CVB Financial Corp. Reports Strong Earnings For The Third Quarter Of 2013

CVB Financial Corp. (NASDAQ:CVBF) and its subsidiary, Citizens Business Bank (“the Company”), announced earnings for the third quarter of 2013.

CVB Financial Corp. reported net income of $24.2 million for the third quarter of 2013, compared with net income of $9.3 million for the third quarter of 2012. Diluted earnings per share were $0.23 for the third quarter of 2013, compared to $0.09 for the third quarter of 2012. Net income for the third quarter of 2013 included a $3.8 million loan loss provision recapture and $3.7 million in insurance reimbursements for previous years’ legal costs. By comparison, the third quarter of 2012 was negatively impacted by a pre-tax debt termination expense of $20.4 million. This was related to the redemption of $250.0 million of fixed rate borrowings from the Federal Home Loan Bank (“FHLB”).

As a result of improved credit quality and better economic conditions, the allowance for loan losses was reduced by $3.8 million for the third quarter of 2013. This compares with a $6.2 million reduction for the second quarter of 2013 and zero provision for loan losses for the previous eight fiscal quarters.

Chris Myers, President and CEO, commented, “We achieved strong earnings for the third quarter and were particularly pleased with loan growth of roughly $100 million or 3%, quarter-over-quarter. Our new loan initiatives gained traction and our loan runoff moderated. Credit quality continued to show improvement allowing us to release an additional $3.8 million in loan loss reserves. In looking forward, we remain focused on organic expansion through the hiring and integration of banking teams. We will also seek to accelerate our growth through the acquisition of community banks in and adjacent to our existing geographic markets.”

Net income for the third quarter of 2013 produced a return on beginning equity of 12.79%, a return on average equity of 12.58%, and a return on average assets of 1.49%. The efficiency ratio for the third quarter of 2013 was 43.63%, compared to 46.85% for the second quarter of 2013.

Net income was $70.3 million for the nine months ended September 30, 2013. This represented an increase of $15.2 million, or 27.52%, when compared with net income of $55.1 million for the same period in 2012. The nine months ended September 30, 2012 included $20.4 million in pre-tax debt termination expense associated with the redemption of $250.0 million of fixed rate borrowings from the FHLB. Diluted earnings per share were $0.67 for the nine months ended September 30, 2013, compared to $0.53 for the same period in 2012. Net income for the nine months ended September 30, 2013 produced a return on beginning equity of 12.32%, a return on average equity of 12.16% and a return on average assets of 1.48%.

Total interest income and fees on loans for the third quarter of 2013 were $58.1 million, which included $2.9 million of discount accretion from accelerated principal reductions, payoffs and improved credit loss experienced on covered loans acquired from San Joaquin Bank (“SJB”). This represented a $1.5 million increase when compared to total interest income and fees on loans of $56.6 million for the second quarter of 2013, which included $3.5 million of discount accretion from accelerated principal reductions, payoffs and improved credit loss experienced on acquired loans. Total interest income and fees on loans of $58.1 million decreased $7.8 million, or 11.80%, from the year ago third quarter, which included $7.0 million of discount accretion from accelerated principal reductions, payoffs and improved credit loss experienced on acquired loans.

Noninterest income was $5.0 million for the third quarter of 2013, compared with $7.7 million for the second quarter of 2013 and $2.6 million for the third quarter of 2012. The quarter-over-quarter decrease was primarily due to a $2.5 million net pre-tax gain on the sale of one OREO property in the second quarter of 2013.

Noninterest expense for the third quarter of 2013 was $25.7 million, a decrease of $2.5 million over the second quarter of 2013, and a decrease of $24.3 over the third quarter of 2012. The quarter-over-quarter decrease was primarily due to $3.7 million in insurance reimbursements for previous years’ legal costs. This was somewhat offset by a $1.3 million increase in salaries and employee benefits and a $500,000 provision for unfunded loan commitments.

