most important in our estimation process. We utilize information available to us to make the necessary estimates to value the related assets and liabilities. Actual performance that differs from our estimates and future changes in the key variables and information could change future valuations and impact the results of operations.
Three Months Ended | Variance | |||||||||||||||
September 30, | June 30, | |||||||||||||||
2020 | 2020 | $ | % | |||||||||||||
(Dollars in thousands, except per share amounts) | ||||||||||||||||
Net interest income | $ | 103,325 | $ | 104,569 | $ | (1,244) | -1.19 | % | ||||||||
Provision for credit losses | - | (11,500 | ) | 11,500 | 100.00 | % | ||||||||||
Noninterest income | 13,153 | 12,152 | 1,001 | 8.24 | % | |||||||||||
Noninterest expense | (49,588 | ) | (46,398 | ) | (3,190) | -6.88 | % | |||||||||
Income taxes | (19,398 | ) | (17,192 | ) | (2,206) | -12.83 | % | |||||||||
Net earnings | $ | 47,492 | $ | 41,631 | $ | 5,861 | 14.08 | % | ||||||||
Earnings per common share: | ||||||||||||||||
Basic | $ | 0.35 | $ | 0.31 | $ | 0.04 | ||||||||||
Diluted | $ | 0.35 | $ | 0.31 | $ | 0.04 | ||||||||||
Return on average assets | 1.38 | % | 1.33 | % | 0.05% | |||||||||||
Return on average shareholders’ equity | 9.51 | % | 8.51 | % | 1.00% | |||||||||||
Efficiency ratio | 42.57 | % | 39.75 | % | 2.82% | |||||||||||
Noninterest expense to average assets | 1.44 | % | 1.48 | % | -0.04% |
Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||||||||
September 30, | Variance | September 30, | Variance | |||||||||||||||||||||||||||||
2020 | 2019 | $ | % | 2020 | 2019 | $ | % | |||||||||||||||||||||||||
(Dollars in thousands, except per share amounts) | ||||||||||||||||||||||||||||||||
Net interest income | $ | 103,325 | $ | 108,159 | $ | (4,834) | -4.47% | $ | 310,200 | $ | 328,752 | $ | (18,552) | -5.64% | ||||||||||||||||||
Provision for credit losses | - | (1,500) | 1,500 | 100.00% | (23,500) | (5,000) | (18,500) | -370.00% | ||||||||||||||||||||||||
Noninterest income | 13,153 | 11,894 | 1,259 | 10.59% | 36,945 | 46,402 | (9,457) | -20.38% | ||||||||||||||||||||||||
Noninterest expense | (49,588) | (47,535) | (2,053) | -4.32% | (144,627) | (149,667) | 5,040 | 3.37% | ||||||||||||||||||||||||
Income taxes | (19,398) | (20,595) | 1,197 | 5.81% | (51,915) | (63,941) | 12,026 | 18.81% | ||||||||||||||||||||||||
Net earnings | $ | 47,492 | $ | 50,423 | $ | (2,931 | ) | -5.81% | $ | 127,103 | $ | 156,546 | $ | (29,443 | ) | -18.81% | ||||||||||||||||
Earnings per common share: | ||||||||||||||||||||||||||||||||
Basic | $ | 0.35 | $ | 0.36 | $ | (0.01) | $ | 0.93 | $ | 1.12 | $ | (0.19) | ||||||||||||||||||||
Diluted | $ | 0.35 | $ | 0.36 | $ | (0.01) | $ | 0.93 | $ | 1.12 | $ | (0.19) | ||||||||||||||||||||
Return on average assets | 1.38 | % | 1.78% | -0.40% | 1.35% | 1.86% | -0.51% | |||||||||||||||||||||||||
Return on average shareholders’ equity | 9.51 | % | 10.18% | -0.67% | 8.55% | 10.89% | -2.34% | |||||||||||||||||||||||||
Efficiency ratio | 42.57 | % | 39.60% | 2.97% | 41.66% | 39.89% | 1.77% | |||||||||||||||||||||||||
Noninterest expense to average assets | 1.44 | % | 1.68% | -0.24% | 1.54% | 1.77% | -0.23% |
Three Months Ended | Nine Months Ended | |||||||||||||||||||
September 30, | June 30, | September 30, | September 30, | September 30, | ||||||||||||||||
2020 | 2020 | 2019 | 2020 | 2019 | ||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||
Net Income | $ | 47,492 | $ | 41,631 | $ | 50,423 | $ | 127,103 | $ | 156,546 | ||||||||||
Add: Amortization of intangible assets | 2,292 | 2,445 | 2,648 | 7,182 | 8,338 | |||||||||||||||
Less: Tax effect of amortization of intangible assets (1) | (678) | (723) | (783) | (2,123) | (2,465) | |||||||||||||||
Tangible net income | $ | 49,106 | $ | 43,353 | $ | 52,288 | $ | 132,162 | $ | 162,419 | ||||||||||
Average stockholders’ equity | $ | 1,985,842 | $ | 1,966,600 | $ | 1,965,427 | $ | 1,986,300 | $ | 1,921,981 | ||||||||||
Less: Average goodwill | (663,707) | (663,707) | (663,707) | (663,707) | (665,470) | |||||||||||||||
Less: Average intangible assets | (37,133) | (39,287) | (46,720) | (39,376) | (49,682) | |||||||||||||||
Average tangible common equity | $ | 1,285,002 | $ | 1,263,606 | $ | 1,255,000 | $ | 1,283,217 | $ | 1,206,829 | ||||||||||
Return on average equity, annualized | 9.51 | % | 8.51 | % | 10.18 | % | 8.55 | % | 10.89 | % | ||||||||||
Return on average tangible common equity, annualized | 15.20 | % | 13.80 | % | 16.53 | % | 13.76 | % | 17.99 | % |
Three Months Ended September 30, | ||||||||||||||||||||||||
2020 | 2019 | |||||||||||||||||||||||
Average | Yield/ | Average | Yield/ | |||||||||||||||||||||
Balance | Interest | Rate | Balance | Interest | Rate | |||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||
INTEREST-EARNING ASSETS | ||||||||||||||||||||||||
Investment securities (1) | ||||||||||||||||||||||||
Available-for-sale | ||||||||||||||||||||||||
Taxable | $ | 1,970,636 | $ | 8,244 | 1.82% | $ | 1,505,087 | $ | 8,949 | 2.38% | ||||||||||||||
Tax-advantaged | 36,193 | 203 | 3.26% | 40,189 | 273 | 3.75% | ||||||||||||||||||
Held-to-maturity | ||||||||||||||||||||||||
Taxable | 429,897 | 2,265 | 2.11% | 506,203 | 2,883 | 2.28% | ||||||||||||||||||
Tax-advantaged | 164,854 | 1,110 | 3.26% | 205,996 | 1,415 | 3.32% | ||||||||||||||||||
Investment in FHLB stock | 17,688 | 215 | 4.84% | 17,688 | 301 | 6.75% | ||||||||||||||||||
Interest-earning deposits with other institutions | 1,494,149 | 389 | 0.10% | 174,119 | 946 | 2.16% | ||||||||||||||||||
Loans (2) | 8,382,257 | 94,200 | 4.47% | 7,495,289 | 98,796 | 5.23% | ||||||||||||||||||
Total interest-earning assets | 12,495,674 | 106,626 | 3.45% | 9,944,571 | 113,563 | 4.55% | ||||||||||||||||||
Total noninterest-earning assets | 1,231,502 | 1,269,845 | ||||||||||||||||||||||
Total assets | $ | 13,727,176 | $ | 11,214,416 | ||||||||||||||||||||
INTEREST-BEARING LIABILITIES | ||||||||||||||||||||||||
Savings deposits (3) | $ | 3,735,204 | 2,010 | 0.21% | $ | 2,991,330 | 3,501 | 0.46% | ||||||||||||||||
Time deposits | 449,484 | 948 | 0.84% | 473,347 | 1,088 | 0.91% | ||||||||||||||||||
Total interest-bearing deposits | 4,184,688 | 2,958 | 0.28% | 3,464,677 | 4,589 | 0.53% | ||||||||||||||||||
FHLB advances, other borrowings, and customer repurchase agreements | 539,833 | 343 | 0.25% | 446,087 | 815 | 0.72% | ||||||||||||||||||
Interest-bearing liabilities | 4,724,521 | 3,301 | 0.28% | 3,910,764 | 5,404 | 0.55% | ||||||||||||||||||
Noninterest-bearing deposits | 6,731,711 | 5,227,595 | ||||||||||||||||||||||
Other liabilities | 285,102 | 110,630 | ||||||||||||||||||||||
Stockholders’ equity | 1,985,842 | 1,965,427 | ||||||||||||||||||||||
Total liabilities and stockholders’ equity | $ | 13,727,176 | $ | 11,214,416 | ||||||||||||||||||||
Net interest income | $ | 103,325 | $ | 108,159 | ||||||||||||||||||||
Net interest spread - tax equivalent | 3.17% | 4.00% | ||||||||||||||||||||||
Net interest margin | 3.33% | 4.32% | ||||||||||||||||||||||
Net interest margin - tax equivalent | 3.34% | 4.34% |
Nine Months Ended September 30, | ||||||||||||||||||||||||
2020 | 2019 | |||||||||||||||||||||||
Average | Yield/ | Average | Yield/ | |||||||||||||||||||||
Balance | Interest | Rate | Balance | Interest | Rate | |||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||
INTEREST-EARNING ASSETS | ||||||||||||||||||||||||
Investment securities (1) | ||||||||||||||||||||||||
Available-for-sale | ||||||||||||||||||||||||
Taxable | $ | 1,737,723 | $ | 26,313 | 2.08% | $ | 1,582,902 | $ | 29,079 | 2.45% | ||||||||||||||
Tax-advantaged | 36,897 | 632 | 3.30% | 42,746 | 906 | 3.87% | ||||||||||||||||||
Held-to-maturity | ||||||||||||||||||||||||
Taxable | 449,230 | 7,410 | 2.20% | 509,247 | 8,725 | 2.29% | ||||||||||||||||||
Tax-advantaged | 177,364 | 3,623 | 3.29% | 216,343 | 4,524 | 3.37% | ||||||||||||||||||
Investment in FHLB stock | 17,688 | 761 | 5.75% | 17,688 | 931 | 7.04% | ||||||||||||||||||
Interest-earning deposits with other institutions | 947,211 | 1,285 | 0.18% | 70,848 | 1,140 | 2.15% | ||||||||||||||||||
Loans (2) | 7,972,208 | 281,669 | 4.72% | 7,571,502 | 300,326 | 5.30% | ||||||||||||||||||
Total interest-earning assets | 11,338,321 | 321,693 | 3.82% | 10,011,276 | 345,631 | 4.63% | ||||||||||||||||||
Total noninterest-earning assets | 1,237,241 | 1,269,160 | ||||||||||||||||||||||
Total assets | $ | 12,575,562 | $ | 11,280,436 | ||||||||||||||||||||
INTEREST-BEARING LIABILITIES | ||||||||||||||||||||||||
Savings deposits (3) | $ | 3,396,259 | 7,131 | 0.28% | $ | 3,047,444 | 9,159 | 0.40% | ||||||||||||||||
Time deposits | 448,615 | 2,946 | 0.88% | 497,370 | 3,394 | 0.91% | ||||||||||||||||||
Total interest-bearing deposits | 3,844,874 | 10,077 | 0.35% | 3,544,814 | 12,553 | 0.47% | ||||||||||||||||||
FHLB advances, other borrowings, and customer repurchase agreements | 505,710 | 1,416 | 0.37% | 573,633 | 4,326 | 1.00% | ||||||||||||||||||
Interest-bearing liabilities | 4,350,584 | 11,493 | 0.35% | 4,118,447 | 16,879 | 0.55% | ||||||||||||||||||
Noninterest-bearing deposits | 6,063,469 | 5,136,233 | ||||||||||||||||||||||
Other liabilities | 175,209 | 103,775 | ||||||||||||||||||||||
Stockholders’ equity | 1,986,300 | 1,921,981 | ||||||||||||||||||||||
Total liabilities and stockholders’ equity | $ | 12,575,562 | $ | 11,280,436 | ||||||||||||||||||||
Net interest income | $ | 310,200 | $ | 328,752 | ||||||||||||||||||||
Net interest spread - tax equivalent | 3.47% | 4.08% | ||||||||||||||||||||||
Net interest margin | 3.67% | 4.39% | ||||||||||||||||||||||
Net interest margin - tax equivalent | 3.68% | 4.41% |
Comparison of Three Months Ended September 30, | ||||||||||||||||
2020 Compared to 2019 | ||||||||||||||||
Increase (Decrease) Due to | ||||||||||||||||
Volume | Rate | Rate/ Volume | Total | |||||||||||||
(Dollars in thousands) | ||||||||||||||||
Interest income: | ||||||||||||||||
Available-for-sale | ||||||||||||||||
Taxable investment securities | $ | 1,835 | $ | (2,108 | ) | $ | (432 | ) | $ | (705 | ) | |||||
Tax-advantaged investment securities | (24 | ) | (42 | ) | (4 | ) | (70 | ) | ||||||||
Held-to-maturity | ||||||||||||||||
Taxable investment securities | (395 | ) | (194 | ) | (29 | ) | (618 | ) | ||||||||
Tax-advantaged investment securities | (273 | ) | (27 | ) | (5 | ) | (305 | ) | ||||||||
Investment in FHLB stock | - | (86 | ) | - | (86 | ) | ||||||||||
Interest-earning deposits with other institutions | 7,184 | (902 | ) | (6,839 | ) | (557 | ) | |||||||||
Loans | 12,369 | (15,170 | ) | (1,795 | ) | (4,596 | ) | |||||||||
Total interest income | 20,696 | (18,529 | ) | (9,104 | ) | (6,937 | ) | |||||||||
Interest expense: | ||||||||||||||||
Savings deposits | 874 | (1,894 | ) | (471 | ) | (1,491 | ) | |||||||||
Time deposits | (53 | ) | (83 | ) | (4 | ) | (140 | ) | ||||||||
FHLB advances, other borrowings, and customer repurchase agreements | 172 | (532 | ) | (112 | ) | (472 | ) | |||||||||
Total interest expense | 993 | (2,509 | ) | (587 | ) | (2,103 | ) | |||||||||
Net interest income | $ | 19,703 | $ | (16,020 | ) | $ | (8,517 | ) | $ | (4,834 | ) | |||||
Comparision of Nine Months Ended September 30, | ||||||||||||||||
2020 Compared to 2019 | ||||||||||||||||
Increase (Decrease) Due to | ||||||||||||||||
Volume | Rate | Rate/ Volume | Total | |||||||||||||
(Dollars in thousands) | ||||||||||||||||
Interest income: | ||||||||||||||||
Available-for-sale | ||||||||||||||||
Taxable investment securities | $ | 1,861 | $ | (4,349 | ) | $ | (278 | ) | $ | (2,766 | ) | |||||
Tax-advantaged investment securities | (124 | ) | (174 | ) | 24 | (274 | ) | |||||||||
Held-to-maturity | ||||||||||||||||
Taxable investment securities | (1,015 | ) | (339 | ) | 39 | (1,315 | ) | |||||||||
Tax-advantaged investment securities | (815 | ) | (105 | ) | 19 | (901 | ) | |||||||||
Investment in FHLB stock | - | (170 | ) | - | (170 | ) | ||||||||||
Interest-earning deposits with other institutions | 14,238 | (1,054 | ) | (13,039 | ) | 145 | ||||||||||
Loans | 15,682 | (32,613 | ) | (1,726 | ) | (18,657 | ) | |||||||||
Total interest income | 29,827 | (38,804 | ) | (14,961 | ) | (23,938 | ) | |||||||||
Interest expense: | ||||||||||||||||
Savings deposits | 1,045 | (2,758 | ) | (315 | ) | (2,028 | ) | |||||||||
Time deposits | (331 | ) | (130 | ) | 13 | (448 | ) | |||||||||
FHLB advances, other borrowings, and customer repurchase agreements | (513 | ) | (2,719 | ) | 322 | (2,910 | ) | |||||||||
Total interest expense | 201 | (5,607 | ) | 20 | (5,386 | ) | ||||||||||
Net interest income | $ | 29,626 | $ | (33,197 | ) | $ | (14,981 | ) | $ | (18,552 | ) | |||||
Three Months Ended September 30, | Variance | Nine Months Ended September 30, | Variance | |||||||||||||||||||||||||||||
2020 | 2019 | $ | % | 2020 | 2019 | $ | % | |||||||||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||||||||||
Noninterest income: | ||||||||||||||||||||||||||||||||
Service charges on deposit accounts | $ | 3,970 | $ | 4,833 | $ | (863) | -17.86% | $ | 12,555 | $ | 15,039 | $ | (2,484) | -16.52% | ||||||||||||||||||
Trust and investment services | 2,405 | 2,330 | 75 | 3.22% | 7,302 | 6,964 | 338 | 4.85% | ||||||||||||||||||||||||
Bankcard services | 456 | 637 | (181) | -28.41% | 1,438 | 2,614 | (1,176) | -44.99% | ||||||||||||||||||||||||
BOLI income | 1,469 | 1,797 | (328) | -18.25% | 5,211 | 4,482 | 729 | 16.27% | ||||||||||||||||||||||||
Swap fee income | 1,591 | 378 | 1,213 | 320.90% | 4,149 | 1,135 | 3,014 | 265.55% | ||||||||||||||||||||||||
Gain on OREO, net | 13 | - | 13 | - | 23 | 129 | (106) | -82.17% | ||||||||||||||||||||||||
Gain on sale of building, net | 1,680 | - | 1,680 | - | 1,680 | 4,545 | (2,865) | -63.04% | ||||||||||||||||||||||||
Gain on eminent domain condemnation, net | - | - | - | - | - | 5,685 | (5,685) | -100.00% | ||||||||||||||||||||||||
Other | 1,569 | 1,919 | (350) | -18.24% | 4,587 | 5,809 | (1,222) | -21.04% | ||||||||||||||||||||||||
Total noninterest income | $ | 13,153 | $ | 11,894 | $ | 1,259 | 10.59% | $ | 36,945 | $ | 46,402 | $ | (9,457) | -20.38% | ||||||||||||||||||
Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||||||||
September 30, | Variance | September 30, | Variance | |||||||||||||||||||||||||||||
2020 | 2019 | $ | % | 2020 | 2019 | $ | % | |||||||||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||||||||||
Noninterest expense: | ||||||||||||||||||||||||||||||||
Salaries and employee benefits | $ | 31,034 | $ | 30,122 | $ | 912 | 3.03% | $ | 90,617 | $ | 88,286 | $ | 2,331 | 2.64% | ||||||||||||||||||
Occupancy | 4,290 | 3,976 | 314 | 7.90% | 12,171 | 12,771 | (600) | -4.70% | ||||||||||||||||||||||||
Equipment | 985 | 903 | 82 | 9.08% | 2,972 | 2,959 | 13 | 0.44% | ||||||||||||||||||||||||
Professional services | 2,019 | 1,688 | 331 | 19.61% | 6,643 | 5,653 | 990 | 17.51% | ||||||||||||||||||||||||
Computer software expense | 2,837 | 2,663 | 174 | 6.53% | 8,407 | 8,032 | 375 | 4.67% | ||||||||||||||||||||||||
Marketing and promotion | 728 | 1,517 | (789) | -52.01% | 3,538 | 4,149 | (611) | -14.73% | ||||||||||||||||||||||||
Amortization of intangible assets | 2,292 | 2,648 | (356) | -13.44% | 7,182 | 8,338 | (1,156) | -13.86% | ||||||||||||||||||||||||
Telecommunications expense | 643 | 656 | (13) | -1.98% | 1,929 | 2,126 | (197) | -9.27% | ||||||||||||||||||||||||
Regulatory assessments | 998 | 147 | 851 | 578.91% | 1,313 | 1,805 | (492) | -27.26% | ||||||||||||||||||||||||
Insurance | 400 | 430 | (30) | -6.98% | 1,192 | 1,368 | (176) | -12.87% | ||||||||||||||||||||||||
Loan expense | 207 | 308 | (101) | -32.79% | 833 | 1,115 | (282) | -25.29% | ||||||||||||||||||||||||
OREO expense | 830 | - | 830 | - | 1,200 | 37 | 1,163 | 3143.24% | ||||||||||||||||||||||||
Directors’ expenses | 358 | 350 | 8 | 2.29% | 1,067 | 1,029 | 38 | 3.69% | ||||||||||||||||||||||||
Stationery and supplies | 227 | 259 | (32) | -12.36% | 894 | 867 | 27 | 3.11% | ||||||||||||||||||||||||
Acquisition related expenses | - | 244 | (244) | -100.00% | - | 6,005 | (6,005) | -100.00% | ||||||||||||||||||||||||
Other | 1,740 | 1,624 | 116 | 7.14% | 4,669 | 5,127 | (458) | -8.93% | ||||||||||||||||||||||||
Total noninterest expense | $ | 49,588 | $ | 47,535 | $ | 2,053 | 4.32% | $ | 144,627 | $ | 149,667 | $ | (5,040) | -3.37% | ||||||||||||||||||
Noninterest expense to average assets | 1.44% | 1.68% | 1.54% | 1.77% | ||||||||||||||||||||||||||||
Efficiency ratio (1) | 42.57% | 39.60% | 41.66% | 39.89% |
Our significant accounting policies are described in greater detail in our 2020 Annual Report on Form 10-K in the “Critical Accounting Policies” section of Management’s Discussion and Analysis of Financial Condition and Results of Operations and in Note 3 – Summary of Significant Accounting Policies, included in our Annual Report on Form 10-K for the year ended December 31, 2020, which are essential to understanding Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Recently Issued Accounting Pronouncements but Not Adopted as of September 30, 2021
Standard | Description | Adoption Timing | Impact on Financial Statements | |||
ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting | The FASB issued ASU 2020-04, Reference Rate Reform: Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The amendments in this update provide temporary, optional guidance to ease the potential burden in accounting for transitioning away from reference rates such as LIBOR. The amendments provide optional expedients and exceptions for applying GAAP to transactions affected by reference rate reform if certain criteria are met. The amendments primarily include relief related to contract modifications and hedging relationships, as well as providing a one-time election for the sale or transfer of debt securities classified as held-to-maturity. This guidance is effective immediately and the amendments may be applied prospectively through December 31, 2022. | 1st Quarter 2020 through the | The Company established a LIBOR Transition Task Force in 2020, which has inventoried our instruments that reflect exposure to LIBOR, created a framework to manage the transition and established a timeline for key decisions and actions, and started the transition from LIBOR in 2021. Although the Company is assessing the impacts of this transition and exploring alternatives to use in place of LIBOR for various financial instruments, primarily related to our variable-rate loans and our interest rate swap derivatives that are indexed to LIBOR, we do not expect this ASU to have a material impact on the Company's consolidated financial statements. | |||
ASU 2020-06, Debt — Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity | The FASB issued ASU 2020-06, Debt — Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. This ASU reduces the number of accounting models for convertible instruments and allows more contracts to qualify for equity classification. | 1st Quarter 2022 | The adoption of this ASU is not expected to have a material impact on our consolidated financial statements. | |||
Issued August 2020 | ||||||
37
OVERVIEW
For the third quarter of 2021, we reported net earnings of $49.8 million, compared with $51.2 million for the quarter ended June 30, 2021 and $47.5 million for the quarter ended September 30, 2020. Diluted earnings per share were $0.37 for the third quarter, compared to $0.38 for the prior quarter and $0.35 for the same period last year.