Net Interest Income and Net Interest Margin

Net interest income, before the provision for loan losses, totaled $54.0 million for the third quarter of 2013, compared to $52.6 million for the second quarter of 2013. Excluding the impact of the yield adjustment on covered loans, our net interest margin (tax equivalent) was 3.48% for the third quarter of 2013, compared to 3.46% for the second quarter of 2013, and 3.60% for the third quarter of 2012. Total average earning asset yields (excluding discount) were 3.75% for the third quarter of 2013, compared to 3.73% for the second quarter of 2013 and 3.99% for the third quarter of 2012. Total cost of funds of 0.29% for the third quarter of 2013 was unchanged from the second quarter of 2013, and decreased by 14 basis points from 0.43% for the third quarter of 2012.

Income Taxes

Our effective tax rate for the three and nine months ended September 30, 2013 was 34.43% and 33.50%, respectively. Our estimated annual effective tax rate varies depending upon tax-advantaged income as well as available tax credits. We benefited from $1.4 million of enterprise zone tax credits reflected during the first quarter of 2013 .

Assets

The Company reported total assets of $6.56 billion at September 30, 2013. This represented an increase of $193.9 million, or 3.05%, from total assets of $6.36 billion at December 31, 2012. Earning assets of $6.18 billion at September 30, 2013 increased $140.2 million, or 2.32%, when compared with $6.04 billion at December 31, 2012. The increase in earning assets during the first nine months of 2013 was primarily due to a $167.7 million increase in investment securities, offset principally by a $17.2 million decrease in FHLB stock and a $7.4 million decrease in interest-earning balances due from the Federal Reserve.

Investment Securities

Investment securities of $2.62 billion at September 30, 2013 increased $167.7 million from $2.45 billion at December 31, 2012. As of September 30, 2013, we had a net pre-tax unrealized gain of $7.3 million on our overall securities portfolio.

MBS totaled $1.68 billion at September 30, 2013, compared to $1.46 billion at 2012 year-end. Virtually all of our mortgage-backed securities are issued by Freddie Mac or Fannie Mae, which have the implied guarantee of the U.S. Government. We have one private-label mortgage-backed security that has impairment. This Alt-A bond, with a carrying value of $1.8 million as of September 30, 2013, has had $1.8 million in net other-than-temporary (“OTTI”) impairment loss to date since it was purchased in early 2008. No additional OTTI impairment was recorded for the first nine months of 2013.

Our municipal securities, totaling $600.7 million, are located within 26 states, and approximately $25.3 million, or 4.2%, are located within the state of California. Our largest concentrations of holdings are in New Jersey at 13.9%, Michigan at 12.5% and Illinois at 10.5%. All municipal bond securities are performing.

In the third quarter of 2013, we pre-purchased MBS to take advantage of an increase in yields and utilized short-term borrowings to facilitate a portion of these purchases. During the third quarter of 2013, we purchased $307.5 million of MBS with an average yield of 2.44%. Our new purchases of MBS have an average duration of approximately four years. We also purchased $7.2 million in municipal securities with an average tax-equivalent yield of 4.01%.

Loans

Total loans and leases, net of deferred fees and discount, of $3.44 billion at September 30, 2013 increased by $101.0 million, or 3.02%, from $3.34 billion at June 30, 2013. Quarter-over-quarter, non-covered loans increased by $111.5 million, and covered loans decreased by $10.5 million. The $111.5 million increase in non-covered loans was principally due to increases of $117.7 million in commercial real estate loans, $12.0 million in single family residential mortgages, and $4.4 million in dairy & livestock loans. This growth was partially offset by decreases of $14.6 million in commercial and industrial loans, $6.1 million in municipal lease finance receivables, and $1.9 million in agribusiness loans.

Deposits & Customer Repurchase Agreements

Deposits of $4.90 billion and customer repurchase agreements of $565.9 million totaled $5.46 billion at September 30, 2013. This represents an increase of $214.1 million, or 4.08%, when compared with total deposits and customer repurchase agreements of $5.25 billion at December 31, 2012.

Noninterest-bearing deposits were $2.54 billion at September 30, 2013, an increase of $117.5 million, or 4.85%, compared to $2.42 billion at December 31, 2012. At September 30, 2013, noninterest-bearing deposits were 51.85% of total deposits, compared to 50.71% at December 31, 2012.

Our average cost of total deposits was 0.10% for the three months ended September 30, 2013, compared to 0.12% for the same period last year. Our cost of total deposits including customer repurchase agreements was 0.12% for the three months ended September 30, 2013, compared to 0.13% for the same period last year.