The third quarter of 2021 included $4.0 million in recapture of provision for credit losses, primarily due to a modest improvement in our economic forecast, compared to $2.0 million in recapture of provision in the second quarter of 2021. A $25.5 million recapture of provision for credit losses was recorded for the nine months ended September 30, 2021. In comparison, $23.5 million in provision for credit losses was recorded for the nine months ended September 30, 2020 due to the severe economic forecast at that time as a result of the pandemic. During the third quarter of 2021, we experienced credit charge-offs of $11,000 and total recoveries of $33,000, resulting in net recoveries of $22,000. Of the approximately 4,100 SBA PPP loans we originated in 2020, $52.4 million remained outstanding at September 30, 2021, after loan forgiveness and customer repayment. As of September 30 2021, the Company originated approximately 1,900 PPP loans in round two, with a loan balance, at amortized cost, of $278.6 million at September 30, 2021. Interest and fee income from PPP loans was $7.9 million for the third quarter of 2021, compared to $8.1 million for the second quarter of 2021.
At September 30, 2021, total assets of $16.20 billion increased $1.78 billion, or 12.36%, from total assets of $14.42 billion at December 31, 2020. Interest-earning assets of $14.93 billion at September 30, 2021 increased $1.71 billion, or 12.92%, when compared with $13.22 billion at December 31, 2020. The increase in interest-earning assets was primarily due to a $1.66 billion increase in investment securities and a $565.9 million increase in interest-earning balances due from the Federal Reserve, partially offset by a $499.3 million decrease in total loans which included a decrease in PPP loans of $552 million for the nine months ended September 30, 2021.
Total investment securities were $4.64 billion at September 30, 2021, an increase of $1.66 billion, or 55.70%, from $2.98 billion at December 31, 2020. In the third quarter of 2021, we purchased $892.5 million of investment securities with an average investment yield of approximately 1.70%, compared to $317.1 million of securities with an average investment yield of approximately 1.69% in the second quarter of 2021 and $1.23 billion of securities purchased in the first quarter of 2021, with an average expected yield of approximately 1.57%. At September 30, 2021, investment securities held-to-maturity (“HTM”) totaled $1.71 billion. At September 30, 2021, investment securities available-for-sale (“AFS") totaled $2.93 billion, inclusive of a net pre-tax unrealized gain of $8.8 million, which decreased $46.0 million from December 31, 2020. HTM securities increased by $1.13 billion, or 195.69%, and AFS securities increased $526.1 million, or 21.93%, from December 31, 2020. In the third quarter of 2021, we purchased $705.1 million of HTM securities. We purchased $545.7 million of HTM securities in the first quarter of 2021. Our tax equivalent yield on investments was 1.54% for the quarter ended September 30, 2021, compared to 1.55% for the quarter ended June 30, 2021 and 1.99% for the third quarter of 2020.
Total loans and leases, at amortized cost, of $7.85 billion at September 30, 2021 decreased by $499.3 million, or 5.98%, from December 31, 2020. The $499.3 million decrease in total loans included decreases of $552.0 million in PPP loans, $81.6 million in dairy & livestock and agribusiness loans due to seasonal pay downs, $42.1 million in commercial and industrial loans, $39.2 million in SFR mortgage loans, $7.7 million in construction loans, and $13.5 million in consumer and other loans, partially offset by an increase of $233.2 million in commercial real estate loans and $3.6 million in SBA loans. After adjusting for seasonality and PPP loans, our loans grew by $134.3 million or at an annualized rate of approximately 3% from the end of the fourth quarter of 2020. Our yield on loans was 4.43% for the quarter ended September 30, 2021, compared to 4.46% for the second quarter of 2021 and 4.47% for the third quarter of 2020. The significant decline in interest rates since the start of the pandemic has had a negative impact on loan yields, which after excluding discount accretion, nonaccrual interest income, and the impact from PPP loans, declined by 29 basis points for the nine months ended September 30, 2021 when compared to the same period of 2020.
Noninterest-bearing deposits were $8.31 billion at September 30, 2021, an increase of $855.3 million, or 11.47%, when compared to $7.46 billion at December 31, 2020. At September 30, 2021, noninterest-bearing deposits were 64.27% of total deposits, compared to 63.52% at December 31, 2020. Our average cost of total deposits was 0.03% for the quarter ended September 30, 2021, compared to 0.05% for the quarter ended June 30, 2021 and 0.11% for the third quarter of 2020.
Customer repurchase agreements totaled $659.6 million at September 30, 2021, compared to $439.4 million at December 31, 2020. Our average cost of total deposits including customer repurchase agreements was 0.04% for the quarter ended September 30, 2021, compared to 0.05% for the quarter ended June 30, 2021 and 0.11% for the third quarter of 2020.
38
We had no borrowings at September 30, 2021, compared to $5.0 million in short-term borrowings with 0% cost at December 31, 2020, and $10.0 million in short-term borrowings with 0% cost at September 30, 2020. We redeemed our $25.8 million junior subordinated debentures on June 15, 2021. The debentures, bearing interest at three-month LIBOR plus 1.38%, had an original maturity of 2036. These debentures had a borrowing cost of 1.57% for the second quarter of 2021 and 1.69% for the third quarter of 2020.Our average cost of funds was 0.04% for the quarter ended September 30, 2021, 0.05% for the quarter ended June 30, 2021, and 0.11% for the third quarter of 2020.
The allowance for credit losses totaled $65.4 million at September 30, 2021, compared to $93.7 million at December 31, 2020. The allowance for credit losses for the first nine months of 2021 was decreased by $25.5 million, due to the improved outlook in our forecast of certain macroeconomic variables that were influenced by the economic impact of the pandemic and government stimulus, and by $2.8 million in year-to-date net charge-offs. At September 30, 2021, ACL as a percentage of total loans and leases outstanding was 0.83%, or 0.87% when PPP loans are excluded. This compares to 1.12% at December 31, 2020, or 1.25% when PPP loans are excluded. As of September 30, 2021, total discounts on acquired loans were $20.7 million.
The Company’s total equity was $2.06 billion at September 30, 2021. This represented an increase of $55.9 million, or 2.79%, from total equity of $2.01 billion at December 31, 2020. The increase was primarily due to net earnings of $164.8 million, partially offset by a $32.3 million decrease in other comprehensive income from the tax effected impact of the decrease in market value of available-for-sale securities and $73.4 million in cash dividends. Our tangible common equity ratio was 8.9% at September 30, 2021. During the third quarter, we repurchased 390,336 shares of common stock for $7.4 million, or an average repurchase price of $18.97. Our tangible book value per share at September 30, 2021 was $10.13.
Our capital ratios under the revised capital framework referred to as Basel III remain well-above regulatory requirements. As of September 30, 2021, the Company’s Tier 1 leverage capital ratio was 9.2%, common equity Tier 1 ratio was 14.9%, Tier 1 risk-based capital ratio was 14.9%, and total risk-based capital ratio was 15.7%. We did not elect to phase in the impact of CECL on regulatory capital, as allowed under the interim final rule of the FDIC and other U.S. banking agencies. Refer to our Analysis of Financial Condition – Capital Resources.
Acquisition Related
As previously announced on July 27, 2021, we entered into a definitive agreement to merge Suncrest Bank with and into Citizens Business Bank. Suncrest Bank, headquartered in Visalia, California, had approximately $1.4 billion in total assets, $821 million in gross loans and $1.2 billion in total deposits as of September 30, 2021. Consummation of the merger is subject to customary closing conditions, including, among others, Suncrest shareholders and regulatory approval. Suncrest Bank shareholders voted in favor of the merger at a special shareholders meeting held on October 27, 2021. The merger is pending regulatory approval andis anticipated to close in the fourth quarter of 2021 or first quarter of 2022.
39
ANALYSIS OF THE RESULTS OF OPERATIONS
Financial Performance
| Three Months Ended |
|
| Variance |
| ||||||||||
| September 30, |
|
| June 30, |
|
|
|
|
|
|
| ||||
| 2021 |
|
| 2021 |
|
| $ |
|
| % |
| ||||
| (Dollars in thousands, except per share amounts) |
| |||||||||||||
Net interest income | $ | 103,299 |
|
| $ | 105,388 |
|
| $ | (2,089 | ) |
|
| -1.98 | % |
Recapture of (provision for) credit losses |
| 4,000 |
|
|
| 2,000 |
|
|
| 2,000 |
|
|
| 100.00 | % |
Noninterest income |
| 10,483 |
|
|
| 10,836 |
|
|
| (353 | ) |
|
| -3.26 | % |
Noninterest expense |
| (48,099 | ) |
|
| (46,545 | ) |
|
| (1,554 | ) |
|
| -3.34 | % |
Income taxes |
| (19,930 | ) |
|
| (20,500 | ) |
|
| 570 |
|
|
| 2.78 | % |
Net earnings | $ | 49,753 |
|
| $ | 51,179 |
|
| $ | (1,426 | ) |
|
| -2.79 | % |
Earnings per common share: |
|
|
|
|
|
|
|
|
|
|
| ||||
Basic | $ | 0.37 |
|
| $ | 0.38 |
|
| $ | (0.01 | ) |
|
|
| |
Diluted | $ | 0.37 |
|
| $ | 0.38 |
|
| $ | (0.01 | ) |
|
|
| |
Return on average assets |
| 1.26 | % |
|
| 1.35 | % |
|
| -0.09 | % |
|
|
| |
Return on average shareholders' equity |
| 9.49 | % |
|
| 10.02 | % |
|
| -0.53 | % |
|
|
| |
Efficiency ratio |
| 42.27 | % |
|
| 40.05 | % |
|
| 2.22 | % |
|
|
| |
Noninterest expense to average assets |
| 1.22 | % |
|
| 1.23 | % |
|
| -0.01 | % |
|
|
|
| Three Months Ended |
|
|
|
|
|
|
| |||||||
| September 30, |
|
| Variance |
| ||||||||||
| 2021 |
|
| 2020 |
|
| $ |
|
| % |
| ||||
| (Dollars in thousands, except per share amounts) |
| |||||||||||||
Net interest income | $ | 103,299 |
|
| $ | 103,325 |
|
| $ | (26 | ) |
|
| -0.03 | % |
Recapture of (provision for) credit losses |
| 4,000 |
|
|
| - |
|
|
| 4,000 |
|
| - |
| |
Noninterest income |
| 10,483 |
|
|
| 13,153 |
|
|
| (2,670 | ) |
|
| -20.30 | % |
Noninterest expense |
| (48,099 | ) |
|
| (49,588 | ) |
|
| 1,489 |
|
|
| 3.00 | % |
Income taxes |
| (19,930 | ) |
|
| (19,398 | ) |
|
| (532 | ) |
|
| -2.74 | % |
Net earnings | $ | 49,753 |
|
| $ | 47,492 |
|
| $ | 2,261 |
|
|
| 4.76 | % |
Earnings per common share: |
|
|
|
|
|
|
|
|
|
|
| ||||
Basic | $ | 0.37 |
|
| $ | 0.35 |
|
| $ | 0.02 |
|
|
|
| |
Diluted | $ | 0.37 |
|
| $ | 0.35 |
|
| $ | 0.02 |
|
|
|
| |
Return on average assets |
| 1.26 | % |
|
| 1.38 | % |
|
| -0.12 | % |
|
|
| |
Return on average shareholders' equity |
| 9.49 | % |
|
| 9.51 | % |
|
| -0.02 | % |
|
|
| |
Efficiency ratio |
| 42.27 | % |
|
| 42.57 | % |
|
| -0.30 | % |
|
|
| |
Noninterest expense to average assets |
| 1.22 | % |
|
| 1.44 | % |
|
| -0.22 | % |
|
|
|
| Nine Months Ended |
|
|
|
|
|
|
| |||||||
| September 30, |
|
| Variance |
| ||||||||||
| 2021 |
|
| 2020 |
|
| $ |
|
| % |
| ||||
| (Dollars in thousands, except per share amounts) |
| |||||||||||||
Net interest income | $ | 312,155 |
|
| $ | 310,200 |
|
| $ | 1,955 |
|
|
| 0.63 | % |
Recapture of (provision for) credit losses |
| 25,500 |
|
|
| (23,500 | ) |
|
| 49,000 |
|
|
| 208.51 | % |
Noninterest income |
| 35,000 |
|
|
| 36,945 |
|
|
| (1,945 | ) |
|
| -5.26 | % |
Noninterest expense |
| (141,807 | ) |
|
| (144,627 | ) |
|
| 2,820 |
|
|
| 1.95 | % |
Income taxes |
| (66,023 | ) |
|
| (51,915 | ) |
|
| (14,108 | ) |
|
| -27.18 | % |
Net earnings | $ | 164,825 |
|
| $ | 127,103 |
|
| $ | 37,722 |
|
|
| 29.68 | % |
Earnings per common share: |
|
|
|
|
|
|
|
|
|
|
| ||||
Basic | $ | 1.21 |
|
| $ | 0.93 |
|
| $ | 0.28 |
|
|
|
| |
Diluted | $ | 1.21 |
|
| $ | 0.93 |
|
| $ | 0.28 |
|
|
|
| |
Return on average assets |
| 1.46 | % |
|
| 1.35 | % |
|
| 0.11 | % |
|
|
| |
Return on average shareholders' equity |
| 10.73 | % |
|
| 8.55 | % |
|
| 2.18 | % |
|
|
| |
Efficiency ratio |
| 40.85 | % |
|
| 41.66 | % |
|
| -0.81 | % |
|
|
| |
Noninterest expense to average assets |
| 1.25 | % |
|
| 1.54 | % |
|
| -0.29 | % |
|
|
|
40
Return on Average Tangible Common Equity Reconciliation (Non-GAAP)
The return on average tangible common equity is a non-GAAP disclosure. The Company uses certain non-GAAP financial measures to provide supplemental information regarding the Company's performance. The following is a reconciliation of net income, adjusted for tax-effected amortization of intangibles, to net income computed in accordance with GAAP; a reconciliation of average tangible common equity to the Company's average stockholders' equity computed in accordance with GAAP; as well as a calculation of return on average tangible common equity.
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||||||
|
| September 30, |
|
| June 30, |
|
| September 30, |
|
| September 30, |
|
| September 30, |
| |||||
|
| 2021 |
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| |||||
|
| (Dollars in thousands) |
| |||||||||||||||||
Net Income |
| $ | 49,753 |
|
| $ | 51,179 |
|
| $ | 47,492 |
|
| $ | 164,825 |
|
| $ | 127,103 |
|
Add: Amortization of intangible assets |
|
| 2,014 |
|
|
| 2,167 |
|
|
| 2,292 |
|
|
| 6,348 |
|
|
| 7,182 |
|
Less: Tax effect of amortization of intangible assets (1) |
|
| (595 | ) |
|
| (641 | ) |
|
| (678 | ) |
|
| (1,877 | ) |
|
| (2,123 | ) |
Tangible net income |
| $ | 51,172 |
|
| $ | 52,705 |
|
| $ | 49,106 |
|
| $ | 169,296 |
|
| $ | 132,162 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Average stockholders' equity |
| $ | 2,080,238 |
|
| $ | 2,048,956 |
|
| $ | 1,985,842 |
|
| $ | 2,054,132 |
|
| $ | 1,986,300 |
|
Less: Average goodwill |
|
| (663,707 | ) |
|
| (663,707 | ) |
|
| (663,707 | ) |
|
| (663,707 | ) |
|
| (663,707 | ) |
Less: Average intangible assets |
|
| (28,240 | ) |
|
| (30,348 | ) |
|
| (37,133 | ) |
|
| (30,377 | ) |
|
| (39,376 | ) |
Average tangible common equity |
| $ | 1,388,291 |
|
| $ | 1,354,901 |
|
| $ | 1,285,002 |
|
| $ | 1,360,048 |
|
| $ | 1,283,217 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Return on average equity, annualized |
|
| 9.49 | % |
|
| 10.02 | % |
|
| 9.51 | % |
|
| 10.73 | % |
|
| 8.55 | % |
Return on average tangible common equity, annualized |
|
| 14.62 | % |
|
| 15.60 | % |
|
| 15.20 | % |
|
| 16.64 | % |
|
| 13.76 | % |
Net Interest Income
The principal component of our earnings is net interest income, which is the difference between the interest and fees earned on loans and investments (interest-earning assets) and the interest paid on deposits and borrowed funds (interest-bearing liabilities). Net interest margin is net interest income as a percentage of average interest-earning assets for the period. The level of interest rates and the volume and mix of interest-earning assets and interest-bearing liabilities impact net interest income and net interest margin. The net interest spread is the yield on average interest-earning assets minus the cost of average interest-bearing liabilities. Net interest margin and net interest spread are included on a tax equivalent (TE) basis by adjusting interest income utilizing the federal statutory tax rates of 21% in effect for the three and nine months ended September 30, 2021 and 2020. Our net interest income, interest spread, and net interest margin are sensitive to general business and economic conditions. These conditions include short-term and long-term interest rates, inflation, monetary supply, and the strength of the international, national and state economies, in general, and more specifically, the local economies in which we conduct business. Our ability to manage net interest income during changing interest rate environments will have a significant impact on our overall performance. We manage net interest income through affecting changes in the mix of interest-earning assets as well as the mix of interest-bearing liabilities, changes in the level of interest-bearing liabilities in proportion to interest-earning assets, and in the growth and maturity of earning assets. See Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations – Asset/Liability and Market Risk Management – Interest Rate Sensitivity Management included herein.
41
The tables below present the interest rate spread, net interest margin and the composition of average interest-earning assets and average interest-bearing liabilities by category for the periods indicated, including the changes in average balance, composition, and average yield/rate between these respective periods.
| Three Months Ended September 30, |
| |||||||||||||||||||||
| 2021 |
|
| 2020 |
| ||||||||||||||||||
| Average |
|
|
|
|
| Yield/ |
|
| Average |
|
|
|
|
| Yield/ |
| ||||||
| Balance |
|
| Interest |
|
| Rate |
|
| Balance |
|
| Interest |
|
| Rate |
| ||||||
| (Dollars in thousands) |
| |||||||||||||||||||||
INTEREST-EARNING ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Investment securities (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Available-for-sale securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Taxable | $ | 2,912,382 |
|
| $ | 9,630 |
|
|
| 1.34 | % |
| $ | 1,970,636 |
|
| $ | 8,244 |
|
|
| 1.82 | % |
Tax-advantaged |
| 29,873 |
|
|
| 183 |
|
|
| 2.95 | % |
|
| 36,193 |
|
|
| 203 |
|
|
| 3.26 | % |
Held-to-maturity securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Taxable |
| 970,696 |
|
|
| 4,099 |
|
|
| 1.90 | % |
|
| 429,897 |
|
|
| 2,265 |
|
|
| 2.11 | % |
Tax-advantaged |
| 199,196 |
|
|
| 1,089 |
|
|
| 2.64 | % |
|
| 164,854 |
|
|
| 1,110 |
|
|
| 3.26 | % |
Investment in FHLB stock |
| 17,688 |
|
|
| 258 |
|
|
| 5.79 | % |
|
| 17,688 |
|
|
| 215 |
|
|
| 4.84 | % |
Interest-earning deposits with other institutions |
| 2,356,121 |
|
|
| 898 |
|
|
| 0.15 | % |
|
| 1,494,149 |
|
|
| 389 |
|
|
| 0.10 | % |
Loans (2) |
| 7,916,443 |
|
|
| 88,390 |
|
|
| 4.43 | % |
|
| 8,382,257 |
|
|
| 94,200 |
|
|
| 4.47 | % |
Total interest-earning assets |
| 14,402,399 |
|
|
| 104,547 |
|
|
| 2.92 | % |
|
| 12,495,674 |
|
|
| 106,626 |
|
|
| 3.45 | % |
Total noninterest-earning assets |
| 1,270,862 |
|
|
|
|
|
|
|
|
| 1,231,502 |
|
|
|
|
|
|
| ||||
Total assets | $ | 15,673,261 |
|
|
|
|
|
|
|
| $ | 13,727,176 |
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
INTEREST-BEARING LIABILITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Savings deposits (3) | $ | 4,349,441 |
|
| $ | 967 |
|
|
| 0.09 | % |
| $ | 3,735,204 |
|
| $ | 2,010 |
|
|
| 0.21 | % |
Time deposits |
| 355,535 |
|
|
| 146 |
|
|
| 0.16 | % |
|
| 449,484 |
|
|
| 948 |
|
|
| 0.84 | % |
Total interest-bearing deposits |
| 4,704,976 |
|
|
| 1,113 |
|
|
| 0.09 | % |
|
| 4,184,688 |
|
|
| 2,958 |
|
|
| 0.28 | % |
FHLB advances, other borrowings, and customer |
| 636,397 |
|
|
| 135 |
|
|
| 0.08 | % |
|
| 539,833 |
|
|
| 343 |
|
|
| 0.25 | % |
Interest-bearing liabilities |
| 5,341,373 |
|
|
| 1,248 |
|
|
| 0.09 | % |
|
| 4,724,521 |
|
|
| 3,301 |
|
|
| 0.28 | % |
Noninterest-bearing deposits |
| 7,991,462 |
|
|
|
|
|
|
|
|
| 6,731,711 |
|
|
|
|
|
|
| ||||
Other liabilities |
| 260,188 |
|
|
|
|
|
|
|
|
| 285,102 |
|
|
|
|
|
|
| ||||
Stockholders' equity |
| 2,080,238 |
|
|
|
|
|
|
|
|
| 1,985,842 |
|
|
|
|
|
|
| ||||
Total liabilities and stockholders' equity | $ | 15,673,261 |
|
|
|
|
|
|
|
| $ | 13,727,176 |
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net interest income |
|
|
| $ | 103,299 |
|
|
|
|
|
|
|
| $ | 103,325 |
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net interest spread - tax equivalent |
|
|
|
|
|
|
| 2.83 | % |
|
|
|
|
|
|
|
| 3.17 | % | ||||
Net interest margin |
|
|
|
|
|
|
| 2.88 | % |
|
|
|
|
|
|
|
| 3.33 | % | ||||
Net interest margin - tax equivalent |
|
|
|
|
|
|
| 2.89 | % |
|
|
|
|
|
|
|
| 3.34 | % |
42
| Nine Months Ended September 30, |
| |||||||||||||||||||||
| 2021 |
|
| 2020 |
| ||||||||||||||||||
| Average |
|
|
|
|
| Yield/ |
|
| Average |
|
|
|
|
| Yield/ |
| ||||||
| Balance |
|
| Interest |
|
| Rate |
|
| Balance |
|
| Interest |
|
| Rate |
| ||||||
| (Dollars in thousands) |
| |||||||||||||||||||||
INTEREST-EARNING ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Investment securities (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Available-for-sale securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Taxable | $ | 2,757,685 |
|
| $ | 27,824 |
|
|
| 1.38 | % |
| $ | 1,737,723 |
|
| $ | 26,313 |
|
|
| 2.08 | % |
Tax-advantaged |
| 29,932 |
|
|
| 558 |
|
|
| 2.98 | % |
|
| 36,897 |
|
|
| 632 |
|
|
| 3.30 | % |
Held-to-maturity securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Taxable |
| 804,869 |
|
|
| 10,917 |
|
|
| 1.90 | % |
|
| 449,230 |
|
|
| 7,410 |
|
|
| 2.20 | % |
Tax-advantaged |
| 200,744 |
|
|
| 3,341 |
|
|
| 2.68 | % |
|
| 177,364 |
|
|
| 3,623 |
|
|
| 3.29 | % |
Investment in FHLB stock |
| 17,688 |
|
|
| 758 |
|
|
| 5.73 | % |
|
| 17,688 |
|
|
| 761 |
|
|
| 5.75 | % |
Interest-earning deposits with other institutions |
| 1,922,234 |
|
|
| 1,790 |
|
|
| 0.12 | % |
|
| 947,211 |
|
|
| 1,285 |
|
|
| 0.18 | % |
Loans (2) |
| 8,144,105 |
|
|
| 271,911 |
|
|
| 4.46 | % |
|
| 7,972,208 |
|
|
| 281,669 |
|
|
| 4.72 | % |
Total interest-earning assets |
| 13,877,257 |
|
|
| 317,099 |
|
|
| 3.09 | % |
|
| 11,338,321 |
|
|
| 321,693 |
|
|
| 3.82 | % |
Total noninterest-earning assets |
| 1,250,370 |
|
|
|
|
|
|
|
|
| 1,237,241 |
|
|
|
|
|
|
| ||||
Total assets | $ | 15,127,627 |
|
|
|
|
|
|
|
| $ | 12,575,562 |
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
INTEREST-BEARING LIABILITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Savings deposits (3) | $ | 4,203,684 |
|
| $ | 3,263 |
|
|
| 0.10 | % |
| $ | 3,396,259 |
|
| $ | 7,131 |
|
|
| 0.28 | % |
Time deposits |
| 388,095 |
|
|
| 1,087 |
|
|
| 0.37 | % |
|
| 448,615 |
|
|
| 2,946 |
|
|
| 0.88 | % |
Total interest-bearing deposits |
| 4,591,779 |
|
|
| 4,350 |
|
|
| 0.13 | % |
|
| 3,844,874 |
|
|
| 10,077 |
|
|
| 0.35 | % |
FHLB advances, other borrowings, and customer |
| 611,684 |
|
|
| 594 |
|
|
| 0.13 | % |
|
| 505,710 |
|
|
| 1,416 |
|
|
| 0.37 | % |
Interest-bearing liabilities |
| 5,203,463 |
|
|
| 4,944 |
|
|
| 0.13 | % |
|
| 4,350,584 |
|
|
| 11,493 |
|
|
| 0.35 | % |
Noninterest-bearing deposits |
| 7,646,283 |
|
|
|
|
|
|
|
|
| 6,063,469 |
|
|
|
|
|
|
| ||||
Other liabilities |
| 223,749 |
|
|
|
|
|
|
|
|
| 175,209 |
|
|
|
|
|
|
| ||||
Stockholders' equity |
| 2,054,132 |
|
|
|
|
|
|
|
|
| 1,986,300 |
|
|
|
|
|
|
| ||||
Total liabilities and stockholders' equity | $ | 15,127,627 |
|
|
|
|
|
|
|
| $ | 12,575,562 |
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net interest income |
|
|
| $ | 312,155 |
|
|
|
|
|
|
|
| $ | 310,200 |
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net interest spread - tax equivalent |
|
|
|
|
|
|
| 2.96 | % |
|
|
|
|
|
|
|
| 3.47 | % | ||||
Net interest margin |
|
|
|
|
|
|
| 3.03 | % |
|
|
|
|
|
|
|
| 3.67 | % | ||||
Net interest margin - tax equivalent |
|
|
|
|
|
|
| 3.04 | % |
|
|
|
|
|
|
|
| 3.68 | % |
The following table presents a comparison of interest income and interest expense resulting from changes in the volumes and rates on average interest-earning assets and average interest-bearing liabilities for the periods indicated. Changes in interest income or expense attributable to volume changes are calculated by multiplying the change in volume by the initial average non TE interest rate. The change in interest income or expense attributable to changes in interest rates is calculated by multiplying the change in non TE interest rate by the initial volume. The changes attributable to interest rate and volume changes are calculated by multiplying the change in rate times the change in volume.
43
Rate and Volume Analysis for Changes in Interest Income, Interest Expense and Net Interest Income
| Comparison of Three Months Ended September 30, |
| |||||||||||||
| 2021 Compared to 2020 |
| |||||||||||||
| Increase (Decrease) Due to |
| |||||||||||||
|
|
|
|
|
|
| Rate/ |
|
|
|
| ||||
| Volume |
|
| Rate |
|
| Volume |
|
| Total |
| ||||
| (Dollars in thousands) |
| |||||||||||||
Interest income: |
|
|
|
|
|
|
|
|
|
|
| ||||
Available-for-sale securities: |
|
|
|
|
|
|
|
|
|
|
| ||||
Taxable investment securities | $ | 4,821 |
|
| $ | (2,173 | ) |
| $ | (1,262 | ) |
| $ | 1,386 |
|
Tax-advantaged investment securities |
| (36 | ) |
|
| 19 |
|
|
| (3 | ) |
|
| (20 | ) |
Held-to-maturity securities: |
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Taxable investment securities |
| 2,295 |
|
|
| (229 | ) |
|
| (232 | ) |
|
| 1,834 |
|
Tax-advantaged investment securities |
| 233 |
|
|
| (210 | ) |
|
| (44 | ) |
|
| (21 | ) |
Investment in FHLB stock |
| - |
|
|
| 43 |
|
|
| - |
|
|
| 43 |
|
Interest-earning deposits with other institutions |
| 226 |
|
|
| 180 |
|
|
| 103 |
|
|
| 509 |
|
Loans |
| (4,838 | ) |
|
| (796 | ) |
|
| (176 | ) |
|
| (5,810 | ) |
Total interest income |
| 2,701 |
|
|
| (3,166 | ) |
|
| (1,614 | ) |
|
| (2,079 | ) |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Interest expense: |
|
|
|
|
|
|
|
|
|
|
| ||||
Savings deposits |
| 332 |
|
|
| (1,181 | ) |
|
| (194 | ) |
|
| (1,043 | ) |
Time deposits |
| (100 | ) |
|
| (384 | ) |
|
| (318 | ) |
|
| (802 | ) |
FHLB advances, other borrowings, and |
| 61 |
|
|
| (228 | ) |
|
| (41 | ) |
|
| (208 | ) |
Total interest expense |
| 293 |
|
|
| (1,793 | ) |
|
| (553 | ) |
|
| (2,053 | ) |
Net interest income | $ | 2,408 |
|
| $ | (1,373 | ) |
| $ | (1,061 | ) |
| $ | (26 | ) |
| Comparison of Nine Months Ended September 30, |
| |||||||||||||
| 2021 Compared to 2020 |
| |||||||||||||
| Increase (Decrease) Due to |
| |||||||||||||
|
|
|
|
|
|
| Rate/ |
|
|
|
| ||||
| Volume |
|
| Rate |
|
| Volume |
|
| Total |
| ||||
| (Dollars in thousands) |
| |||||||||||||
Interest income: |
|
|
|
|
|
|
|
|
|
|
| ||||
Available-for-sale securities: |
|
|
|
|
|
|
|
|
|
|
| ||||
Taxable investment securities | $ | 15,575 |
|
| $ | (8,834 | ) |
| $ | (5,230 | ) |
| $ | 1,511 |
|
Tax-advantaged investment securities |
| (119 | ) |
|
| 55 |
|
|
| (10 | ) |
|
| (74 | ) |
Held-to-maturity securities: |
|
|
|
|
|
|
|
|
|
|
| ||||
Taxable investment securities |
| 5,100 |
|
|
| (889 | ) |
|
| (704 | ) |
|
| 3,507 |
|
Tax-advantaged investment securities |
| 475 |
|
|
| (669 | ) |
|
| (88 | ) |
|
| (282 | ) |
Investment in FHLB stock |
| - |
|
|
| (3 | ) |
|
| - |
|
|
| (3 | ) |
Interest-earning deposits with other institutions |
| 1,319 |
|
|
| (401 | ) |
|
| (413 | ) |
|
| 505 |
|
Loans |
| 6,231 |
|
|
| (15,652 | ) |
|
| (337 | ) |
|
| (9,758 | ) |
Total interest income |
| 28,581 |
|
|
| (26,393 | ) |
|
| (6,782 | ) |
|
| (4,594 | ) |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Interest expense: |
|
|
|
|
|
|
|
|
|
|
| ||||
Savings deposits |
| 1,697 |
|
|
| (4,496 | ) |
|
| (1,069 | ) |
|
| (3,868 | ) |
Time deposits |
| (398 | ) |
|
| (1,689 | ) |
|
| 228 |
|
|
| (1,859 | ) |
FHLB advances, other borrowings, and |
| 297 |
|
|
| (925 | ) |
|
| (194 | ) |
|
| (822 | ) |
Total interest expense |
| 1,596 |
|
|
| (7,110 | ) |
|
| (1,035 | ) |
|
| (6,549 | ) |
Net interest income | $ | 26,985 |
|
| $ | (19,283 | ) |
| $ | (5,747 | ) |
| $ | 1,955 |
|
44
Third Quarter of 2021 Compared to the Third Quarter of 2020
Net interest income, before recapture of provision for credit losses, of $103.3 million in the third quarter of 2021 was essentially the same as the third quarter of 2020, as the growth in interest-earning assets was offset by a decline in our net interest margin. Interest-earning assets increased on average by $1.91 billion, or 15.26%, from $12.50 billion for the third quarter of 2020 to $14.40 billion for the third quarter of 2021. Our net interest margin (TE) was 2.89% for the third quarter of 2021, compared to 3.34% for the third quarter of 2020.
Interest income for the third quarter of 2021 was $104.5 million, which represented a $2.1 million, or 1.95%, decrease when compared to the same period of 2020. Average interest-earning assets increased to $14.40 billion and the average interest-earning asset yield was 2.92% for the third quarter of 2021, compared to 3.45% for the third quarter of 2020. The 53 basis point decrease in the average interest-earning asset yield compared to the third quarter of 2020, was primarily due to a combination of a 41 basis point decrease in the non-tax equivalent investment yields, a 4 basis point decrease in loan yields, and a change in mix of average earning assets, with loan balances declining to 54.97% of earning assets on average for the third quarter of 2021, compared to 67.08% for the third quarter of 2020. Average balances at the Federal Reserve grew to 16.17% of earning assets for the third quarter of 2021, compared to 11.62% for the third quarter of 2020. The increase in balances at the Federal Reserve was impacted by $1.78 billion in average deposit growth compared to the third quarter of 2020. The net interest margin for the third quarter of 2021 would have been approximately 19 basis points higher without the $876.6 million year-over-year increase in average deposits at the Federal Reserve, earning 15 basis points.
Interest income and fees on loans for the third quarter of 2021 of $88.4 million decreased $5.8 million, or 6.17%, when compared to the third quarter of 2020. Average loans decreased $465.8 million for the third quarter of 2021 when compared with the same period of 2020. The decrease in average loans included a $336.7 milliondecrease in average PPP loans. PPP loans generated approximately $6.6 million in amortized loan fee income and $1.3 million in loan interest during the third quarter of 2021. This compares to $9.5 million in loan fee and interest income in the third quarter of 2020. Discount accretion on acquired loans decreased by $1.6 million compared to the third quarter of 2020. The significant decline in interest rates since the start of the pandemic has had a negative impact on loan yields, which after excluding the impact from PPP loans, discount accretion and nonaccrual interest income, declined by 23 basis points from the third quarter of 2020.
Interest income from investment securities was $15.0 million for the third quarter of 2021, a $3.2 million, or 26.89%, increase from $11.8 million for the third quarter of 2020. This increase was primarily the result of a $1.51 billion increase in average investment securities, when compared to the same period of 2020, as a result of purchases of investment securities funded by the growth in the Bank's deposits. Partially offsetting the increase in interest revenue from higher levels of investment securities was a 41 basis point decline in the non-tax equivalent yield on investments. The significant decline in interest rates over the past four quarters decreased yields on investment securities due to higher levels of premium amortization, as well as lower yields on investments purchased during the past four quarters.
Interest expense of $1.2 million for the third quarter of 2021, decreased $2.1 million, or 62.19%, compared to the third quarter of 2020. The average rate paid on interest-bearing liabilities decreased by 19 basis points, to 0.09% for the third quarter of 2021 from 0.28% for the third quarter of 2020. Average interest-bearing liabilities were $616.9 million higher for the third quarter of 2021 when compared to the third quarter of 2020. On average, noninterest-bearing deposits were 62.94% of our total deposits for the third quarter of 2021, compared to 61.67% for the third quarter of 2020. In comparison to the third quarter of 2020, our overall cost of funds decreased by 7 basis points, partially due to growth in average noninterest-bearing deposits of $1.26 billion, compared to the increase in average interest-bearing deposits of $652.6 million. In addition, the cost of interest-bearing deposits decreased by 19 basis points for the third quarter of 2021 compared to the third quarter of 2020.
45
Nine Months of 2021 Compared to Nine Months of 2020
Net interest income, before recapture of provision for credit losses, was $312.2 million for the nine months ended September 30, 2021, an increase of $2.0 million, or 0.63%, compared to $310.2 million for the same period of 2020. Interest-earning assets increased on average by $2.54 billion, or 22.39%, from $11.34 billion for the nine months ended September 30, 2020 to $13.88 billion for the current year. Our net interest margin (TE) was 3.04% for the first nine months of 2021, compared to 3.68% for the same period of 2020.
Interest income for the nine months ended September 30, 2021 was $317.1 million, which represented a $4.6 million, or 1.43%, decrease when compared to the same period of 2020. Compared to the first nine months of 2020, average interest-earning assets increased by $2.54 billion,and the yield on interest-earning assets decreased by 73 basis points. The 73 basis point decrease in the earning asset yield over the first nine months of 2020, resulted from a 26 basis point decrease in loan yields from 4.72% for first nine months of 2020 to 4.46% for the same period of 2021, and a 65 basis point decline in tax-equivalent investment yields, as well as a change in the mix of earning assets resulting from a $973.3 million increase in average balances at the Federal Reserve. Average loans as a percentage of earning assets declined from 70.31% for the first nine months of 2020 to 58.69% for the first nine months of 2021. Conversely, average balances at the Federal Reserve grew as a percentage of earning assets from 8.09% in the prior year to 13.62% for the first nine months of 2021.
Interest income and fees on loans for the first nine months of 2021 of $271.9 million decreased $9.8 million, or 3.46%, when compared to the same period of 2020. Average loans increased $171.9 million for the first nine months of 2021 when compared with the same period of 2020, primarily due to a $147.5 million increase in average PPP loans. The PPP loans generated approximately $26.4 million in loan fee and interest income during the first nine months of 2021, compared to $18.0 million for the same period in 2020. The first nine months of 2021 reflected a $2.9 million decrease in discount accretion on acquired loans and nonaccrual interest income when compared to the first nine months of 2020. Loan yields decreased by 26 basis points from the prior nine month period. Excluding the impact of PPP loans, interest income related to purchase discount accretion and nonaccrual interest income, loan yields were 29 basis points lower than the first nine months of 2020. The decline in loan yields was primarily due to lower rates on loans indexed to variable interest rates such as the Bank’s prime rate and lower yields on new loans in the low rate environment experienced for the past 12 months.
Interest income from investment securities was $42.6 million for the nine months ended September 30, 2021, a $4.6 million increase from $38.0 million for the first nine months of 2020. This increase was the net result of a $1.39 billion increase in average investment securities, partially offset by a 61 basis point decline in the non tax-equivalent yield on securities, compared to the first nine months of 2020.
Interest expense of $4.9 million for the nine months ended September 30, 2021, decreased by $6.5 million from the same period of 2020. The average rate paid on interest-bearing liabilities decreased by 22 basis points, to 0.13% for the first nine months of 2021, from 0.35% for the same period of 2020. The rate on interest-bearing deposits for the first nine months of 2021 decreased by 22 basis points from the same period in 2020. Average interest-bearing liabilities were $853.0 million higher for the first nine months of 2021 when compared with the same period of 2020. Average interest-bearing deposits grew by $746.9 million when compared to the first nine months of 2020. Average noninterest-bearing deposits represented 62.48% of our total deposits for the nine months ended September 30, 2021, compared to 61.20% for the same period of 2020. Total cost of funds for the first nine months of 2021 was 0.05%, compared with 0.15% for the same period of 2020.
46
Provision for (Recapture of) Credit Losses
The provision for (recapture of) credit losses is a charge to earnings to maintain the allowance for credit losses at a level consistent with management’s assessment of expected lifetime losses in the loan portfolio as of the balance sheet date.
The allowance for credit losses on loans totaled $65.4 million at September 30, 2021, compared to $93.7 million at December 31, 2020 and $93.9 million as of September 30, 2020. For the nine months ended September 30, 2021, we recaptured $25.5 million in provision for credit losses, due to the improved outlook in our forecast of certain macroeconomic variables that were influenced by the economic impact of the pandemic and government stimulus. For the nine months ended September 30, 2021, we experienced credit charge-offs of $3.0 million and total recoveries of $168,000, resulting in net charge-offs of $2.8 million. This compares to a $23.5 million credit loss provision and net charge-offs of $131,000 for the same period of 2020. The provision for credit losses during the first nine months of 2020 was primarily the result of the forecast of a significant decline in economic activity due to the impact of the COVID-19 pandemic. The ratio of the allowance for credit losses to total loans and leases outstanding, net of deferred fees and discount, as of September 30, 2021, was 0.83%. This compares to 1.12% and 1.12%, as of December 31, 2020 and September 30, 2020, respectively. When PPP loans are excluded, allowance for credit losses as a percentage of total adjusted loans and leases outstanding was 0.87% at September 30, 2021, compared to 1.25% at December 31, 2020 and 1.28% at September 30, 2020. As of September 30, 2021, remaining discounts on acquired loans were $20.7 million. Refer to the discussion of “Allowance for Credit Losses” in Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations contained herein for discussion concerning observed changes in the credit quality of various components of our loan portfolio as well as changes and refinements to our methodology.