FHLB Advances, Other Borrowings and Debentures

We had $199.1 million in FHLB advances at September 30, 2013, compared to $198.9 million at December 31, 2012.

At September 30, 2013, we had $42.5 million in short-term borrowings. These borrowings were used to facilitate a portion of our investment purchases made in the third quarter of 2013. We had $26.0 million in short-term borrowings at December 31, 2012.

At September 30, 2013, we had $25.8 million of junior subordinated debentures, compared to $67.0 million at December 31, 2012. On January 7, 2013, we redeemed $20.6 million, or 50%, of the outstanding capital and common securities issued by the Company’s trust subsidiary, CVB Statutory Trust II. On April 7, 2013, we redeemed the remaining $20.6 million of the outstanding capital and common securities issued by CVB Statutory Trust II. We took these actions to reduce funding costs.

Asset Quality

We have separated the discussion of asset quality into two sections: non-covered loans and covered loans. The non-covered loans represent the legacy Citizens Business Bank loans and exclude all loans acquired in the SJB acquisition. The SJB loans are “covered” loans as defined in the loss sharing agreement with the FDIC. These loans were marked to fair value at the acquisition date.

Citizens Business Bank Asset Quality (Non-covered loans)

The allowance for loan losses decreased to $80.7 million at September 30, 2013, compared to $85.5 million at June 30, 2013 and $92.4 million at December 31, 2012. The decrease for the third quarter was due to a $3.8 million reduction in the allowance for loan losses and $994,000 in net charge-offs. The allowance for loan losses was 2.46%, 2.70%, 2.89%, 2.84%, and 2.85% of total non-covered loans and leases outstanding at September 30, 2013, June 30, 2013, March 31, 2013, December 31, 2012, and September 30, 2012, respectively.

Nonperforming loans, defined as nonaccrual loans and nonperforming troubled debt restructured loans (“TDR”), were $49.5 million at September 30, 2013, or 1.51% of total loans. This compares to nonperforming loans of $53.4 million, or 1.68% of total loans, at June 30, 2013 and $58.0 million, or 1.78% of total loans, at December 31, 2012. The $49.5 million in nonperforming loans at September 30, 2013 are summarized as follows: $17.8 million in commercial real estate, $10.4 million in residential mortgages, $10.4 million in commercial construction, $7.0 million in dairy & livestock, $3.7 million in commercial and industrial, and $159,000 in other loans. The $3.9 million decrease in nonperforming loans quarter-over-quarter was principally due to a $1.3 million decrease in nonperforming commercial and industrial loans, a $1.0 million decrease in nonperforming residential mortgages, a $781,000 decrease in nonperforming commercial real estate loans, and a $682,000 decrease in nonperforming dairy & livestock loans.

At September 30, 2013, we had $6.5 million in OREO, a decrease of $8.3 million from $14.8 million at December 31, 2012. As of September 30, 2013, we had two OREO properties, compared to seven OREO properties at December 31, 2012. During the first nine months of 2013, we sold five properties with a carrying value of $7.8 million, realizing a net gain on sale of $2.7 million. There were no additions to OREO during the first nine months of 2013.

At September 30, 2013, we had loans delinquent 30 to 89 days of $1.7 million. This compares to $1.6 million at June 30, 2013 and $887,000 at December 31, 2012. As a percentage of total loans, delinquencies, excluding nonaccruals, were 0.05% at September 30, 2013, 0.05% at June 30, 2013 and 0.03% at December 31, 2012. All loans delinquent 90 days or more were categorized as nonperforming.

At September 30, 2013, we had $59.2 million in performing TDR loans, compared to $61.6 million in performing TDR loans at June 30, 2013 and $50.4 million in performing TDR loans at December 31, 2012. In terms of number of loans, we had 41 performing TDR loans at September 30, 2013, compared to 40 performing TDR loans at June 30, 2013 and 34 performing TDR loans at December 31, 2012.

Nonperforming assets, defined as non-covered nonaccrual loans and other real estate owned, totaled $56.0 million at September 30, 2013, $59.9 million at June 30, 2013, and $72.8 million at December 31, 2012.

Classified loans are loans that are graded “substandard” or worse. At September 30, 2013, classified loans totaled $264.1 million, compared to $304.4 million at June 30, 2013 and $314.0 million at December 31, 2012. The $40.3 million quarter-over-quarter reduction in classified loans was primarily due to decreases of $24.8 million in our classified commercial real estate portfolio, $10.0 million in our classified commercial and industrial portfolio, and $5.2 million in our classified dairy & livestock portfolio.

The overall improvement in credit quality and stronger economic factors resulted in a $3.8 million recapture of loan loss provision reflected in the operating results for the third quarter of 2013. We recaptured $6.2 million for the second quarter of 2013 and had zero provision for loan losses for the previous eight consecutive quarters.

As a result of a $45.9 million quarter-over-quarter increase in unfunded loan commitments, we increased our reserve for unfunded loan commitments by $500,000 for the third quarter of 2013.

San Joaquin Bank Asset Quality (Covered loans)

At September 30, 2013, we had $177.9 million of gross loans from SJB with a carrying value of $163.3 million, compared to $191.4 million of gross loans at June 30, 2013 with a carrying value of $173.8 million at June 30, 2013. We had $220.5 million of gross loans from SJB with a carrying value of $195.2 million at December 31, 2012. Of the gross loans, we had $20.8 million in nonperforming loans as of September 30, 2013, or 11.69%, compared to $27.9 million in nonperforming loans as of December 31, 2012, or 12.67%. We had two OREO properties totaling $906,000, compared to three properties totaling $961,000 at June 30, 2013 and three properties totaling $1.1 million at December 31, 2012. During the first nine months of 2013, there were three additions to OREO totaling $1.5 million. For the nine months ended September 30, 2013, we sold four OREO properties with a carrying value of $1.6 million, resulting in a net gain of $372,000; 80% of these net gains are shared with the FDIC.

CitizensTrust

CitizensTrust has approximately $2.23 billion in assets under management and administration, including $1.67 billion in assets under management, as of September 30, 2013. Revenues were $2.0 million for the third quarter of 2013 and $6.1 million for the nine months ended September 30, 2013, compared to $2.0 million and $6.3 million for the same periods in 2012. CitizensTrust provides trust, investment and brokerage related services, as well as financial, estate and business succession planning.

Corporate Overview

CVB Financial Corp. is the holding company for Citizens Business Bank. The Bank is the largest financial institution headquartered in the Inland Empire region of Southern California with assets of $6.6 billion. Citizens Business Bank serves 41 cities with 39 Business Financial Centers, six Commercial Banking Centers and three trust office locations serving the Inland Empire, Los Angeles County, Orange County, San Diego County, and the Central Valley areas of California.

Shares of CVB Financial Corp. common stock are listed on the NASDAQ under the ticker symbol of CVBF. For investor information on CVB Financial Corp., visit our Citizens Business Bank website at www.cbbank.com and click on the Our Investors tab.

Conference Call

Management will hold a conference call at 7:30 a.m. Pacific time/10:30 a.m. Eastern time on Thursday, October 24, 2013 to discuss the Company’s third quarter 2013 financial results.

To listen to the conference call, please dial (888) 317-6016. A taped replay will be made available approximately one hour after the conclusion of the call and will remain available through November 4, 2013 at 6:00 a.m. Pacific time/9:00 a.m. Eastern time. To access the replay, please dial (877) 344-7529, passcode 10034206.

The conference call will also be simultaneously webcast over the Internet; please visit the Company’s website at www.cbbank.com and click on the Our Investors tab to access the call from the site. Please access the website 15 minutes prior to the call to download any necessary audio software. This webcast will be recorded and available for replay on the Company’s website approximately two hours after the conclusion of the conference call, and will be available on the website for approximately twelve months.

Disclosure

This press release contains certain non-GAAP financial disclosures for tangible common equity, earnings before income taxes, which we refer to as “pre-tax earnings”, and net interest income and net interest margin adjusted for discount accretion on covered loans. The Company uses certain non-GAAP financial measures to provide meaningful supplemental information regarding the Company’s operational performance and to enhance investors’ overall understanding of such financial performance. Please refer to the tables at the end of this release for a presentation of performance ratios in accordance with GAAP and a reconciliation of the non-GAAP financial measures to the GAAP financial measures.