No assurance can be given that economic conditions which affect the Company’s service areas or other circumstances will or will not be reflected in future changes in the level of our allowance for credit losses and the resulting provision or recapture of provision for credit losses. The process to estimate the allowance for credit losses requires considerable judgment and our economic forecasts may continue to vary due to the uncertainty of the future impact of the pandemic on our business and customers. See “Allowance for Credit Losses” under Analysis of Financial Condition herein.
Noninterest Income
Noninterest income includes income derived from financial services offered to our customers, such as CitizensTrust, BankCard services, international banking, and other business services. Also included in noninterest income are service charges and fees, primarily from deposit accounts, gains (net of losses) from the disposition of investment securities, loans, other real estate owned, and fixed assets, and other revenues not included as interest on earning assets.
The following table sets forth the various components of noninterest income for the periods presented.
| Three Months Ended |
|
|
|
|
|
|
|
| Nine Months Ended |
|
|
|
|
|
|
| ||||||||||||||
| September 30, |
|
| Variance |
|
| September 30, |
|
| Variance |
| ||||||||||||||||||||
| 2021 |
|
| 2020 |
|
| $ |
|
| % |
|
| 2021 |
|
| 2020 |
|
| $ |
|
| % |
| ||||||||
| (Dollars in thousands) |
| |||||||||||||||||||||||||||||
Noninterest income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Service charges on deposit | $ | 4,513 |
|
| $ | 3,970 |
|
| $ | 543 |
|
|
| 13.68 | % |
| $ | 12,667 |
|
| $ | 12,555 |
|
| $ | 112 |
|
|
| 0.89 | % |
Trust and investment services |
| 2,681 |
|
|
| 2,405 |
|
|
| 276 |
|
|
| 11.48 | % |
|
| 8,459 |
|
|
| 7,302 |
|
|
| 1,157 |
|
|
| 15.84 | % |
Bankcard services |
| 479 |
|
|
| 456 |
|
|
| 23 |
|
|
| 5.04 | % |
|
| 1,362 |
|
|
| 1,438 |
|
|
| (76 | ) |
|
| -5.29 | % |
BOLI income |
| 1,229 |
|
|
| 1,469 |
|
|
| (240 | ) |
|
| -16.34 | % |
|
| 7,093 |
|
|
| 5,211 |
|
|
| 1,882 |
|
|
| 36.12 | % |
Swap fee income |
| 167 |
|
|
| 1,591 |
|
|
| (1,424 | ) |
|
| -89.50 | % |
|
| 382 |
|
|
| 4,149 |
|
|
| (3,767 | ) |
|
| -90.79 | % |
Gain on OREO, net |
| - |
|
|
| 13 |
|
|
| (13 | ) |
|
| -100.00 | % |
|
| 477 |
|
|
| 23 |
|
|
| 454 |
|
|
| 1973.91 | % |
Gain on sale of building, net |
| - |
|
|
| 1,680 |
|
|
| (1,680 | ) |
|
| -100.00 | % |
|
| 189 |
|
|
| 1,680 |
|
|
| (1,491 | ) |
|
| -88.75 | % |
Other |
| 1,414 |
|
|
| 1,569 |
|
|
| (155 | ) |
|
| -9.88 | % |
|
| 4,371 |
|
|
| 4,587 |
|
|
| (216 | ) |
|
| -4.71 | % |
Total noninterest income | $ | 10,483 |
|
| $ | 13,153 |
|
| $ | (2,670 | ) |
|
| -20.30 | % |
| $ | 35,000 |
|
| $ | 36,945 |
|
| $ | (1,945 | ) |
|
| -5.26 | % |
Third Quarter of 2021 Compared to the Third Quarter of 2020
The $2.7 million decrease in noninterest income was primarily due to a $1.7 million gain on sale of a bank owned building during the third quarter of 2020 and a $1.4 million decrease in swap fee income. Partially offsetting those decreases was a $543,000 increase in service charges on deposit accounts.
The Bank enters into interest rate swap agreements with our customers to manage our interest rate risk and enters into identical offsetting swaps with a counterparty. The changes in the fair value of the swaps primarily offset each other resulting in swap fee income (refer to Note 8 – Derivative Financial Instruments of the notes to the unaudited condensed
47
consolidated financial statements of this report for additional information). Fees from interest rate swaps decreased $1.4 million compared to the third quarter of 2020, due to lower volume of swap transactions. We executed swap agreements related to new loan originations for the third quarter of 2021 with a notional amount of $9.8 million, compared to executed swap agreements related to new loan originations with a notional amount totaling $73.2 million for the third quarter of 2020.
CitizensTrust consists of Wealth Management and Investment Services income. The Wealth Management group provides a variety of services, which include asset management, financial planning, estate planning, retirement planning, private and corporate trustee services, and probate services. Investment Services provides self-directed brokerage, 401(k) plans, mutual funds, insurance and other non-insured investment products. At September 30, 2021, CitizensTrust had approximately $3.28 billion in assets under management and administration, including $2.39 billion in assets under management. CitizensTrust generated fees of $2.7 million for the third quarter of 2021, compared to $2.4 million for the third quarter of 2020, due to the growth in assets under management and higher investment services fees.
The Bank’s investment in BOLI includes life insurance policies acquired through acquisitions and the purchase of life insurance by the Bank on a select group of employees. The Bank is the owner and beneficiary of these policies. BOLI is recorded as an asset at its cash surrender value. Increases in the cash value of these policies, as well as insurance proceeds received, are recorded in noninterest income and are not subject to income tax, as long as they are held for the life of the covered parties. There were no death benefits from our BOLI policies for the third quarters of 2021 and 2020. Income from BOLI declined by $240,000 compared to the third quarter of 2020.
Nine Months of 2021 Compared to Nine Months of 2020
The $1.9 million decrease in noninterest income was primarily due to a $3.8 million decrease in swap fee income from the first nine months of 2020 due to lower volume of swap transactions. The third quarter of 2020 also included a $1.7 million net gain on the sale of one of our bank owned buildings. Partially offsetting the overall decrease in noninterest income was a $1.9 million increase in BOLI income primarily due to $2.3 million in higher death benefits that result from life insurance proceeds exceeding the asset value of certain BOLI policies. Trust and investment services income increased $1.2 million, or 15.84%, compared with the first nine months of 2020. Growth in assets under management and higher investment services fees equally contributed to this growth in fee income.
48
Noninterest Expense
The following table summarizes the various components of noninterest expense for the periods presented.
| Three Months Ended |
|
|
|
|
|
|
|
| Nine Months Ended |
|
|
|
|
|
|
| ||||||||||||||
| September 30, |
|
| Variance |
|
| September 30, |
|
| Variance |
| ||||||||||||||||||||
| 2021 |
|
| 2020 |
|
| $ |
|
| % |
|
| 2021 |
|
| 2020 |
|
| $ |
|
| % |
| ||||||||
| (Dollars in thousands) |
| |||||||||||||||||||||||||||||
Noninterest expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Salaries and employee benefits | $ | 29,741 |
|
| $ | 31,034 |
|
| $ | (1,293 | ) |
|
| -4.17 | % |
| $ | 88,283 |
|
| $ | 90,617 |
|
| $ | (2,334 | ) |
|
| -2.58 | % |
Occupancy |
| 4,292 |
|
|
| 4,290 |
|
|
| 2 |
|
|
| 0.05 | % |
|
| 12,655 |
|
|
| 12,171 |
|
|
| 484 |
|
|
| 3.98 | % |
Equipment |
| 830 |
|
|
| 985 |
|
|
| (155 | ) |
|
| -15.74 | % |
|
| 2,279 |
|
|
| 2,972 |
|
|
| (693 | ) |
|
| -23.32 | % |
Professional services |
| 1,626 |
|
|
| 2,019 |
|
|
| (393 | ) |
|
| -19.47 | % |
|
| 6,042 |
|
|
| 6,643 |
|
|
| (601 | ) |
|
| -9.05 | % |
Computer software expense |
| 3,020 |
|
|
| 2,837 |
|
|
| 183 |
|
|
| 6.45 | % |
|
| 8,521 |
|
|
| 8,407 |
|
|
| 114 |
|
|
| 1.36 | % |
Marketing and promotion |
| 857 |
|
|
| 728 |
|
|
| 129 |
|
|
| 17.72 | % |
|
| 3,381 |
|
|
| 3,538 |
|
|
| (157 | ) |
|
| -4.44 | % |
Amortization of intangible |
| 2,014 |
|
|
| 2,292 |
|
|
| (278 | ) |
|
| -12.13 | % |
|
| 6,348 |
|
|
| 7,182 |
|
|
| (834 | ) |
|
| -11.61 | % |
Telecommunications expense |
| 514 |
|
|
| 643 |
|
|
| (129 | ) |
|
| -20.06 | % |
|
| 1,592 |
|
|
| 1,929 |
|
|
| (337 | ) |
|
| -17.47 | % |
Regulatory assessments |
| 1,226 |
|
|
| 998 |
|
|
| 228 |
|
|
| 22.85 | % |
|
| 3,424 |
|
|
| 1,313 |
|
|
| 2,111 |
|
|
| 160.78 | % |
Insurance |
| 452 |
|
|
| 400 |
|
|
| 52 |
|
|
| 13.00 | % |
|
| 1,360 |
|
|
| 1,192 |
|
|
| 168 |
|
|
| 14.09 | % |
Loan expense |
| 276 |
|
|
| 207 |
|
|
| 69 |
|
|
| 33.33 | % |
|
| 825 |
|
|
| 833 |
|
|
| (8 | ) |
|
| -0.96 | % |
OREO expense |
| - |
|
|
| 830 |
|
|
| (830 | ) |
|
| -100.00 | % |
|
| 42 |
|
|
| 1,200 |
|
|
| (1,158 | ) |
|
| -96.50 | % |
(Recapture of) provision for |
| - |
|
|
| - |
|
|
| - |
|
| - |
|
|
| (1,000 | ) |
|
|
|
|
| (1,000 | ) |
| - |
| |||
Directors' expenses |
| 388 |
|
|
| 358 |
|
|
| 30 |
|
|
| 8.38 | % |
|
| 1,156 |
|
|
| 1,067 |
|
|
| 89 |
|
|
| 8.34 | % |
Stationery and supplies |
| 254 |
|
|
| 227 |
|
|
| 27 |
|
|
| 11.89 | % |
|
| 739 |
|
|
| 894 |
|
|
| (155 | ) |
|
| -17.34 | % |
Acquisition related expenses |
| 809 |
|
|
| - |
|
|
| 809 |
|
| - |
|
|
| 809 |
|
|
|
|
|
| 809 |
|
| - |
| |||
Other |
| 1,800 |
|
|
| 1,740 |
|
|
| 60 |
|
|
| 3.45 | % |
|
| 5,351 |
|
|
| 4,669 |
|
|
| 682 |
|
|
| 14.61 | % |
Total noninterest expense | $ | 48,099 |
|
| $ | 49,588 |
|
| $ | (1,489 | ) |
|
| -3.00 | % |
| $ | 141,807 |
|
| $ | 144,627 |
|
| $ | (2,820 | ) |
|
| -1.95 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Noninterest expense to average |
| 1.22 | % |
|
| 1.44 | % |
|
|
|
|
|
|
|
| 1.25 | % |
|
| 1.54 | % |
|
|
|
|
|
| ||||
Efficiency ratio (1) |
| 42.27 | % |
|
| 42.57 | % |
|
|
|
|
|
|
|
| 40.85 | % |
|
| 41.66 | % |
|
|
|
|
|
|
Our ability to control noninterest expenses in relation to asset growth can be measured in terms of total noninterest expenses as a percentage of average assets. Noninterest expense as a percentage of average assets was 1.22% for the third quarter of 2021, compared to 1.44% for the third quarter of 2020. The decline in this ratio for 2021 reflects the $2.55 billion growth in average assets that resulted primarily from $2.33 billion in average deposit growth.
Our ability to control noninterest expenses in relation to the level of total revenue (net interest income before provision for credit losses plus noninterest income) can be measured by the efficiency ratio and indicates the percentage of net revenue that is used to cover expenses. The efficiency ratio was 42.27% for the third quarter of 2021, compared to 42.57% for the third quarter of 2020. For the nine months ending September 30, 2021, the efficiency ratio was 40.85%, compared to 41.66% for the same period in 2020.
49
Third Quarter of 2021 Compared to the Third Quarter of 2020
Noninterest expense of $48.1 million for the third quarter of 2021 was $1.5 million, or 3.00%, lower than the third quarter of 2020. The year-over-year decrease of $1.5 million included a $1.3 million decrease in salaries and employee benefits, including $1.1 million in additional bonus expense for “Thank You Awards” paid to all Bank employees during the third quarter of 2020, and an $830,000 decrease in OREO expense, primarily due to a $700,000 write-down of one OREO property in the third quarter of 2020. Merger related expenses increased $809,000 in the third quarter of 2021, for the pending acquisition of Suncrest Bank that was announced in July of 2021.
Nine Months of 2021 Compared to Nine Months of 2020
Noninterest expense of $141.8 million for the first nine months of 2021 was $2.8 million lower than the prior year period. Salaries and employee benefits declined by $2.3 million from the first nine months of 2020, due to lower employee benefit expense that was partially offset by higher bonus and profit sharing expense. The year-over-year decrease also included the $1.0 million recapture of provision for unfunded loan commitments in the second quarter of 2021 and an $834,000 year-over-year decrease in amortization of CDI. An increase of $2.1 million in regulatory assessment expense was the result of the final application of assessment credits provided by the FDIC at the end of the second quarter of 2020. As a percentage of average assets, noninterest expense was 1.25% for the nine months ended September 30, 2021, compared to 1.54% for the same period of 2020.
Income Taxes
The Company’s effective tax rate for the three and nine months ended September 30, 20202021 was 29.00%28.60%, compared to 29.00% for the same periods of 2019.three and nine months ended September 30, 2020, respectively. Our estimated annual effective tax rate varies depending upon the level of
The Company’s effective tax rates are below the nominal combined Federal and State tax rate primarily as a result of
50
ANALYSIS OF FINANCIAL CONDITION
Total assets of $13.82$16.20 billion at September 30, 20202021 increased $2.54$1.78 billion, or 22.48%12.36%, from total assets of $11.28$14.42 billion at December 31, 2019.2020. Interest-earning assets totaled $12.59$14.93 billion at September 30, 2020, an increase of $2.572021 increased $1.71 billion, or 25.59%12.92%, when compared with $10.03$13.22 billion at December 31, 2019.2020. The increase in interest-earning assets was primarily due to a $1.31$1.66 billion increase in investment securities and a $565.9 million increase in interest-earning balances due from the Federal Reserve, an $843.3partially offset by a $499.3 million increasedecrease in total loans andwhich included a $368.6 million increasedecrease in investment securities. The increase in total loans was due to the origination of approximately 4,100 PPP loans totaling $1.10 billion atof $552 million for the nine months ended September 30, 2020.2021. Excluding PPP loans, total loans declinedincreased by $257.8$52.7 million, or 0.71%, from December 31, 2019.
Total liabilities were $11.84$14.14 billion at September 30, 2020,2021, an increase of $2.55$1.73 billion, or 27.44%13.91%, from total liabilities of $9.29$12.41 billion at December 31, 2019.2020. Total deposits grew by $2.46$1.19 billion, or 28.30%10.17%. This significant deposit growth in the first nine months of 2020 was primarily due to our customers maintaining greater liquidity. Total equity decreased $12.1increased $55.9 million, or 0.61%2.79%, to $1.98$2.06 billion at September 30, 2020,2021, compared to total equity of $1.99$2.01 billion at December 31, 2019.2020. The $12.1$55.9 million decreaseincrease in equity was primarily due to the repurchase of 4.9 million shares of common stock for $91.7 million under our10b5-1stock repurchase program. We previously announced that we suspended this10b5-1stock repurchase program due to the Company’s outlook due to the uncertainty of theCOVID-19pandemic. We had $127.1 million in net earnings duringof $164.8 million for the first nine months of 2020,2021, partially offset by $73.3a $32.3 million in cash dividends declared and a cumulative effect adjustment to beginning retained earnings of $1.3 million, net of tax, due to the adoption of CECL on January 1, 2020. Our equity also increased by $23.5 million as a result of an increasedecrease in other comprehensive income from the increasetax-effected impact of the decrease in our tax adjusted market value of ourinvestment securities.
Investment Securities
The Company maintains a portfolio of investment securities to provide interest income and to serve as a source of liquidity for its ongoing operations. At September 30, 2020,2021, total investment securities were $2.78$4.64 billion. This represented an increase of $368.6 million,$1.66 billion, or 15.27%55.70%, from total investment securities of $2.41$2.98 billion at December 31, 2019.2020. The increase in investment securities was primarily due to new securities purchased exceeding cash outflow from the portfolio in the first nine monthsthird quarter of 2020.2021. At September 30, 2020,2021, investment securities HTM totaled $577.7 million.$1.71 billion. At September 30, 2020,2021, our AFS investment securities totaled $2.21$2.93 billion, inclusive of a$55.3$8.8 million. The$38.9$6.2 million. The changes in the net unrealized holding gain resulted primarily from fluctuations in market interest rates. For the nine months ended September 30, 20202021 and 2019,2020, repayments/maturities of investment securities totaled $536.7$712.3 million and $355.8$536.7 million, respectively. The Company purchased additional investment securities totaling $882.1 million$2.44 billion and $268.3$882.1 million for the nine months ended September 30, 2021 and 2020, respectively. During the third quarter of 2021, we purchased approximately $187.4 million of AFS securities with an average expected yield of approximately 1.49% and 2019, respectively.$705.1 million of HTM securities with an average expected yield of approximately 1.75%. The second quarter included purchases of $317.1 million of AFS securities with an average investment yield of approximately 1.69% and the first quarter included purchases of $1.23 billion of securities purchased in the first quarter of 2021, with an average expected yield of approximately 1.57%. The first quarter purchases included $682.9 million in AFS securities that were comprised of MBS with average lives of less than five years that are expected to yield approximately 1.37% and $545.7 million in HTM securities that were comprised of fixed rate agency and municipal bonds, with longer maturities that on average exceed 10 years that will generate a yield of approximately 1.81% on a non-tax equivalent basis. There were no investment securities sold during the first nine months of 2021 and 2020. During the first nine months of 2019, we sold 14 investment securities at book value of approximately $152.6 million. The average duration of our investment securities portfolio was approximately 2.7 years at September 30, 2020.
51
The tables below set forth our investment securities AFS and HTM portfolio by type for the dates presented.