Safe Harbor

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 regarding future operating results. These forward-looking statements are subject to risks and uncertainties that could cause actual results, performance or achievements to differ materially from those projected. These risks and uncertainties include, but are not limited to, local, regional, national and international economic conditions and events and the impact they may have on us and our customers; ability to attract deposits and other sources of liquidity; supply and demand for real property inventory and periodic deterioration in values of California real estate, both residential and commercial; a prolonged slowdown or decline in construction activity; changes in the financial performance and/or condition of our borrowers; changes in the level of non-performing assets and charge-offs; the cost or effect of acquisitions we may make; the effect of changes in laws and regulations (including laws, regulations and judicial decisions concerning financial reform, taxes, banking capital levels, securities, employment, executive compensation, insurance and information security) with which we and our subsidiaries must comply; changes in estimates of future reserve requirements and minimum capital requirements based upon the periodic review thereof under relevant regulatory and accounting requirements, including changes in the Basel Committee framework establishing capital standards for credit, operations and market risk; inflation, interest rate, securities market and monetary fluctuations; changes in government interest rate or monetary policies; changes in the amount and availability of deposit insurance; cyber-security threats including loss of system functionality or theft or loss of Company or customer data; political instability; acts of war or terrorism, or natural disasters, such as earthquakes, or the effects of pandemic diseases; the timely development and acceptance of new banking products and services and perceived overall value of these products and services by users; changes in consumer spending, borrowing and savings habits; technological changes and the expanding use of technology in banking (including the adoption of mobile banking applications); the ability to retain and increase market share, retain and grow customers and control expenses; changes in the competitive environment among financial and bank holding companies and other financial service providers; continued volatility in the credit and equity markets and its effect on the general economy or local business conditions; fluctuations in the price of the Company’s stock; the effect of changes in accounting policies and practices, as may be adopted from time-to-time by the regulatory agencies, as well as by the Public Company Accounting Oversight Board, the Financial Accounting Standards Board and other accounting standard- setters; changes in our organization, management, compensation and benefit plans, and our ability to retain or expand our management team and/or our board of directors; the costs and effects of legal and regulatory developments, including the resolution of legal proceedings or regulatory or other governmental inquiries or investigations and the results of regulatory examinations or reviews; our success at managing the risks involved in the foregoing items and all other factors set forth in the Company's public reports including its Annual Report on Form 10-K for the year ended December 31, 2012, and particularly the discussion of risk factors within that document. The Company does not undertake, and specifically disclaims any obligation, to update any forward-looking statements to reflect occurrences or unanticipated events or circumstances after the date of such statements except as required by law.
CVB FINANCIAL CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Dollars in thousands)
       
 
September 30, December 31, September 30,
2013 2012 2012
Assets
Cash and due from banks $ 127,728 $ 87,274 $ 99,881
Interest-earning balances due from Federal Reserve 3,714   11,157   148,304  
Total cash and cash equivalents 131,442 98,431 248,185
 
Interest-earning balances due from depository institutions 70,000 70,000 70,000
Investment securities available-for-sale 2,617,307 2,449,387 2,257,507
Investment securities held-to-maturity 1,850 2,050 2,122
Investment in stock of Federal Home Loan Bank (FHLB) 39,420 56,651 62,428
 
Non-covered loans held-for-sale - - 996
Loans and lease finance receivables, excluding covered loans 3,281,352 3,252,313 3,227,405
Allowance for loan losses (80,713 ) (92,441 ) (92,067 )
Net loans and lease finance receivables 3,200,639   3,159,872   3,135,338  
 
Covered loans and lease finance receivables, net 163,334 195,215 207,307
Premises and equipment, net 33,604 35,080 35,577
Intangibles 2,386 3,389 3,830
Goodwill 55,097 55,097 55,097
Bank owned life insurance 122,538 119,744 118,384
FDIC loss sharing asset 7,034 18,489 22,271
Other assets 112,632   99,959   102,299  
TOTAL ASSETS $ 6,557,283   $ 6,363,364   $ 6,321,341  
 
Liabilities and Stockholders' Equity
Liabilities:
Deposits:
Noninterest-bearing demand deposits $ 2,538,461 $ 2,420,993 $ 2,324,401
Investment checking 345,317 323,159 302,071
Savings and money market demand 1,323,391 1,315,668 1,416,035
Time deposits 688,317   714,167   738,609  
Total deposits 4,895,486 4,773,987 4,781,116
 
Customer repurchase agreements 565,883 473,244 448,788
FHLB advances 199,138 198,934 198,866
Other borrowings 42,482 26,000 -
Junior subordinated debentures 25,774 67,012 67,012
Payable for securities purchased - - -
Other liabilities 60,298   61,217   71,352  
Total liabilities 5,789,061   5,600,394   5,567,134  
 
Stockholders' Equity:
Stockholders' equity 763,960 719,719 705,742
Accumulated other comprehensive income, net of tax 4,262   43,251   48,465  
Total stockholders' equity 768,222   762,970   754,207  
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 6,557,283   $ 6,363,364   $ 6,321,341  
 
CVB FINANCIAL CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED AVERAGE BALANCE SHEETS
(Unaudited)
(Dollars in thousands)
         
 
Three Months Ended

September 30,
Nine Months Ended

September 30,
  2013     2012     2013     2012  
Assets:
Cash and due from banks $ 105,404 $ 100,530 $ 103,280 $ 113,139
Interest-earning balances due from Federal Reserve 90,150   247,870   83,338   242,960  
Total cash and cash equivalents 195,554 348,400 186,618 356,099
 
Interest-earning balances due from depository institutions 70,000 68,370 70,000 62,810
Investment securities available-for-sale 2,488,265 2,241,473 2,408,690 2,278,257
Investment securities held-to-maturity 1,860 2,113 1,918 2,201
Investment in stock of Federal Home Loan Bank (FHLB) 42,507 64,084 49,004 67,911
 
Non-covered loans held-for-sale - 1,145 25 1,626
Covered loans held-for-sale - - - 3,057
Loans and lease finance receivables, excluding covered loans 3,217,079 3,220,469 3,189,906 3,194,408
Allowance for loan losses   (85,541 )   (91,736 )   (89,846 )   (92,658 )
Net loans and lease finance receivables   3,131,538     3,128,733     3,100,060     3,101,750  
Covered loans and lease finance receivables, net 166,315 208,727 173,261 229,067
Premises and equipment, net 34,062 36,215 34,650 35,991
Intangibles 2,469 4,038 2,775 4,506
Goodwill 55,097 55,097 55,097 55,097
Bank owned life insurance 122,262 117,935 121,011 117,194
FDIC loss sharing asset 9,797 35,350 13,477 47,867
Other assets   131,747     142,820     140,341     145,586  
TOTAL ASSETS $ 6,451,473   $ 6,454,500   $ 6,356,927   $ 6,509,019  
 
Liabilities and Stockholders' Equity
Liabilities:
Deposits:
Noninterest-bearing demand deposits $ 2,483,421 $ 2,257,941 $ 2,398,378 $ 2,167,497
Interest-bearing   2,352,291     2,455,365     2,337,788     2,508,264  
Total deposits 4,835,712 4,713,306 4,736,166 4,675,761
 
Customer repurchase agreements 534,395 468,259 526,370 497,607
FHLB advances 199,112 356,449 199,045 417,751
Other borrowings 13,751 - 14,278 11
Junior subordinated debentures 25,774 83,821 33,071 98,968
Payable for securities purchased 28,199 11,626 16,083 14,778
Other liabilities   50,225     63,470     58,975     59,627  
Total liabilities   5,687,168     5,696,931     5,583,988     5,764,503  
 
Stockholders' equity:
Stockholders' equity 760,285 713,932 745,947 702,326
Accumulated other comprehensive income, net of tax   4,020     43,637     26,992     42,190  
Total stockholders' equity   764,305     757,569     772,939     744,516  
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 6,451,473   $ 6,454,500   $ 6,356,927   $ 6,509,019  
 
CVB FINANCIAL CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
(Dollars in thousands, except per share amounts)
         