September 30, 2020 | ||||||||||||||||||||
Amortized Cost | Gross Unrealized Holding Gain | Gross Unrealized Holding Loss | Fair Value | Total Percent | ||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||
Investment securities available-for-sale: | ||||||||||||||||||||
Mortgage-backed securities | $ | 1,710,160 | $ | 46,713 | $ | (2) | $ | 1,756,871 | 79.65% | |||||||||||
CMO/REMIC | 404,380 | 7,326 | (212) | 411,494 | 18.66% | |||||||||||||||
Municipal bonds | 35,011 | 1,457 | - | 36,468 | 1.65% | |||||||||||||||
Other securities | 813 | - | - | 813 | 0.04% | |||||||||||||||
Total available-for-sale | $ | 2,150,364 | $ | 55,496 | $ | (214) | $ | 2,205,646 | 100.00% | |||||||||||
Investment securities held-to-maturity: | ||||||||||||||||||||
Government agency/GSE | $ | 103,317 | $ | 6,627 | $ | - | $ | 109,944 | 17.88% | |||||||||||
Mortgage-backed securities | 152,285 | 7,837 | - | 160,122 | 26.36% | |||||||||||||||
CMO/REMIC | 159,676 | 5,315 | - | 164,991 | 27.64% | |||||||||||||||
Municipal bonds | 162,416 | 6,387 | (338) | 168,465 | 28.12% | |||||||||||||||
Total held-to-maturity | $ | 577,694 | $ | 26,166 | $ | (338) | $ | 603,522 | 100.00% | |||||||||||
December 31, 2019 | ||||||||||||||||||||
Amortized Cost | Gross Unrealized Holding Gain | Gross Unrealized Holding Loss | Fair Value | Total Percent | ||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||
Investment securities available-for-sale: | ||||||||||||||||||||
Mortgage-backed securities | $ | 1,185,757 | $ | 21,306 | $ | (750) | $ | 1,206,313 | 69.32% | |||||||||||
CMO/REMIC | 493,214 | 1,392 | (896) | 493,710 | 28.37% | |||||||||||||||
Municipal bonds | 38,506 | 850 | (2) | 39,354 | 2.26% | |||||||||||||||
Other securities | 880 | - | - | 880 | 0.05% | |||||||||||||||
Total available-for-sale | $ | 1,718,357 | $ | 23,548 | $ | (1,648) | $ | 1,740,257 | 100.00% | |||||||||||
Investment securities held-to-maturity: | ||||||||||||||||||||
Government agency/GSE | $ | 117,366 | $ | 2,280 | $ | (657) | $ | 118,989 | 17.40% | |||||||||||
Mortgage-backed securities | 168,479 | 2,083 | (54) | 170,508 | 24.98% | |||||||||||||||
CMO/REMIC | 192,548 | - | (2,458) | 190,090 | 28.55% | |||||||||||||||
Municipal bonds | 196,059 | 3,867 | (565) | 199,361 | 29.07% | |||||||||||||||
Total held-to-maturity | $ | 674,452 | $ | 8,230 | $ | (3,734) | $ | 678,948 | 100.00% | |||||||||||
| September 30, 2021 |
| |||||||||||||||||
| Amortized Cost |
|
| Gross Unrealized Holding Gain |
|
| Gross Unrealized Holding Loss |
|
| Fair Value |
|
| Total Percent |
| |||||
| (Dollars in thousands) |
| |||||||||||||||||
Investment securities available-for-sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Mortgage-backed securities | $ | 2,256,252 |
|
| $ | 31,251 |
|
| $ | (18,430 | ) |
| $ | 2,269,073 |
|
|
| 77.57 | % |
CMO/REMIC |
| 630,351 |
|
|
| 2,846 |
|
|
| (8,030 | ) |
|
| 625,167 |
|
|
| 21.37 | % |
Municipal bonds |
| 28,697 |
|
|
| 1,123 |
|
|
| - |
|
|
| 29,820 |
|
|
| 1.02 | % |
Other securities |
| 1,000 |
|
|
| - |
|
|
| - |
|
|
| 1,000 |
|
|
| 0.04 | % |
Total available-for-sale securities | $ | 2,916,300 |
|
| $ | 35,220 |
|
| $ | (26,460 | ) |
| $ | 2,925,060 |
|
|
| 100.00 | % |
Investment securities held-to-maturity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Government agency/GSE | $ | 585,022 |
|
| $ | 6,785 |
|
| $ | (8,112 | ) |
| $ | 583,695 |
|
|
| 34.19 | % |
Mortgage-backed securities |
| 648,613 |
|
|
| 5,450 |
|
|
| (1,502 | ) |
|
| 652,561 |
|
|
| 37.91 | % |
CMO/REMIC |
| 264,324 |
|
|
| 1,642 |
|
|
| (1,118 | ) |
|
| 264,848 |
|
|
| 15.45 | % |
Municipal bonds |
| 212,979 |
|
|
| 4,761 |
|
|
| (1,614 | ) |
|
| 216,126 |
|
|
| 12.45 | % |
Total held-to-maturity securities | $ | 1,710,938 |
|
| $ | 18,638 |
|
| $ | (12,346 | ) |
| $ | 1,717,230 |
|
|
| 100.00 | % |
| December 31, 2020 |
| |||||||||||||||||
| Amortized Cost |
|
| Gross Unrealized Holding Gain |
|
| Gross Unrealized Holding Loss |
|
| Fair Value |
|
| Total Percent |
| |||||
| (Dollars in thousands) |
| |||||||||||||||||
Investment securities available-for-sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Mortgage-backed securities | $ | 1,857,030 |
|
| $ | 48,006 |
|
| $ | (101 | ) |
| $ | 1,904,935 |
|
|
| 79.41 | % |
CMO/REMIC |
| 457,548 |
|
|
| 5,515 |
|
|
| (249 | ) |
|
| 462,814 |
|
|
| 19.29 | % |
Municipal bonds |
| 28,707 |
|
|
| 1,578 |
|
|
| - |
|
|
| 30,285 |
|
|
| 1.26 | % |
Other securities |
| 889 |
|
|
| - |
|
|
| - |
|
|
| 889 |
|
|
| 0.04 | % |
Total available-for-sale securities | $ | 2,344,174 |
|
| $ | 55,099 |
|
| $ | (350 | ) |
| $ | 2,398,923 |
|
|
| 100.00 | % |
Investment securities held-to-maturity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Government agency/GSE | $ | 98,663 |
|
| $ | 5,877 |
|
| $ | - |
|
| $ | 104,540 |
|
|
| 17.05 | % |
Mortgage-backed securities |
| 146,382 |
|
|
| 7,644 |
|
|
| (32 | ) |
|
| 153,994 |
|
|
| 25.30 | % |
CMO/REMIC |
| 145,309 |
|
|
| 5,202 |
|
|
| - |
|
|
| 150,511 |
|
|
| 25.11 | % |
Municipal bonds |
| 188,272 |
|
|
| 6,980 |
|
|
| (74 | ) |
|
| 195,178 |
|
|
| 32.54 | % |
Total held-to-maturity securities | $ | 578,626 |
|
| $ | 25,703 |
|
| $ | (106 | ) |
| $ | 604,223 |
|
|
| 100.00 | % |
As of September 30, 2020,2021, approximately $66.7$53.2 million in U.S. government agency bonds are callable. The Agency CMO/REMIC securities are backed by agency-pooled collateral. Municipal bonds, which represented approximately 7%6% of the total investment portfolio, are predominately AA or higher rated securities.
The following table presents the Company’s
September 30, 2020 | ||||||||||||||||||||||||
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: | ||||||||||||||||||||||||
Mortgage-backed securities | $ | 30,851 | $ | (2) | $ | - | $ | - | $ | 30,851 | $ | (2) | ||||||||||||
CMO/REMIC | 71,781 | (212) | - | - | 71,781 | (212) | ||||||||||||||||||
Municipal bonds | - | - | - | - | - | - | ||||||||||||||||||
Total available-for-sale | $ | 102,632 | $ | (214) | $ | - | $ | - | $ | 102,632 | $ | (214) | ||||||||||||
52
| September 30, 2021 |
| |||||||||||||||||||||
| 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: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Mortgage-backed securities | $ | 1,349,856 |
|
| $ | (18,243 | ) |
| $ | 21,273 |
|
| $ | (187 | ) |
| $ | 1,371,129 |
|
| $ | (18,430 | ) |
CMO/REMIC |
| 510,308 |
|
|
| (7,758 | ) |
|
| 11,162 |
|
|
| (272 | ) |
|
| 521,470 |
|
|
| (8,030 | ) |
Municipal bonds |
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Total available-for-sale securities | $ | 1,860,164 |
|
| $ | (26,001 | ) |
| $ | 32,435 |
|
| $ | (459 | ) |
| $ | 1,892,599 |
|
| $ | (26,460 | ) |
| December 31, 2020 |
| |||||||||||||||||||||
| 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: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Mortgage-backed securities | $ | 72,219 |
|
| $ | (101 | ) |
| $ | - |
|
| $ | - |
|
| $ | 72,219 |
|
| $ | (101 | ) |
CMO/REMIC |
| 96,974 |
|
|
| (249 | ) |
|
| - |
|
|
| - |
|
|
| 96,974 |
|
|
| (249 | ) |
Municipal bonds |
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Total available-for-sale securities | $ | 169,193 |
|
| $ | (350 | ) |
| $ | - |
|
| $ | - |
|
| $ | 169,193 |
|
| $ | (350 | ) |
Once it is determined that a credit loss has occurred, an allowance for credit losses is established on our available-for-sale and fair value by investment category and length of timeheld-to-maturity securities. Management determined that individualcredit losses did not exist for securities have been in a continuousan unrealized loss position atas of September 30, 2021 and December 31, 2019, prior to adoption of ASU2016-13.Management previously 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 interest 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.
December 31, 2019 | ||||||||||||||||||||||||
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: | ||||||||||||||||||||||||
Mortgage-backed securities | $ | 20,289 | $ | (6) | $ | 97,964 | $ | (744) | $ | 118,253 | $ | (750) | ||||||||||||
CMO/REMIC | 177,517 | (705) | 34,565 | (191) | 212,082 | (896) | ||||||||||||||||||
Municipal bonds | - | - | 563 | (2) | 563 | (2) | ||||||||||||||||||
Total available-for-sale | $ | 197,806 | $ | (711) | $ | 133,092 | $ | (937) | $ | 330,898 | $ | (1,648) | ||||||||||||
Investment securities held-to-maturity: | ||||||||||||||||||||||||
Government agency/GSE | $ | 28,359 | $ | (252) | $ | 19,405 | $ | (405) | $ | 47,764 | $ | (657) | ||||||||||||
Mortgage-backed securities | 10,411 | (54) | - | - | 10,411 | (54) | ||||||||||||||||||
CMO/REMIC | 23,897 | (104) | 166,193 | (2,354) | 190,090 | (2,458) | ||||||||||||||||||
Municipal bonds | 7,583 | (32) | 29,981 | (533) | 37,564 | (565) | ||||||||||||||||||
Total held-to-maturity | $ | 70,250 | $ | (442) | $ | 215,579 | $ | (3,292) | $ | 285,829 | $ | (3,734) | ||||||||||||
Refer to Note 4 –
53
Loans
Total loans and leases, netat amortized cost, of deferred fees and discounts, of $8.41$7.85 billion at September 30, 2020 increased2021 decreased by $843.3$499.3 million, or 11.15%5.98%, from $7.56 billion at December 31, 2019.2020. The increase$499.3 million decrease in total loans included $1.10 billiondecreases of $552.0 million in PPP loans, and a $130.9$81.6 million decline in dairy & livestock and agribusiness loans primarily due to seasonal pay downs, which historically occur in the first quarter of each calendar year. Excluding PPP loans and dairy & livestock and agribusiness loans, total loans declined by $126.9 million, or 1.77%. The $126.9 million decrease in loans included decreases of $118.1$42.1 million in commercial and industrial loans, $27.3$39.2 million in SFR mortgage loans, $7.7 million in construction loans, and $13.5 million in consumer and other loans, $15.1 million in municipal lease financings, $15.0 million in construction loans, and $8.7 million in SFR mortgage loans. Partially offsetting these declines waspartially offset by an increase of $233.2 million in commercial real estate loans and $3.6 million in SBA loans. After adjusting for seasonality and PPP loans, our loans grew by $134.3 million or at an annualized rate of $53.6 million.
The following table presents our loan portfolio by type as of the dates presented.
Distribution of Loan Portfolio by Type
September 30, 2020 | December 31, 2019 | |||||||
(Dollars in thousands) | ||||||||
Commercial and industrial | $ | 817,056 | $ | 935,127 | ||||
SBA | 304,987 | 305,008 | ||||||
SBA - Paycheck Protection Program (PPP) | 1,101,142 | - | ||||||
Real estate: | ||||||||
Commercial real estate | 5,428,223 | 5,374,617 | ||||||
Construction | 101,903 | 116,925 | ||||||
SFR mortgage | 274,731 | 283,468 | ||||||
Dairy & livestock and agribusiness | 252,802 | 383,709 | ||||||
Municipal lease finance receivables | 38,040 | 53,146 | ||||||
Consumer and other loans | 88,988 | 116,319 | ||||||
Total loans | 8,407,872 | 7,568,319 | ||||||
Less: Deferred loan fees, net (1) | - | (3,742) | ||||||
Total loans, net of deferred loan fees | 8,407,872 | 7,564,577 | ||||||
Less: Allowance for credit losses | (93,869) | (68,660) | ||||||
Total loans and lease finance receivables, net | $ | 8,314,003 | $ | 7,495,917 | ||||
| September 30, 2021 |
|
| December 31, 2020 |
| ||
| (Dollars in thousands) |
| |||||
|
|
|
|
|
| ||
Commercial real estate | $ | 5,734,699 |
|
| $ | 5,501,509 |
|
Construction |
| 77,398 |
|
|
| 85,145 |
|
SBA |
| 307,533 |
|
|
| 303,896 |
|
SBA - Paycheck Protection Program (PPP) |
| 330,960 |
|
|
| 882,986 |
|
Commercial and industrial |
| 769,977 |
|
|
| 812,062 |
|
Dairy & livestock and agribusiness |
| 279,584 |
|
|
| 361,146 |
|
Municipal lease finance receivables |
| 47,305 |
|
|
| 45,547 |
|
SFR mortgage |
| 231,323 |
|
|
| 270,511 |
|
Consumer and other loans |
| 70,741 |
|
|
| 86,006 |
|
Total loans, at amortized cost |
| 7,849,520 |
|
|
| 8,348,808 |
|
Less: Allowance for credit losses |
| (65,364 | ) |
|
| (93,692 | ) |
Total loans and lease finance receivables, net | $ | 7,784,156 |
|
| $ | 8,255,116 |
|
As of September 30, 2020, 69.04% of the Company’s total gross loan portfolio consisted of real estate loans, with commercial real estate loans representing 64.56% of total loans. As of September 30, 2020, $271.22021, $354.3 million, or 5.00%6.18% of the total commercial real estate loans included loans secured by farmland, compared to $241.8$314.4 million, or 4.50%5.72%, at December 31, 2019.2020. The loans secured by farmland included $121.1$125.1 million for loans secured by dairy & livestock land and $150.2$229.2 million for loans secured by agricultural land at September 30, 2020,2021, compared to $125.9$132.9 million for loans secured by dairy & livestock land and $115.9$181.5 million for loans secured by agricultural land at December 31, 2019.2020. As of September 30, 2020,2021, dairy & livestock and agribusiness loans of $252.8$279.6 million were comprised of $210.4$242.0 million for dairy & livestock loans and $42.4$37.6 million for agribusiness loans, compared to $323.5$320.1 million for dairy & livestock loans and $60.2$41.0 million for agribusiness loans at December 31, 2019.
Real estate loans are loans secured by conforming trust deeds on real property, including property under construction, land development, commercial property and single-family and multi-family residences. Our real estate loans are comprised of industrial, office, retail, medical, single-familysingle family residences, multi-family residences, and farmland. Consumer loans include installment loans to consumers as well as home equity loans, auto and equipment leases and other loans secured by junior liens on real property. Municipal lease finance receivables are leases to municipalities. Dairy & livestock and agribusiness loans are loans to finance the operating needs of wholesale dairy farm operations, cattle feeders, livestock raisers and farmers.
As of September 30, 2020,2021, the Company had $185.5$209.7 million of total SBA 504 loans. SBA 504 loans include term loans to finance capital expenditures and for the purchase of commercial real estate. Initially the Bank provides two separate loans to the borrower representing a first and second lien on the collateral. The loan with the first lien is typically at a 50% advance to the acquisition costs and the second lien loan provides the financing for 40% of the acquisition costs with the borrower’s down payment of 10% of the acquisition costs. The Bank retains the first lien loan for its term and sells the second lien loan to the SBA subordinated debenture program. A majority of the Bank’s 504 loans are granted for the purpose of commercial real estate acquisition. As of September 30, 2020,2021, the Company had $119.5$97.8 million of total SBA 7(a) loans that include a guarantee of payment from the SBA (typically 75% of the loan amount, but up to 90% in certain cases) in the event of default. The SBA 7(a) loans include revolving lines of credit (SBA Express) and term loans of up to ten (10) years to finance long-term working capital requirements, capital expenditures, and/or for the purchase or refinance of commercial real estate.
54
As an active participant in the SBA’s Paycheck Protection Program, we have originated approximately 4,100 PPP loans totaling $1.10 billion in round one, with a remaining outstanding balance of $52.4 million as of September 30, 2020.
Our loan portfolio is geographically disbursed throughout our marketplace. The following is the breakdown of our total2020.
September 30, 2020 | ||||||||||||||||
Total Loans | Commercial Real Estate Loans | |||||||||||||||
(Dollars in thousands) | ||||||||||||||||
Los Angeles County | $ | 3,609,538 | 42.9 | % | $ | 2,219,742 | 40.9 | % | ||||||||
Central Valley | 1,316,422 | 15.7 | % | 941,699 | 17.3 | % | ||||||||||
Orange County | 1,119,311 | 13.3 | % | 666,886 | 12.3 | % | ||||||||||
Inland Empire | 1,183,026 | 14.1 | % | 829,791 | 15.3 | % | ||||||||||
Central Coast | 523,297 | 6.2 | % | 368,346 | 6.8 | % | ||||||||||
San Diego | 234,903 | 2.8 | % | 144,973 | 2.7 | % | ||||||||||
Other California | 127,669 | 1.5 | % | 83,544 | 1.5 | % | ||||||||||
Out of State | 293,706 | 3.5 | % | 173,242 | 3.2 | % | ||||||||||
$ | 8,407,872 | 100.0 | % | $ | 5,428,223 | 100.0 | % | |||||||||
| September 30, 2021 |
| |||||||||||||
| Total Loans |
|
| Commercial Real |
| ||||||||||
| (Dollars in thousands) |
| |||||||||||||
Los Angeles County | $ | 3,272,657 |
|
|
| 41.7 | % |
| $ | 2,201,389 |
|
|
| 38.4 | % |
Central Valley |
| 1,389,634 |
|
|
| 17.7 | % |
|
| 1,088,972 |
|
|
| 19.0 | % |
Orange County |
| 1,034,232 |
|
|
| 13.2 | % |
|
| 674,864 |
|
|
| 11.8 | % |
Inland Empire |
| 1,009,682 |
|
|
| 12.9 | % |
|
| 855,165 |
|
|
| 14.9 | % |
Central Coast |
| 457,836 |
|
|
| 5.8 | % |
|
| 386,436 |
|
|
| 6.7 | % |
San Diego |
| 248,478 |
|
|
| 3.2 | % |
|
| 224,549 |
|
|
| 3.9 | % |
Other California |
| 145,338 |
|
|
| 1.8 | % |
|
| 92,624 |
|
|
| 1.6 | % |
Out of State |
| 291,663 |
|
|
| 3.7 | % |
|
| 210,700 |
|
|
| 3.7 | % |
| $ | 7,849,520 |
|
|
| 100.0 | % |
| $ | 5,734,699 |
|
|
| 100.0 | % |
The table below breaks down our commercial real estate portfolio.
| September 30, 2021 |
| |||||||||||||
| Loan Balance |
|
| Percent |
|
| Percent |
|
| Average |
| ||||
| (Dollars in thousands) |
| |||||||||||||
Commercial real estate: |
|
|
|
|
|
|
|
|
|
|
| ||||
Industrial | $ | 1,945,809 |
|
|
| 33.9 | % |
|
| 50.9 | % |
| $ | 1,466 |
|
Office |
| 1,045,711 |
|
|
| 18.2 | % |
|
| 23.3 | % |
|
| 1,676 |
|
Retail |
| 809,686 |
|
|
| 14.1 | % |
|
| 10.5 | % |
|
| 1,726 |
|
Multi-family |
| 646,004 |
|
|
| 11.3 | % |
|
| 1.9 | % |
|
| 1,545 |
|
Secured by farmland (2) |
| 354,341 |
|
|
| 6.2 | % |
|
| 96.8 | % |
|
| 2,229 |
|
Medical |
| 295,580 |
|
|
| 5.2 | % |
|
| 37.6 | % |
|
| 1,699 |
|
Other (3) |
| 637,568 |
|
|
| 11.1 | % |
|
| 52.3 | % |
|
| 1,433 |
|
Total commercial real estate | $ | 5,734,699 |
|
|
| 100.0 | % |
|
| 37.0 | % |
|
| 1,586 |
|
September 30, 2020 | ||||||||||||||||
Loan Balance | Percent | Percent Owner- Occupied (1) | Average Loan Balance | |||||||||||||
(Dollars in thousands) | ||||||||||||||||
Commercial real estate: | ||||||||||||||||
Industrial | $ | 1,842,412 | 33.9% | 54.4% | $ | 1,390 | ||||||||||
Office | 992,216 | 18.3% | 25.1% | 1,603 | ||||||||||||
Retail | 771,125 | 14.2% | 13.3% | 1,673 | ||||||||||||
Multi-family | 608,374 | 11.2% | 2.1% | 1,662 | ||||||||||||
Medical | 300,867 | 5.6% | 47.7% | 1,791 | ||||||||||||
Secured by farmland (2) | 271,242 | 5.0% | 97.4% | 1,858 | ||||||||||||
Other (3) | 641,987 | 11.8% | 54.7% | 1,417 | ||||||||||||
Total commercial real estate | $ | 5,428,223 | 100.0% | 39.2% | $ | 1,534 | ||||||||||
(3) Other loans consist of a variety of loan types, none of which exceeds 2.0% of total |
55
Nonperforming Assets
The following table provides information on nonperforming assets as of the dates presented.
September 30, 2020 | December 31, 2019 | |||||||
(Dollars in thousands) | ||||||||
Nonaccrual loans | $ | 11,775 | $ | 5,033 | ||||
Loans past due 90 days or more and still accruing interest | - | - | ||||||
Nonperforming troubled debt restructured loans (TDRs) | - | 244 | ||||||
Total nonperforming loans | 11,775 | 5,277 | ||||||
OREO, net | 4,189 | 4,889 | ||||||
Total nonperforming assets | $ | 15,964 | $ | 10,166 | ||||
Performing TDRs | $ | 2,217 | $ | 3,112 | ||||
Total nonperforming loans and performing TDRs | $ | 13,992 | $ | 8,389 | ||||
Percentage of nonperforming loans and performing TDRs to total loans, net of deferred fees | 0.17% | 0.11% | ||||||
Percentage of nonperforming assets to total loans, net of deferred fees, and OREO | 0.19% | 0.13% | ||||||
Percentage of nonperforming assets to total assets | 0.12% | 0.09% |
| September 30, 2021 |
|
| December 31, 2020 |
| ||
| (Dollars in thousands) |
| |||||
Nonaccrual loans | $ | 8,446 |
|
| $ | 14,347 |
|
Loans past due 90 days or more and still accruing interest |
| - |
|
|
| - |
|
Nonperforming troubled debt restructured loans (TDRs) |
| - |
|
|
| - |
|
Total nonperforming loans |
| 8,446 |
|
|
| 14,347 |
|
OREO, net |
| - |
|
|
| 3,392 |
|
Total nonperforming assets | $ | 8,446 |
|
| $ | 17,739 |
|
Performing TDRs | $ | 7,975 |
|
| $ | 2,159 |
|
|
|
|
|
|
| ||
Total nonperforming loans and performing TDRs | $ | 16,421 |
|
| $ | 16,506 |
|
|
|
|
|
|
| ||
Percentage of nonperforming loans and performing TDRs to total loans, |
| 0.21 | % |
|
| 0.20 | % |
|
|
|
|
|
| ||
Percentage of nonperforming assets to total loans, at amortized cost, |
| 0.11 | % |
|
| 0.21 | % |
Percentage of nonperforming assets to total assets |
| 0.05 | % |
|
| 0.12 | % |
Troubled Debt Restructurings (“TDRs”)
Total TDRs were $2.2$8.0 million at September 30, 2020,2021, compared to $3.4$2.2 million at December 31, 2019.2020. At September 30, 2020,2021, all of our TDRs were performing and accruing interest as restructured loans. Our performing TDRs were generally provided a modification of loan repayment terms in response to borrower financial difficulties. The performing restructured loans represent the only loans accruing interest at each respective reporting date. A performing restructured loan is categorized as such if we believe that it is reasonably assured of repayment and is performing in accordance with the modified terms.
The following table provides a summary of TDRs as of the dates presented.
September 30, 2020 | December 31, 2019 | |||||||||||||||
Balance | Number of Loans | Balance | Number of Loans | |||||||||||||
(Dollars in thousands) | ||||||||||||||||
Performing TDRs: | ||||||||||||||||
Commercial and industrial | $ | 47 | 1 | $ | 78 | 2 | ||||||||||
SBA | - | - | 536 | 1 | ||||||||||||
Real Estate: | ||||||||||||||||
Commercial real estate | 354 | 1 | 397 | 1 | ||||||||||||
Construction | - | - | - | - | ||||||||||||
SFR mortgage | 1,816 | 7 | 2,101 | 8 | ||||||||||||
Dairy & livestock and agribusiness | - | - | - | - | ||||||||||||
Consumer and other | - | - | - | - | ||||||||||||
Total performing TDRs | $ | 2,217 | 9 | $ | 3,112 | 12 | ||||||||||
Nonperforming TDRs: | ||||||||||||||||
Commercial and industrial | $ | - | - | $ | - | - | ||||||||||
SBA | - | - | - | - | ||||||||||||
Real Estate: | ||||||||||||||||
Commercial real estate | - | - | - | - | ||||||||||||
Construction | - | - | - | - | ||||||||||||
SFR mortgage | - | - | - | - | ||||||||||||
Dairy & livestock and agribusiness | - | - | - | - | ||||||||||||
Consumer and other | - | - | 244 | 1 | ||||||||||||
Total nonperforming TDRs | $ | - | - | $ | 244 | 1 | ||||||||||
Total TDRs | $ | 2,217 | 9 | $ | 3,356 | 13 | ||||||||||
| September 30, 2021 |
|
| December 31, 2020 |
| ||||||||||
| Balance |
|
| Number of Loans |
|
| Balance |
|
| Number of Loans |
| ||||
| (Dollars in thousands) |
| |||||||||||||
Performing TDRs: |
|
|
|
|
|
|
|
|
|
|
| ||||
Commercial real estate | $ | 2,632 |
|
|
| 2 |
|
| $ | 320 |
|
|
| 1 |
|
Construction |
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
SBA |
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Commercial and industrial |
| 4,323 |
|
|
| 3 |
|
|
| 43 |
|
|
| 1 |
|
Dairy & livestock and agribusiness |
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
SFR mortgage |
| 1,020 |
|
|
| 5 |
|
|
| 1,796 |
|
|
| 7 |
|
Consumer and other |
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Total performing TDRs | $ | 7,975 |
|
|
| 10 |
|
| $ | 2,159 |
|
|
| 9 |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Nonperforming TDRs: |
|
|
|
|
|
|
|
|
|
|
| ||||
Commercial real estate | $ | - |
|
|
| - |
|
| $ | - |
|
|
| - |
|
Construction |
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
SBA |
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Commercial and industrial |
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Dairy & livestock and agribusiness |
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
SFR mortgage |
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Consumer and other |
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Total nonperforming TDRs | $ | - |
|
|
| - |
|
| $ | - |
|
|
| - |
|
Total TDRs | $ | 7,975 |
|
|
| 10 |
|
| $ | 2,159 |
|
|
| 9 |
|
56
At September 30, 2021 and December 31, 2020, there was no ACL allocated to TDRs. At December 31, 2019, there was no allowance for loan losses specifically allocated to TDRs. Impairment amounts identified are typically charged off against the allowance at the time a probable lossthe loan is determined.considered uncollectible. There were no charge-offs on TDRs for the nine months ended September 30, 2020, compared to $78,000 for the nine months ended September 30, 2019.
Nonperforming Assets and Delinquencies
The table below provides trends in our nonperforming assets and delinquencies as of the dates presented.
September 30, 2020 | June 30, 2020 | March 31, 2020 | December 31, 2019 | September 30, 2019 | ||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||
Nonperforming loans (1): | ||||||||||||||||||||
Commercial and industrial | $ | 1,822 | $ | 1,222 | $ | 1,703 | $ | 1,266 | $ | 1,550 | ||||||||||
SBA | 1,724 | 1,598 | 2,748 | 2,032 | 2,706 | |||||||||||||||
Real estate: | ||||||||||||||||||||
Commercial real estate | 6,481 | 2,628 | 947 | 724 | 1,083 | |||||||||||||||
Construction | - | - | - | - | - | |||||||||||||||
SFR mortgage | 675 | 1,080 | 864 | 878 | 888 | |||||||||||||||
Dairy & livestock and agribusiness | 849 | - | - | - | - | |||||||||||||||
Consumer and other loans | 224 | 289 | 166 | 377 | 385 | |||||||||||||||
Total | $ | 11,775 | $ | 6,817 | $ | 6,428 | $ | 5,277 | $ | 6,612 | ||||||||||
% of Total loans | 0.14% | 0.08% | 0.09% | 0.07% | 0.09% | |||||||||||||||
Past due 30-89 days: | ||||||||||||||||||||
Commercial and industrial | $ | 3,627 | $ | 630 | $ | 665 | $ | 2 | $ | 756 | ||||||||||
SBA | 66 | 214 | 3,086 | 1,402 | 303 | |||||||||||||||
Real estate: | ||||||||||||||||||||
Commercial real estate | - | 4 | 210 | - | 368 | |||||||||||||||
Construction | - | - | - | - | - | |||||||||||||||
SFR mortgage | - | 446 | 233 | 249 | - | |||||||||||||||
Dairy & livestock and agribusiness | - | 882 | 166 | - | - | |||||||||||||||
Consumer and other loans | 67 | 413 | - | - | - | |||||||||||||||
Total | $ | 3,760 | $ | 2,589 | $ | 4,360 | $ | 1,653 | $ | 1,427 | ||||||||||
% of Total loans | 0.04% | 0.03% | 0.06% | 0.02% | 0.02% | |||||||||||||||
OREO: | ||||||||||||||||||||
SBA | $ | 797 | $ | 797 | $ | 797 | $ | 797 | $ | 444 | ||||||||||
Real estate: | ||||||||||||||||||||
Commercial real estate | 1,575 | 2,275 | 2,275 | 2,275 | 2,275 | |||||||||||||||
SFR mortgage | 1,817 | 1,817 | 1,817 | 1,817 | 6,731 | |||||||||||||||
Total | $ | 4,189 | $ | 4,889 | $ | 4,889 | $ | 4,889 | $ | 9,450 | ||||||||||
Total nonperforming, past due, and OREO | $ | 19,724 | $ | 14,295 | $ | 15,677 | $ | 11,819 | $ | 17,489 | ||||||||||
% of Total loans | 0.23% | 0.17% | 0.21% | 0.16% | 0.23% |
|
| September 30, |
|
| June 30, |
|
| March 31, |
|
| December 31, |
|
| September 30, |
| |||||
|
| 2021 |
|
| 2021 |
|
| 2020 |
|
| 2020 |
|
| 2020 |
| |||||
|
| (Dollars in thousands) |
| |||||||||||||||||
Nonperforming loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Commercial real estate |
| $ | 4,073 |
|
| $ | 4,439 |
|
| $ | 7,395 |
|
| $ | 7,563 |
|
| $ | 6,481 |
|
Construction |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
SBA |
|
| 1,513 |
|
|
| 1,382 |
|
|
| 2,412 |
|
|
| 2,273 |
|
|
| 1,724 |
|
Commercial and industrial |
|
| 2,038 |
|
|
| 1,818 |
|
|
| 2,967 |
|
|
| 3,129 |
|
|
| 1,822 |
|
Dairy & livestock and agribusiness |
|
| 118 |
|
|
| 118 |
|
|
| 259 |
|
|
| 785 |
|
|
| 849 |
|
SFR mortgage |
|
| 399 |
|
|
| 406 |
|
|
| 424 |
|
|
| 430 |
|
|
| 675 |
|
Consumer and other loans |
|
| 305 |
|
|
| 308 |
|
|
| 312 |
|
|
| 167 |
|
|
| 224 |
|
Total |
| $ | 8,446 |
|
| $ | 8,471 |
|
| $ | 13,769 |
|
| $ | 14,347 |
|
| $ | 11,775 |
|
% of Total loans |
|
| 0.11 | % |
|
| 0.10 | % |
|
| 0.17 | % |
|
| 0.17 | % |
|
| 0.14 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Past due 30-89 days: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Commercial real estate |
| $ | - |
|
| $ | - |
|
| $ | 178 |
|
| $ | - |
|
| $ | - |
|
Construction |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
SBA |
|
| - |
|
|
| - |
|
|
| 258 |
|
|
| 1,965 |
|
|
| 66 |
|
Commercial and industrial |
|
| 122 |
|
|
| 415 |
|
|
| 952 |
|
|
| 1,101 |
|
|
| 3,627 |
|
Dairy & livestock and agribusiness |
|
| 1,000 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
SFR mortgage |
|
| - |
|
|
| - |
|
|
| 266 |
|
|
| - |
|
|
| - |
|
Consumer and other loans |
|
| - |
|
|
| - |
|
|
| 21 |
|
|
| - |
|
|
| 67 |
|
Total |
| $ | 1,122 |
|
| $ | 415 |
|
| $ | 1,675 |
|
| $ | 3,066 |
|
| $ | 3,760 |
|
% of Total loans |
|
| 0.01 | % |
|
| 0.01 | % |
|
| 0.02 | % |
|
| 0.04 | % |
|
| 0.04 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
OREO: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Commercial real estate |
| $ | - |
|
| $ | - |
|
| $ | 1,575 |
|
| $ | 1,575 |
|
| $ | 1,575 |
|
SBA |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 797 |
|
SFR mortgage |
|
| - |
|
|
| - |
|
|
| - |
|
|
| 1,817 |
|
|
| 1,817 |
|
Total |
| $ | - |
|
| $ | - |
|
| $ | 1,575 |
|
| $ | 3,392 |
|
| $ | 4,189 |
|
Total nonperforming, past due, |
| $ | 9,568 |
|
| $ | 8,886 |
|
| $ | 17,019 |
|
| $ | 20,805 |
|
| $ | 19,724 |
|
% of Total loans |
|
| 0.12 | % |
|
| 0.11 | % |
|
| 0.21 | % |
|
| 0.25 | % |
|
| 0.23 | % |
Nonperforming loans, defined as nonaccrual loans, nonperforming TDR loans and loans past due 90 days or more and still accruing interest, were $11.8$8.4 million at September 30, 2020,2021, or 0.14%0.11% of total loans. Total nonperforming loans at September 30, 2020 included $9.3 million of nonperforming loans acquired from CB in the third quarter of 2018. This compares to nonperforming loans of $5.3$14.3 million, or 0.07%0.17% of total loans, at December 31, 20192020 and $6.6$11.8 million, or 0.09%0.14% of total loans, at September 30, 2019.2020. The $5.0$8.4 million quarter-over-quarter increase in nonperforming loans was primarily due to increases of $3.9at September 30, 2021 are summarized as follows: $4.1 million in nonperforming commercial real estate loans, $849,000$2.0 million in nonperformingcommercial and industrial loans, $1.5 million in SBA loans, $399,000 in SFR mortgage loans, $305,000 in consumer and other loans, and $118,000 in dairy & livestock and agribusiness loans, $600,000 in nonperforming commercial and industrial loans, and $126,000 in nonperforming SBA loans. This was partially offset by a $405,000 decrease in nonperforming SFR mortgage loans and a $65,000 decrease in nonperforming consumer and other loans.
At September 30, 2020,2021, we had no OREO properties, compared to two OREO properties with a carrying value of $3.4 million at December 31, 2020 and four OREO properties with a carrying value of $4.2 million compared to four OREO properties with a carrying value of $4.9 million at December 31, 2019 and three OREO properties with a carrying value of $9.5 million at September 30, 2019. We reflected2020. For the nine months ended September 30, 2020, we sold two OREO properties, realizing a $700,000 write-downnet gain on sale of one OREO property in the third quarter of 2020.$477,000. There were no additions to or sales of OREO properties for the nine months ended September 30, 2021.
57
Allowance for Credit Losses
We adopted CECL on January 1, 2020, which replaces the “incurred loss” approach with an “expected loss” model over the life of the loan, as further described in Note 3—Summary of Significant Accounting Policies of the notes contained in our Annual Report on Form 10-K for the year ended December 31, 2020. The allowance for credit losses totaled $65.4 million as of September 30, 2021, compared to $93.7 million as of December 31, 2020 and $93.9 million as of September 30, 2020. Our allowance for credit losses at September 30, 2021 was 0.83%, or 0.87% of total loans when excluding the $331.0 million in PPP loans. The allowance for credit losses for 2021 was decreased by $25.5 million, due to the improved outlook in our forecast of certain macroeconomic variables that were influenced by the economic impact of the pandemic and government stimulus, and by $2.8 million in year-to-date net charge-offs. The Company previously recorded provision for credit losses totaling $23.5 million in 2020, due to the severe decline in economic forecasts associated with the pandemic. Net charge-offs were $2.8 million for the nine months ended September 30, 2021, which compares to $131,000 in net charge-offs for the same period of 2020.
The allowance for credit losses as of September 30, 2021 is based upon lifetime loss rate models developed from an estimation framework that uses historical lifetime loss experiences to derive loss rates at a collective pool level. We measure the expected credit losses on a collective (pooled) basis for those loans that share similar risk characteristics. We have three collective loan pools: Commercial Real Estate, Commercial and Industrial, and Consumer. Our ACL amounts are largely driven by portfolio characteristics, including loss history and various risk attributes, and the economic outlook for certain macroeconomic variables. Risk attributes for commercial real estate loans include OLTV, origination year, loan seasoning, and macroeconomic variables that include GDP growth, commercial real estate price index and unemployment rate. Risk attributes for commercial and industrial loans include internal risk ratings, borrower industry sector, loan credit spreads and macroeconomic variables that include unemployment rate and BBB spread. The macroeconomic variables for Consumer include unemployment rate and GDP. The Commercial Real Estate methodology is applied over commercial real estate loans, a portion of construction loans, and a portion of SBA loans (excluding Payment Protection Program loans). The Commercial and Industrial methodology is applied over a substantial portion of the Company’s commercial and industrial loans, all dairy & livestock and agribusiness loans, municipal lease receivables, as well as the remaining portion of Small Business Administration (SBA) loans (excluding Payment Protection Program loans). The Consumer methodology is applied to SFR mortgage loans, consumer loans, as well as the remaining construction loans. In addition to determining the quantitative life of loan loss rate to be applied against the portfolio segments, management reviews current conditions and forecasts to determine whether adjustments are needed to ensure that the life of loan loss rates reflect both the current state of the portfolio, and expectations for macroeconomic changes.
Based on the magnitude of government economic stimulus and the wide availability of vaccines, our latest economic forecast reflects continued improvement in key macroeconomic variables, including GDP, the commercial real estate price index and the unemployment rate. Our economic forecast continues to be a blend of multiple forecasts produced by Moody’s. These U.S. economic forecasts include a baseline forecast, as well as upside and downside forecasts, with the largest weighting on the baseline. Our weighted forecast assumes GDP will increase by 5.7% in 2021, and then grows by more than 2% in both 2022 and 2023. The unemployment rate is forecasted to be 5.7% in 2021 and then 5.6% in 2022, before declining to 5.3% in 2023. Management believes that the ACL was appropriate at September 30, 2021 and December 31, 2020. As there is a high degree of uncertainty around the epidemiological assumptions and impact of government responses to the pandemic that impact our economic forecast, no assurance can be given that economic conditions that adversely affect the Company’s service areas or other circumstances will not be reflected in an increased allowance for credit losses in future periods.
58
The table below presents a summary of charge-offs and recoveries by type, the provision for credit losses on loans, and the resulting allowance for credit losses for the periods presented.
| As of and For the |
| |||||
| Nine Months Ended |
| |||||
| September 30, |
| |||||
| 2021 |
|
| 2020 |
| ||
| (Dollars in thousands) |
| |||||
Allowance for credit losses at beginning of period | $ | 93,692 |
|
| $ | 68,660 |
|
Impact of adopting ASU 2016-13 |
| - |
|
|
| 1,840 |
|
Charge-offs: |
|
|
|
|
| ||
Commercial real estate |
| - |
|
|
| - |
|
Construction |
| - |
|
|
| - |
|
SBA |
| - |
|
|
| (203 | ) |
Commercial and industrial |
| (2,985 | ) |
|
| (172 | ) |
Dairy & livestock and agribusiness |
| - |
|
|
| - |
|
SFR mortgage |
| - |
|
|
| - |
|
Consumer and other loans |
| (11 | ) |
|
| (109 | ) |
Total charge-offs |
| (2,996 | ) |
|
| (484 | ) |
Recoveries: |
|
|
|
|
| ||
Commercial real estate |
| - |
|
|
| - |
|
Construction |
| 55 |
|
|
| 9 |
|
SBA |
| 13 |
|
|
| 72 |
|
Commercial and industrial |
| 10 |
|
|
| 7 |
|
Dairy & livestock and agribusiness |
| - |
|
|
| - |
|
SFR mortgage |
| 79 |
|
|
| 206 |
|
Consumer and other loans |
| 11 |
|
|
| 59 |
|
Total recoveries |
| 168 |
|
|
| 353 |
|
Net (charge-offs) recoveries |
| (2,828 | ) |
|
| (131 | ) |
(Recapture of) provision for credit losses |
| (25,500 | ) |
|
| 23,500 |
|
Allowance for credit losses at end of period | $ | 65,364 |
|
| $ | 93,869 |
|
|
|
|
|
|
| ||
Summary of reserve for unfunded loan commitments: |
|
|
|
|
| ||
Reserve for unfunded loan commitments at beginning of period | $ | 9,000 |
|
| $ | 8,959 |
|
Impact of adopting ASU 2016-13 |
| - |
|
|
| 41 |
|
(Recapture of) provision for unfunded loan commitments |
| (1,000 | ) |
|
| - |
|
Reserve for unfunded loan commitments at end of period | $ | 8,000 |
|
| $ | 9,000 |
|
|
|
|
|
|
| ||
Reserve for unfunded loan commitments to total unfunded loan |
| 0.46 | % |
|
| 0.50 | % |
|
|
|
|
|
| ||
Amount of total loans at end of period (1) | $ | 7,849,520 |
|
| $ | 8,407,872 |
|
Average total loans outstanding (1) | $ | 8,144,105 |
|
| $ | 7,972,208 |
|
|
|
|
|
|
| ||
Net charge-offs to average total loans |
| -0.035 | % |
|
| -0.002 | % |
Net charge-offs to total loans at end of period |
| -0.036 | % |
|
| -0.002 | % |
Allowance for credit losses to average total loans |
| 0.80 | % |
|
| 1.18 | % |
Allowance for credit losses to total loans at end of period |
| 0.83 | % |
|
| 1.12 | % |
Net charge-offs to allowance for credit losses |
| -4.33 | % |
|
| -0.14 | % |
Net charge-offs to (recapture of) provision for credit losses |
| 11.09 | % |
|
| -0.56 | % |
The ACL/Total Loan Coverage Ratio as of September 30, 2021 decreased to 0.83%, compared to 1.12% as of September 30, 2020 due to the forecasted impact of improved economic conditions on future life of loan loss rates.
59
The Bank’s ACL methodology also produced an allowance of $8.0 million for our off-balance sheet credit exposures as of September 30, 2021, compared to $9.0 million as of December 31, 2020 and September 30, 2020. The year-over-year decrease included a $1.0 million recapture of provision for unfunded loan commitments in the second quarter of 2021.
While we believe that the allowance at September 30, 2021 was appropriate to absorb losses from known or inherent risks in the portfolio, no assurance can be given that economic conditions, interest rate fluctuations, conditions of our borrowers (including fraudulent activity), or natural disasters, which adversely affect our service areas or other circumstances or conditions, including those defined above, will not be reflected in increased provisions for credit losses in the future.
Changes in economic and business conditions have had an impact on our market area and on our loan portfolio. We continually monitor these conditions in determining our estimates of needed reserves. However, we cannot predict the extent to which the deterioration in general economic conditions, real estate values, changes in general rates of interest and changes in the financial conditions or business of a borrower may adversely affect a specific borrower’s ability to pay or the value of our collateral. See “2019.
As of and For the Nine Months Ended September 30, | ||||||||
2020 | 2019 | |||||||
(Dollars in thousands) | ||||||||
Allowance for credit losses at beginning of period | $ | 68,660 | $ | 63,613 | ||||
Impact of adopting ASU 2016-13 | 1,840 | - | ||||||
Charge-offs: | ||||||||
Commercial and industrial | (172) | (48) | ||||||
SBA | (203) | (295) | ||||||
Commercial real estate | - | - | ||||||
Construction | - | - | ||||||
SFR mortgage | - | - | ||||||
Dairy & livestock and agribusiness | - | (78) | ||||||
Consumer and other loans | (109) | (7) | ||||||
Total charge-offs | (484) | (428) | ||||||
Recoveries: | ||||||||
Commercial and industrial | 7 | 253 | ||||||
SBA | 72 | 9 | ||||||
Commercial real estate | - | - | ||||||
Construction | 9 | 9 | ||||||
SFR mortgage | 206 | 191 | ||||||
Dairy & livestock and agribusiness | - | 19 | ||||||
Consumer and other loans | 59 | 6 | ||||||
Total recoveries | 353 | 487 | ||||||
Net (charge-offs) recoveries | (131) | 59 | ||||||
Provision for credit losses | 23,500 | 5,000 | ||||||
Allowance for credit losses at end of period | $ | 93,869 | $ | 68,672 | ||||
Summary of reserve for unfunded loan commitments: | ||||||||
Reserve for unfunded loan commitments at beginning of period | $ | 8,959 | $ | 8,959 | ||||
Impact of adopting ASU 2016-13 | 41 | - | ||||||
Provision for unfunded loan commitments | - | - | ||||||
Reserve for unfunded loan commitments at end of period | $ | 9,000 | $ | 8,959 | ||||
Reserve for unfunded loan commitments to total unfunded loan commitments | 0.50% | 0.55% | ||||||
Amount of total loans at end of period (1) | $ | 8,407,872 | $ | 7,494,451 | ||||
Average total loans outstanding (1) | $ | 7,972,208 | $ | 7,571,502 | ||||
Net recoveries to average total loans | -0.002% | 0.001% | ||||||
Net recoveries to total loans at end of period | -0.002% | 0.001% | ||||||
Allowance for credit losses to average total loans | 1.18% | 0.91% | ||||||
Allowance for credit losses to total loans at end of period | 1.12% | 0.92% | ||||||
Net (charge-offs) recoveries to allowance for credit losses | -0.14% | 0.09% | ||||||
Net (charge-offs) recoveries to provision for credit losses | -0.56% | 1.18% |
Deposits
The primary source of funds to support earning assets (loans and investments) is the generation of deposits.
Total deposits were $11.17$12.93 billion at September 30, 2020.2021. This represented an increase of $2.46$1.19 billion, or 28.30%10.17%, over total deposits of $8.70$11.74 billion at December 31, 2019.2020. The composition of deposits is summarized as of the dates presented in the table below.
September 30, 2020 | December 31, 2019 | |||||||||||||||
Balance | Percent | Balance | Percent | |||||||||||||
(Dollars in thousands) | ||||||||||||||||
Noninterest-bearing deposits | $ | 6,919,423 | 61.95 | % | $ | 5,245,517 | 60.26 | % | ||||||||
Interest-bearing deposits | ||||||||||||||||
Investment checking | 447,910 | 4.01 | % | 454,565 | 5.22 | % | ||||||||||
Money market | 2,878,457 | 25.77 | % | 2,158,161 | 24.79 | % | ||||||||||
Savings | 477,896 | 4.28 | % | 400,377 | 4.60 | % | ||||||||||
Time deposits | 445,148 | 3.99 | % | 446,308 | 5.13 | % | ||||||||||
Total deposits | $ | 11,168,834 | 100.00 | % | $ | 8,704,928 | 100.00 | % | ||||||||
| September 30, 2021 |
|
| December 31, 2020 |
| ||||||||||
| Balance |
|
| Percent |
|
| Balance |
|
| Percent |
| ||||
| (Dollars in thousands) |
| |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| ||||
Noninterest-bearing deposits | $ | 8,310,709 |
|
|
| 64.27 | % |
| $ | 7,455,387 |
|
|
| 63.52 | % |
Interest-bearing deposits |
|
|
|
|
|
|
|
|
|
|
| ||||
Investment checking |
| 594,347 |
|
|
| 4.61 | % |
|
| 517,976 |
|
|
| 4.42 | % |
Money market |
| 3,129,473 |
|
|
| 24.20 | % |
|
| 2,869,348 |
|
|
| 24.45 | % |
Savings |
| 551,248 |
|
|
| 4.26 | % |
|
| 492,096 |
|
|
| 4.19 | % |
Time deposits |
| 344,439 |
|
|
| 2.66 | % |
|
| 401,694 |
|
|
| 3.42 | % |
Total Deposits | $ | 12,930,216 |
|
|
| 100.00 | % |
| $ | 11,736,501 |
|
|
| 100.00 | % |
The amount of noninterest-bearing deposits in relation to total deposits is an integral element in our strategy of seeking to achieve a low cost of funds. Noninterest-bearing deposits totaled $6.92$8.31 billion at September 30, 2020,2021, representing an increase of $1.67 billion,$855.3 million, or 31.91%11.47%, from noninterest-bearing deposits of $5.25$7.46 billion at December 31, 2019.2020. Noninterest-bearing deposits represented 61.95%64.27% of total deposits forat September 30, 2020,2021, compared to 60.26%63.52% of total deposits forat December 31, 2019.
Savings deposits, which include savings, interest-bearing demand, and money market accounts, totaled $3.80$4.28 billion at September 30, 2020,2021, representing an increase of $791.2$395.6 million, or 26.26%10.20%, from savings deposits of $3.01$3.88 billion at December 31, 2019.
Time deposits totaled $445.1$344.4 million at September 30, 2020,2021, representing a decrease of $1.2$57.3 million, or 0.26%14.25%, from total time deposits of $446.3$401.7 million for December 31, 2019.
60
Borrowings
We offer a repurchase agreement product to our customers. This product, known as Citizens Sweep Manager, sells our investment securities overnight to our customers under an agreement to repurchase them the next day at a price that reflects the market value of the use of these funds by the Bank for the period concerned. These repurchase agreements are signed with customers who want to invest their excess deposits, above a20202021 and December 31, 2019,2020, total funds borrowed under these agreements were $483.4$659.6 million and $428.7$439.4 million, respectively, with a weighted average interest rate of 0.14%0.08% and 0.44%0.10%, respectively.
We had no other borrowings at September 30, 2020, we had2021, compared to $5.0 million and $10.0 million in short-term borrowings that were interest-free advances from the FHLB. We had no short-term borrowingsFHLB at December 31, 2019.
On June 15, 2021, we redeemed our junior subordinated debentures of $25.8 million, representing the amounts that are due from the Company to CVB Statutory Trust III, which had a borrowing cost of approximately 1.60%. The debentures and the Trust Preferred Securities had an original maturity date of 2036. The interest rate on these debentures were based on three-month LIBOR plus 1.38%.
At September 30, 2020, $6.002021, $6.26 billion of loans and $1.86$2.20 billion of investment securities, at carrying value, were pledged to secure public deposits, short and long-term borrowings, and for other purposes as required or permitted by law.
Aggregate Contractual Obligations
The following table summarizes the aggregate contractual obligations as of September 30, 2020.2021.
|
|
|
| Maturity by Period |
| ||||||||||||||
| Total |
|
| Less Than One Year |
|
| One Year Through |
|
| Four Years Through |
|
| Over Five Years |
| |||||
| (Dollars in thousands) |
| |||||||||||||||||
Deposits (1) | $ | 12,930,216 |
|
| $ | 12,902,846 |
|
| $ | 17,736 |
|
| $ | 9,019 |
|
| $ | 615 |
|
Customer repurchase agreements (1) |
| 659,579 |
|
|
| 659,579 |
|
|
| - |
|
|
| - |
|
|
| - |
|
Deferred compensation |
| 20,973 |
|
|
| 675 |
|
|
| 819 |
|
|
| 621 |
|
|
| 18,858 |
|
Operating leases |
| 22,154 |
|
|
| 6,666 |
|
|
| 8,864 |
|
|
| 4,980 |
|
|
| 1,644 |
|
Affordable housing investment |
| 1,350 |
|
|
| 1,259 |
|
|
| 55 |
|
|
| 30 |
|
|
| 6 |
|
Total | $ | 13,634,272 |
|
| $ | 13,571,025 |
|
| $ | 27,474 |
|
| $ | 14,650 |
|
| $ | 21,123 |
|
Maturity by Period | ||||||||||||||||||||
Total | Less Than One Year | One Year Through Three Years | Four Years Through Five Years | Over Five Years | ||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||
Deposits (1) | $ | 11,168,834 | $ | 11,126,422 | $ | 32,422 | $ | 9,394 | $ | 596 | ||||||||||
Customer repurchase agreements (1) | 483,420 | 483,420 | - | - | - | |||||||||||||||
Junior subordinated debentures (1) | 25,774 | - | - | - | 25,774 | |||||||||||||||
Deferred compensation | 21,864 | 681 | 1,172 | 619 | 19,392 | |||||||||||||||
Operating leases | 23,416 | 6,880 | 9,921 | 4,476 | 2,139 | |||||||||||||||
Affordable housing investment | 3,159 | 2,285 | 814 | 47 | 13 | |||||||||||||||
Total | $ | 11,726,467 | $ | 11,619,688 | $ | 44,329 | $ | 14,536 | $ | 47,914 | ||||||||||
Deposits represent noninterest-bearing, money market, savings, NOW, certificates of deposits, brokered and all other deposits held by the Bank.
Customer repurchase agreements represent excess amounts swept from customer demand deposit accounts, which mature the following business day and are collateralized by investment securities. These amounts are due to customers.
Deferred compensation represents the amounts that are due to former employees based on salary continuation agreements as a result of acquisitions and amounts due to current and retired employees under our deferred compensation plans.
Operating leases represent the total minimum lease payments due under
61
Off-Balance
The following table summarizes the2020.
|
|
|
| Maturity by Period |
| ||||||||||||||
| Total |
|
| Less Than One Year |
|
| One Year Through |
|
| Four Years Through |
|
| Over Five Years |
| |||||
| (Dollars in thousands) |
| |||||||||||||||||
Commitment to extend credit: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Commercial real estate | $ | 315,799 |
|
| $ | 49,608 |
|
| $ | 126,713 |
|
| $ | 123,577 |
|
| $ | 15,901 |
|
Construction |
| 90,224 |
|
|
| 38,456 |
|
|
| 51,768 |
|
|
| - |
|
|
| - |
|
SBA |
| 2,247 |
|
|
| 1,570 |
|
|
| - |
|
|
| - |
|
|
| 677 |
|
SBA - PPP |
| 916,126 |
|
|
| 697,971 |
|
|
| 139,212 |
|
|
| 10,629 |
|
|
| 68,314 |
|
Commercial and industrial |
| 209,528 |
|
|
| 76,947 |
|
|
| 132,581 |
|
|
| - |
|
|
| - |
|
Dairy & livestock and agribusiness (1) |
| 17,948 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 17,948 |
|
SFR Mortgage |
| 3,432 |
|
|
| - |
|
|
| 350 |
|
|
| - |
|
|
| 3,082 |
|
Consumer and other loans |
| 123,899 |
|
|
| 18,026 |
|
|
| 4,227 |
|
|
| 4,809 |
|
|
| 96,837 |
|
Total commitment to extend credit |
| 1,679,203 |
|
|
| 882,578 |
|
|
| 454,851 |
|
|
| 139,015 |
|
|
| 202,759 |
|
Obligations under letters of credit |
| 45,779 |
|
|
| 39,728 |
|
|
| 6,051 |
|
|
| - |
|
|
| - |
|
Total | $ | 1,724,982 |
|
| $ | 922,306 |
|
| $ | 460,902 |
|
| $ | 139,015 |
|
| $ | 202,759 |
|
Maturity by Period | ||||||||||||||||||||
Total | Less Than One Year | One Year to Three Years | Four Years to Five Years | After Five Years | ||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||
Commitment to extend credit: | ||||||||||||||||||||
Commercial and industrial | $ | 989,178 | $ | 672,740 | $ | 197,626 | $ | 5,295 | $ | 113,517 | ||||||||||
SBA | 591 | 185 | - | - | 406 | |||||||||||||||
SBA - PPP | - | - | - | - | - | |||||||||||||||
Real estate: | ||||||||||||||||||||
Commercial real estate | 310,666 | 49,450 | 91,984 | 126,299 | 42,933 | |||||||||||||||
Construction | 78,623 | 63,329 | 15,294 | - | - | |||||||||||||||
SFR Mortgage | 1,706 | - | - | - | 1,706 | |||||||||||||||
Dairy & livestock and agribusiness (1) | 232,870 | 188,380 | 43,873 | 130 | 487 | |||||||||||||||
Consumer and other loans | 131,693 | 10,354 | 12,069 | 3,952 | 105,318 | |||||||||||||||
Total commitment to extend credit | 1,745,327 | 984,438 | 360,846 | 135,676 | 264,367 | |||||||||||||||
Obligations under letters of credit | 48,776 | 46,337 | 2,391 | 48 | - | |||||||||||||||
Total | $ | 1,794,103 | $ | 1,030,775 | $ | 363,237 | $ | 135,724 | $ | 264,367 | ||||||||||
As of September 30, 2020,2021, we had commitments to extend credit of approximately $1.75$1.68 billion, and obligations under letters of credit of $48.8$45.8 million. Commitments to extend credit are agreements to lend to customers, provided there is no violation of any material condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Commitments are generally variable rate, and many of these commitments are expected to expire without being drawn upon. As such, the total commitment amounts do not necessarily represent future cash requirements. We use the same credit underwriting policies in granting or accepting such commitments or contingent obligations as we do forDue to the adoption of CECL on January 1, 2020, a transition adjustment of $41,000There was added to the beginning balance of the reserve for unfunded loan commitments. The Company recorded no provision or recapture of provision for unfunded loan commitments recorded for the three months ended September 30, 2021 and $1.0 million in recapture of provision for unfunded loan commitments was recorded for the nine months ended September 30, 2021, compared to no provision or recapture of provision for unfunded loan commitmentsfor the three and nine months ended September 30, 2020 and 2019.2020. The Company had a reserve for unfunded loan commitments of $9.0$8.0 million as of September 30, 2020 and December 31, 20192021 included in other liabilities.
Standby letters of credit are conditional commitments issued by the Bank to guarantee the financial performance of a customer to a third party. Those guarantees are primarily issued to support private borrowing or purchase arrangements. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. When deemed necessary, we hold appropriate collateral supporting those commitments.
62
Capital Resources
Our primary source of capital has been the retention of operating earnings and issuance of common stock in connection with periodic acquisitions. In order to ensure adequate levels of capital, we conduct an ongoing assessment of projected sources, needs and uses of capital in conjunction with projected increases in assets and the level of risk. As part of this ongoing assessment, the Board of Directors reviews the various components of our capital.
Total equity decreased $12.1increased $55.9 million, or 0.61%2.79%, to $1.98$2.06 billion at September 30, 2020,2021, compared to total equity of $1.99$2.01 billion at December 31, 2019.2020. The $12.1$55.9 million decreaseincrease in equity was primarily due to the repurchase of 4.9 million shares of common stock for $91.7 million under our10b5-1stock repurchase program. We previously announced that we suspended this10b5-1stock repurchase program due to the uncertainty of theCOVID-19pandemic. We had $127.1$164.8 million in net earnings during the first nine months of 2020,and $4.2 million for various stock based compensation items. This was partially offset by $73.3a $32.3 million in cash dividends declared and a cumulative effect adjustment to beginning retained earnings of $1.3 million, net of tax, due to the adoption of CECL on January 1, 2020. Our equity also increased by $23.5 million as a result of an increasedecrease in other comprehensive income from the increasetax effected impact of the decrease in our tax adjusted market value of ourinvestment securities. securities and $73.4 million in cash dividends. During the third quarter, we repurchased 390,336 shares of common stock for $7.4 million, or an average repurchase price of $18.97. Our tangible common equity ratio was 9.78% 8.85%at September 30, 2020.
During the third quarter of 2020,2021, the Board of Directors of CVB declared quarterly cash dividends totaling $0.18 per share. Dividends are payable at the discretion of the Board of Directors and there can be no assurance that the Board of Directors will continue to pay dividends at the same rate, or at all, in the future. CVB’s ability to pay cash dividends to its shareholders is subject to restrictions under federal and California law, including restrictions imposed by the Federal Reserve, and covenants set forth in various agreements we are a party to including covenants set forth in our junior subordinated debentures.
On August 11, 2016, our Board of Directors approved a program to repurchase up to 10,000,000 shares of CVB common stock in the open market or in privately negotiated transactions, at times and at prices considered appropriate by us, depending upon prevailing market conditions and other corporate and legal considerations. There is no expiration date for this repurchase program. Up to 9,577,917 of such shares were available for repurchase under the Company’s current10b5-1plan originally adopted in November, 2018 and subsequently amended in July, 2019. On March 31, 2020, the Company announced that it suspended its10b5-1stock repurchase program due to the uncertainty of theCOVID-19pandemic. For the nine monthsyear ended September 30,December 31, 2020, the Company repurchased 4,944,290 shares of CVB common stock outstanding under this program. The Company terminated the 10b5-1 stock buyback plan on September 23, 2021 as a result of the Company’s prospective issuance of common stock related to the pending acquisition of Suncrest Bank. For the three and nine months ended September 30, 2021, the Company repurchased 390,336 shares of CVB common stock outstanding under this program. As of September 30, 2020,2021, we have 4,585,145had 4,194,809 shares of CVB common stock remaining that are eligible for repurchase under the common stock repurchase program.
The Bank and the Company are required to meet risk-based capital standards under the revised capital framework referred to as Basel III set by their respective regulatory authorities. The risk-based capital standards require the achievement of a minimum total risk-based capital ratio of 8.0%, a Tier 1 risk-based capital ratio of 6.0% and a common equity Tier 1 (“CET1”) capital ratio of 4.5%. In addition, the regulatory authorities require the highest rated institutions to maintain a minimum leverage ratio of 4.0%. To be considered “well-capitalized” for bank regulatory purposes, the Bank and the Company are required to have a CET1 capital ratio equal to or greater than 6.5%, a Tier 1 risk-based capital ratio equal to or greater than 8.0%, a total risk-based capital ratio equal to or greater than 10.0% and a Tier 1 leverage ratio equal to or greater than 5.0%. At September 30, 2020,2021, the Bank and the Company exceeded the minimum risk-based capital ratios and leverage ratios required to be considered “well-capitalized” for regulatory purposes. For further information about capital requirements and our capital ratios, see “Item 1.2019.
At September 30, 2020,2021 the Bank and the Company exceeded the minimum risk-based capital ratios and leverage ratios, under the revised capital framework referred to as Basel III, required to be considered “well-capitalized” for regulatory purposes. We did not elect to phase in the impact of CECL on regulatory capital, as allowed under the interim final rule of the FDIC and other U.S. banking agencies.
The table below presents the Company’s and the Bank’s risk-based and leverage capital ratios for the periods presented.
September 30, 2020 | December 31, 2019 | |||||||||||||||||||||||||||
Capital Ratios | Adequately Capitalized Ratios | Minimum Required Plus Capital Conservation Buffer | Well Capitalized Ratios | CVB Financial Corp. Consolidated | Citizens Business Bank | CVB Financial Corp. Consolidated | Citizens Business Bank | |||||||||||||||||||||
Tier 1 leverage capital ratio | 4.00 | % | 4.00 | % | 5.00 | % | 9.88 | % | 9.71 | % | 12.33 | % | 12.19 | % | ||||||||||||||
Common equity Tier 1 capital ratio | 4.50 | % | 7.00 | % | 6.50 | % | 14.60 | % | 14.64 | % | 14.83 | % | 14.94 | % | ||||||||||||||
Tier 1 risk-based capital ratio | 6.00 | % | 8.50 | % | 8.00 | % | 14.89 | % | 14.64 | % | 15.11 | % | 14.94 | % | ||||||||||||||
Total risk-based capital ratio | 8.00 | % | 10.50 | % | 10.00 | % | 16.08 | % | 15.83 | % | 16.00 | % | 15.83 | % |
|
|
|
|
|
|
|
| September 30, 2021 |
| December 31, 2020 | ||||
Capital Ratios |
| Adequately Capitalized Ratios |
| Minimum Required Plus Capital Conservation Buffer |
| Well Capitalized Ratios |
| CVB Financial Corp. Consolidated |
| Citizens Business Bank |
| CVB Financial Corp. Consolidated |
| Citizens Business Bank |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier 1 leverage capital ratio |
| 4.00% |
| 4.00% |
| 5.00% |
| 9.22% |
| 8.94% |
| 9.90% |
| 9.58% |
Common equity Tier 1 capital ratio |
| 4.50% |
| 7.00% |
| 6.50% |
| 14.94% |
| 14.50% |
| 14.77% |
| 14.57% |
Tier 1 risk-based capital ratio |
| 6.00% |
| 8.50% |
| 8.00% |
| 14.94% |
| 14.50% |
| 15.06% |
| 14.57% |
Total risk-based capital ratio |
| 8.00% |
| 10.50% |
| 10.00% |
| 15.74% |
| 15.30% |
| 16.24% |
| 15.75% |
63
ASSET/LIABILITY AND MARKET RISK MANAGEMENT
Liquidity and Cash Flow
The objective of liquidity management is to ensure that funds are available in a timely manner to meet our financial obligations when they come due without incurring unnecessary cost or risk, or causing a disruption to our normal operating activities. This includes the ability to manage unplanned decreases or changes in funding sources, accommodating loan demand and growth, funding investments, repurchasing securities, paying creditors as necessary, and other operating or capital needs.
We regularly assess the amount and likelihood of projected funding requirements through a review of factors such as historical deposit volatility and funding patterns, present and forecasted market and economic conditions, individual customer funding needs, as well as current and planned business activities. Management has an Asset/Liability Committee that meets monthly. This committee analyzes the cash flows from loans, investments, deposits and borrowings. In addition, the Company has a Balance Sheet Management Committee of the Board of Directors that meets monthlyquarterly to review the Company’s balance sheet and liquidity position. This committee provides oversight to the balance sheet and liquidity management process and recommends policy guidelines for the approval of our Board of Directors, and courses of action to address our actual and projected liquidity needs.
Our primary sources and uses of funds for the Company are deposits and loans. Our deposit levels and cost of deposits may fluctuate from$11.17$12.93 billion at September 30, 20202021 increased $2.46$1.19 billion, or 28.30%10.17%, over total deposits of $8.70$11.74 billion at December 31, 2019.2020. This significant deposit growth was primarily due to our customers maintaining greater liquidity.
In general, our liquidity is managed daily by controlling the level of liquid assets as well as the use of funds provided by the cash flow from the investment portfolio, loan demand and deposit fluctuations. Our definition of liquid assets includes cash and cash equivalents in excess of minimum levels needed to fulfill normal business operations, short-term investment securities, and other anticipated near term cash flows from investments. Our balance sheet has significant liquidity and our assets are funded almost entirely with core deposits. Furthermore, we have significant off-balance sheet sources of liquidity. To meet unexpected demands, lines of credit are maintained with correspondent banks, the Federal Home Loan Bank and the Federal Reserve, although availability under these lines of credit are subject to certain conditions. The Bank has available lines of credit exceeding $4 billion, most of which is secured by pledged loans. The sale of investment securities can also serve as a contingent source of funds. We can obtain additional liquidity from deposit growth by offering competitive interest rates on deposits from both our local and national wholesale markets.
CVB is a holding company separate and apart from the Bank that must provide for its own liquidity and must service its own obligations. On June 15, 2021, we redeemed our $25.8 million in subordinated debt with an interest rate of three month LIBOR plus 1.38% at par. Substantially all of CVB’s revenues are obtained from dividends declared and paid by the Bank to CVB. There are statutory and regulatory provisions that could limit the ability of the Bank to pay dividends to CVB. In addition, our regulators could limit the ability of the Bank or CVB to pay dividends or make other distributions. For the Bank, sources of funds include principal payments on loans and investments, growth in deposits, FHLB advances, and other borrowed funds. Uses of funds include withdrawal of deposits, interest paid on deposits, increased loan balances, purchases, and noninterest expenses.
Below is a summary of our average cash position and statement of cash flows for the nine months ended September 30, 20202021 and 2019.2020. For further details see our “
64
Consolidated Summary of Cash Flows
Nine Months Ended September 30, | ||||||||
2020 | 2019 | |||||||
(Dollars in thousands) | ||||||||
Average cash and cash equivalents | $ | 1,071,392 | $ | 237,244 | ||||
Percentage of total average assets | 8.52% | 2.10% | ||||||
Net cash provided by operating activities | $ | 138,019 | $ | 147,410 | ||||
Net cash (used in) provided by investing activities | (1,200,664) | 538,256 | ||||||
Net cash provided by (used in) financing activities | 2,362,080 | (412,066) | ||||||
Net increase in cash and cash equivalents | $ | 1,299,435 | $ | 273,600 | ||||
| Nine Months Ended |
| |||||
| 2021 |
|
| 2020 |
| ||
| (Dollars in thousands) |
| |||||
|
|
|
|
|
| ||
Average cash and cash equivalents | $ | 2,045,021 |
|
| $ | 1,071,392 |
|
Percentage of total average assets |
| 13.52 | % |
|
| 8.52 | % |
|
|
|
|
|
| ||
Net cash provided by operating activities | $ | 136,580 |
|
| $ | 138,019 |
|
Net cash used in investing activities |
| (835,890 | ) |
|
| (1,200,664 | ) |
Net cash provided by financing activities |
| 1,302,513 |
|
|
| 2,362,080 |
|
Net increase in cash and cash equivalents | $ | 603,203 |
|
| $ | 1,299,435 |
|
Average cash and cash equivalents increased by $834.1$973.6 million, or 351.60%90.88%, to $1.07$2.05 billion for the nine months ended September 30, 2020,2021, compared to $237.2 million$1.07 billion for the same period of 2019.
At September 30, 2020,2021, cash and cash equivalents totaled $1.48$2.56 billion. This represented an increase of $1.05$1.08 billion, or 239.38%72.49%, from $437.5 million$1.48 billion at September 30, 2019.
Interest Rate Sensitivity Management
During periods of changing interest rates, the ability tore pricingrepricing mismatches and is considered a shorter term measure, while EVE sensitivity captures mismatches within the period end balance sheets through the financial instruments’ respective maturities or estimated durations and is considered a longer term measure.
One of the primary methods that we use to quantify and manage interest rate risk is simulation analysis, which we use to model NII from the Company’s balance sheet under various interest rate scenarios. We use simulation analysis to project rate sensitive income under many scenarios. The analyses may include rapid and gradual ramping of interest rates, rate shocks, basis risk analysis, and yield curve scenarios. Specific balance sheet management strategies are also analyzed to determine their impact on NII and EVE. Key assumptions in the simulation analysis relate to the behavior of interest rates and pricing spreads, the changes in product balances, and the behavior of loan and deposit clients in different rate environments. This analysis incorporates several assumptions, the most material of which relate to the
Our interest rate risk policy measures the sensitivity of our net interest income over both a
The simulation model estimates the impact of changing interest rates on interest income from all interest-earning assets and interest expense paid on all interest-bearing liabilities reflected on our balance sheet. This sensitivity analysis is compared to policy limits, which specify a maximum tolerance level for net interest income exposure over aeither a 100 or 200 basis point downward shift in interest rates depending on the level of current market rates. The simulation model uses a parallel yield curve shift that ramps rates up or down on a pro rata basis over the
65
The following depicts the Company’s net interest income sensitivity analysis as offor the periods presented below.below, when rates are ramped up 200bps or ramped down 100bps over a 12-month time horizon.
|
| Estimated Net Interest Income Sensitivity (1) | ||||||||
|
| September 30, 2021 |
|
|
| December 31, 2020 | ||||
Interest Rate Scenario |
| 12-month Period |
| 24-month Period (Cumulative) |
| Interest Rate Scenario |
| 12-month Period |
| 24-month Period (Cumulative) |
|
|
|
|
|
|
|
|
|
|
|
+ 200 basis points |
| 12.66% |
| 21.28% |
| + 200 basis points |
| 11.10% |
| 19.60% |
- 100 basis points |
| -5.05% |
| -6.11% |
| - 100 basis points |
| -1.20% |
| -2.40% |
Estimated Net Interest Income Sensitivity (1) | ||||||||||
September 30, 2020 | December 31, 2019 | |||||||||
24-month Period | 24-month Period | |||||||||
Interest Rate Scenario | 12-month Period | (Cumulative) | Interest Rate Scenario | 12-month Period | (Cumulative) | |||||
+ 200 basis points | 9.30% | 18.30% | + 200 basis points | 5.20% | 10.00% | |||||
- 100 basis points | -0.60% | -1.40% | - 100 basis points | -2.10% | -4.60% |
Based on our current simulation models, we believe that the interest rate risk profile of the balance sheet is asset sensitive over both a0.01%.
We also perform valuation analysis, which incorporates all cash flows over the estimated remaining life of all material balance sheet and derivative positions. The valuation of the balance sheet, at a point in time, is defined as the discounted present value of all asset cash flows and derivative cash flows minus the discounted present value of all liability cash flows, the net of which is referred to as EVE. The sensitivity of EVE to changes in the level of interest rates is a measure of the longer-term
Economic Value of Equity Sensitivity
Instantaneous Rate Change | September 30, 2020 | December 31, 2019 | ||||||
100 bp decrease in interest rates | -21.6% | -17.5 | % | |||||
100 bp increase in interest rates | 15.2% | 14.2 | % | |||||
200 bp increase in interest rates | 26.5% | 25.5 | % | |||||
300 bp increase in interest rates | 30.7% | 30.0 | % | |||||
400 bp increase in interest rates | 36.3% | 36.2 | % |
Instantaneous Rate Change |
| September 30, 2021 |
| December 31, 2020 |
|
|
|
|
|
100 bp decrease in interest rates |
| -14.0% |
| -21.0% |
100 bp increase in interest rates |
| 8.2% |
| 16.1% |
200 bp increase in interest rates |
| 17.0% |
| 28.4% |
300 bp increase in interest rates |
| 22.5% |
| 34.4% |
400 bp increase in interest rates |
| 28.4% |
| 41.6% |
As EVE measures the discounted present value of cash flows over the estimated lives of instruments, the change in EVE does not directly correlate to the degree that earnings would be impacted over a shorter time horizon (i.e., the current year). Further, EVE does not take into account factors such as future balance sheet growth, changes in asset and liability mix, changes in yield curve relationships, and changing product spreads that could mitigate the adverse impact of changes in interest rates.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
LIBOR is expected to be completely phased out after 2021,by 2023, as such the Company is assessing the impacts of this transition and exploring alternatives to use in place of LIBOR for various financial instruments, primarily related to our variable-rate loans our subordinated debentures, and interest rate swap derivatives that are indexed to LIBOR. For further quantitative and qualitative disclosures about market risks in our portfolio, see “2019.2020. Our analysis of market risk and market-sensitive financial information contains forward-looking statements and is subject to the disclosure at the beginning of Part I regarding such forward-looking information.
ITEM 4. CONTROLS AND PROCEDURES
As of the end of the period covered by this report, we carried out an evaluation of the effectiveness of the Company’s disclosure controls and procedures under the supervision and with the participation of the Chief Executive Officer, the Chief Financial Officer and other senior management of the Company. Based on the foregoing, the Company’s Chief Executive Officer and the Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of the end of the period covered by this report.
During the fiscal quarter ended September 30, 2020,2021, there have been no changes in our internal controls over financial reporting that have materially affected or are reasonably likely to materially affect our internal controls over financial reporting.
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PART II – OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company and its subsidiaries are parties to various lawsuits and threatened lawsuits in the ordinary andaction”action,” "derivative action" or other representative cases. Some of these lawsuits may be similar in nature to other lawsuits pending against the Company’s competitors.
For lawsuits where the Company has determined that a loss is both probable and reasonably estimable, a liability representing the best estimate of the Company’s financial exposure based on known facts has been recorded in accordance with FASB guidance over loss contingencies (ASC 450). However, as a result of inherent uncertainties in judicial interpretation and application of a myriad of laws and regulations applicable to the Company’s business, and the unique, complex factual issues presented in any given lawsuit, the Company often cannot determine the probability of loss or estimate the amount of damages which a plaintiff might successfully prove if the Company were found to be liable. For lawsuits or threatened lawsuits where a claim has been asserted or the Company has determined that it is probable that a claim will be asserted, and there is a reasonable possibility that the outcome will be unfavorable, the Company will disclose the existence of the loss contingency, even if the Company is not able to make an estimate of the possible loss or range of possible loss with respect to the action or potential action in question, unless the Company believes that the nature, potential magnitude or potential timing (if known) of the loss contingency is not reasonably likely to be material to the Company’s liquidity, consolidated financial position, and/or results of operations.
Our accruals and disclosures for loss contingencies are reviewed quarterly and adjusted as additional information becomes available. We disclose a loss contingency and/or the amount accrued if we believe it is reasonably likely to be material or if we believe such disclosure is necessary for our financial statements to not be misleading. If we determine that an exposure to loss exists in excess of an amount previously accrued or disclosed, we assess whether there is at least a reasonable possibility that a loss, or additional loss, may have been incurred, and we adjust our accruals and disclosures accordingly.
We do not presently believe that the ultimate resolution of any lawsuits currently pending against the Company will have a material adverse effect on the Company’s results of operations, financial condition, or cash flows. The outcome of litigation and other legal and regulatory matters is inherently uncertain, however, and it is possible that one or more of the legal matters currently pending or threatened against the Company could have a material adverse effect on our results of operations, financial condition or cash flows.
ITEM 1A. RISK FACTORS
Except as discussed below there have been no material changes to the risk factors as previously disclosed in Item 1A. to Part I of our Annual Report on Form2019.2020. The materiality of any risks and uncertainties identified in our Forward Looking Statements contained in this report together with those previously disclosed in the Form
Risks relating to the COVID-19 Pandemic
Thehighly uncertain and cannot be predicted, including the scope and duration of the pandemic, the impact of the pandemic on the economy, our customers, our employees and our business partners, the safety and effectiveness, distribution and acceptance of vaccines developed to mitigate the pandemic, and actions taken by governmental authorities in response to the pandemic
Thesharplyresulted in increased unemployment levels. In addition,While the pandemic hasinitially resulted in temporary closures of many businesses and the institution of social distancing and sheltering in place requirements in many states and communities, including in
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California and the principal counties and cities in which our banking centers are located.located, these measures have been lifted in many of the locations and jurisdictions where we have offices. Our operations, like those of other financial institutions that operate in our markets, are significantly influenced by economic conditions in California, including the strength of the real estate market and business conditions in the industries to which we lend or from which we gather deposits. Thesubstantialsignificant decline in the revenues of manycertain business sectors as well as inimpacts to commercial and residential property sales and construction activities. As a result, while the demand for our products and services has been, and may continuerecovered to be, significantly impacted.
We implemented CECL, for determining our overall provision for credit losses, inat the beginning of the first quarter of 2020. In addition, as also noted above, through October 9, 2020, we have granted temporary payment deferments of interest or of principal and interest to customers for 33 loans, with a gross balance of $68.6 million, or less than 1% of our total loan portfolio atFor the nine months that ended September 30, 2020.2020, our allowance for credit losses increased by $23.5 million in provision for credit losses, primarily due to the forecasted impact of COVID-19 on certain economic variables that may cause distress to our loan portfolios. During the first nine months of 2021, forecasted improvements in macroeconomic variables, because of the wide availability of vaccines and government economic stimulus, resulted in a $25.5 million recapture of provision for credit losses. Depending on the scope and duration of thewe believeincluding the impact of new variants of the coronavirus, there is a reasonable possibility that additional loan payment deferments and increased provisions for expected credit losses could prove necessary forin the final calendar quarter in 2020.
Our bank has elected to participate as a lender in the Small Business Administration’s Paycheck Protection Program (PPP) and to register as an Eligible Lender under the Federal Reserve’s Main Street Lending Program (MSLP), and has accordingly become subject to a number of significant risks applicable to lenders under the PPP and MSLP, respectively.
As one set of responses to thePaycheck Protection Program (PPP)PPP enacted under the federal CARES Act.Act and subsequently extended under the federal Consolidated Appropriations Act, 2021. This program iswas designed, among other things, to provide employee payroll maintenance support for small and has actively participated in the PPP.PPP through its extended expiration date of May 31, 2021. Including the second round of funding, after Legislationlegislation passed on April 24, 2020, we have originated and funded approximately 4,100 PPP loans from our customers and, through two separate roundstotaling approximately $1.10 billion, of authorized funding forwhich $52.4 million was outstanding at September 30, 2021. On January 13, 2021, the SBA reopened the PPP totaling $1.10 billion asfor Second Draw loans to small businesses and non-profit organizations that did receive a loan through the initial PPP phase.As of September 30, 2020.
Under interim final regulations promulgated by the SBA, PPP lenders are entitled to rely on borrower certifications with respect to issues such as program eligibility and eligible loan amounts, and PPP loans are designed to be subsequently forgivable, in whole or part, if certain additional criteria are met by the borrower with respect to employee payroll maintenance. However, in view of the fact that the PPP was by design intended to support economically distressed businesses, the SBA’s guarantee of PPP loan amounts to participating lenders is a critical feature of the program. In this regard, because the PPP was quickly implemented into operation and the SBA’s interim regulations have been repeatedly revised and are continuing to evolve, thereThere are significant risks to the Company’s participation in the PPP, including whether certain borrowers will ultimately be found to have been eligible for PPP loans, whether eligible PPP loan amounts for certain borrowers were correctly calculated, whether certain PPP loans will ultimately be determined to be forgivable, and if not, whether the SBA’s guarantee will continue to apply to any unforgiven PPP loan amounts. As of November 5, 2020, 69September 30, 2021, approximately 4,800 loans, representing approximately $43 million,$1.2 billion in PPP loan balances were submitted to the SBA and granted forgiveness. To date, our customers who have had their forgiveness requests reviewed by the SBA have received nearlyalmost 100% loan forgiveness.
Our pending acquisition of Suncrest Bank could adversely affect our business while the merger is pending or if the merger is consummated.
We have entered into an agreement to acquire Suncrest Bank. This merger is subject to our applications for approval filed with our principal federal and state regulatory oversight agencies under the federal CARESBank Merger Act, and designed to help provide support to small andmedium-sizedbusiness and their employees throughoutas well as the U.S., including California, is the Federal Reserve’s Main Street Lending Program (MSLP). The Company has elected to participate as an Eligible Lender under at least threesub-facilitiesMSLP, including the Main Street New Loan Facility, the Main Street Priority Loan Facilityshareholders of Suncrest, and the Nonprofit Organization New Loan Facility. Each of these lending facilities offers different terms and conditions, including with respect to borrower eligibility criteria, maximum loan amounts, whether loan proceedsthere can be utilized to refinance borrower indebtedness to other lenders, contractual priority,non-subordinationand collateralization requirements, etc. Eligible Lenders may extend new MSLP loans to eligible borrowers and sell a 95% participation in each MSLP loan to a special purpose vehicle established by the Federal Reserve Bank of Boston (Main Street SPV), subject to numerous borrower and lender certifications and covenants and the terms of a Loan Participation Agreement and a Servicing Agreement.
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In addition, while the merger is pending, our management may need to have been eligible for MSLPfocus their time and energies on matters related to the merger that otherwise would be directed to their other areas of responsibilities. In addition, the success of the merger will depend, in part, on our ability to successfully combine the businesses of Citizens and Suncrest upon the completion of the merger. It is possible that the integration process could result in:
Furthermore, combining the two companies may be found to have been mademore difficult, time-consuming or costly than expected. If the merger is completed, but the combined company does not fully realize our anticipated cost savings from the merger, or the anticipated business synergies from the acquisition of Suncrest customers, loans and deposits in good faith, whether the borrower will remain in complianceconnection with the terms and conditionsmerger, our business, financial condition or results of its MSLP loan throughout its applicable term, whether any given lender or MSLP loan willoperations could be found to have been in compliance with the terms of the Main Street SPV’s Loan Participation Agreement and/or Servicing Agreement, and whether any individual MSLP loan will be repaid by the borrower on schedule, and, if not, whether the Main Street SPV will seek recourse against the originating lender.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
On August 11, 2016, our Board of Directors approved a program to repurchase up to 10,000,000 shares of CVB common stock in the open market or in privately negotiated transactions.transactions, at times and at prices considered appropriate by us, depending upon prevailing market conditions and other corporate and legal considerations. There is no expiration date for this repurchase program. On March 31, 2020,The Company terminated the Company announced that it suspended itsrepurchase program.buyback plan on September 23, 2021 as a result of the Company’s prospective issuance of common stock related to the pending acquisition of Suncrest Bank. During the three months ended September 30, 2020,2021, the Company did not repurchase anyrepurchased 390,336 shares of CVB common stock outstanding under this program. As of September 30, 2020,2021, we have 4,585,145had 4,194,809 shares of CVB common stock available for repurchase under the common stock repurchase program.
Period |
| Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs |
|
| Average Price |
|
| Maximum Number of Shares Available for Repurchase Under the Plans or Programs |
| |||
|
|
|
|
|
|
|
|
|
| |||
July 1 - 31, 2021 |
|
| 26,865 |
|
| $ | 19.02 |
|
|
| 4,558,280 |
|
August 1 - 31, 2021 |
|
| 43,500 |
|
| $ | 19.01 |
|
|
| 4,514,780 |
|
September 1 - 30, 2021 |
|
| 319,971 |
|
| $ | 18.96 |
|
|
| 4,194,809 |
|
Total |
|
| 390,336 |
|
| $ | 18.97 |
|
|
| 4,194,809 |
|
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable
ITEM 4. MINE SAFETY DISCLOSURES
Not Applicable
ITEM 5. OTHER INFORMATION
None
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ITEM 6. EXHIBITS
Exhibit No. | Description of Exhibits | |
2.1 | ||
31.1 | ||
31.2 | ||
32.1 | ||
32.2 | ||
101.INS | Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. | |
101.SCH | XBRL Taxonomy Extension Schema Document | |
101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document | |
101.DEF | XBRL Taxonomy Extension Definition Linkbase Document | |
101.LAB | XBRL Taxonomy Extension Label Linkbase Document | |
101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document | |
104 | The cover page from the Company’s Quarterly Report on Form |
* | Filed herewith | |
** | Furnished herewith | |
(1) | Incorporated herein by reference to Exhibit 2.1 to our Form 8-K filed with the SEC on July 28, 2021. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
CVB FINANCIAL CORP.
(Registrant)
Date: November 9, 2021
/s/ E. Allen Nicholson
E. Allen Nicholson
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)
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