 
Three Months Ended

September 30,
Nine Months Ended

September 30,
  2013     2012     2013     2012  
Interest income:
Loans and leases, including fees $ 41,706 $ 45,559 $ 124,879 $ 139,289
Accretion on acquired loans   2,947     7,045     10,796     19,258  
Total loans and leases, including fees 44,653 52,604 135,675 158,547
Investment securities:
Taxable 7,102 7,246 19,280 25,202
Tax-advantaged   5,517     5,640     16,569     17,221  
Total investment income 12,619 12,886 35,849 42,423
Dividends from FHLB stock 622 79 1,432 263
Federal funds sold and interest-earning CDs   180     276     524     856  
Total interest income 58,074 65,845 173,480 202,089
Interest expense:
Deposits 1,228 1,398 3,627 4,605
Borrowings and junior subordinated debentures   2,873     4,703     8,696     16,178  
Total interest expense   4,101     6,101     12,323     20,783  
Net interest income before provision for loan losses 53,973 59,744 161,157 181,306
Provision for loan losses   (3,750 ) -   (9,950 ) -  
Net interest income after provision for loan losses 57,723 59,744 171,107 181,306
Noninterest income:
Service charges on deposit accounts 4,011 4,040 11,982 12,232
Trust and investment services 2,021 2,037 6,098 6,264
Gain on sale of investment securities, net - - 2,094 -
Decrease in FDIC loss sharing asset, net (3,248 ) (7,059 ) (10,715 ) (19,339 )
(Loss)/gain on OREO (3 ) 524 3,129 1,458
Other   2,176     3,084     6,809     9,559  
Total noninterest income   4,957     2,626     19,397     10,174  
Noninterest expense:
Salaries and employee benefits 18,389 17,489 52,777 50,856
Occupancy and equipment 3,641 4,010 10,888 11,582
Professional services 1,316 1,570 4,299 5,666
Amortization of intangible assets 127 449 1,002 1,717
Provision for unfunded commitments 500 - 500 -
Debt termination - 20,379 - 20,379
OREO expense 21 405 384 1,458
Insurance reimbursements (4,139 ) (48 ) (4,139 ) (451 )
Other   5,859     5,766     19,049     17,974  
Total noninterest expense   25,714     50,020     84,760     109,181  
Earnings before income taxes 36,966 12,350 105,744 82,299
Income taxes   12,727     3,093     35,424     27,155  
Net earnings $ 24,239   $ 9,257   $ 70,320   $ 55,144  
 
Basic earnings per common share $ 0.23   $ 0.09   $ 0.67   $ 0.53  
Diluted earnings per common share $ 0.23   $ 0.09   $ 0.67   $ 0.53  
 
Dividends declared per common share $ 0.10   $ 0.085   $ 0.285   $ 0.255  
 
CVB FINANCIAL CORP. AND SUBSIDIARIES
SELECTED FINANCIAL HIGHLIGHTS
(Unaudited)
(Dollars in thousands, except per share amounts)
       
Three Months Ended

September 30,
Nine Months Ended

September 30,
  2013     2012     2013     2012  
 
Interest income - (tax-effected) (te) $ 60,093 $ 67,973 $ 179,555 $ 208,550
Interest expense   4,101     6,101     12,323     20,783  
Net interest income - (te) $ 55,992   $ 61,872   $ 167,232   $ 187,767  
 
Return on average assets, annualized 1.49 % 0.57 % 1.48 % 1.13 %
Return on average equity, annualized 12.58 % 4.86 % 12.16 % 9.89 %
Efficiency ratio [1] 43.63 % 80.20 % 46.94 % 57.02 %
Efficiency ratio excluding debt termination [1] [2] 43.63 % 47.52 % 46.94 % 46.38 %
Noninterest expense to average assets, annualized 1.58 % 3.08 % 1.78 % 2.24 %
Noninterest expense to average assets, excluding debt termination [2] 1.58 % 1.83 % 1.78 % 1.82 %
Yield on average earning assets (te) 3.95 % 4.48 % 4.03 % 4.59 %
Yield on average earning assets (te) excluding discount 3.75 % 3.99 % 3.77 % 4.13 %
Cost of deposits 0.10 % 0.12 % 0.10 % 0.13 %
Cost of deposits and customer repurchase agreements 0.12 % 0.13 % 0.12 % 0.15 %
Cost of funds 0.29 % 0.43 % 0.30 % 0.48 %
Net interest margin (te) 3.68 % 4.08 % 3.75 % 4.14 %
Net interest margin (te) excluding discount 3.48 % 3.60 % 3.49 % 3.69 %
 
[1] Noninterest expense divided by net interest income before provision for loan losses plus noninterest income.
[2] See Non-GAAP table for efficiency ratio and noninterest expense reconciliation.
 
Weighted average shares outstanding
Basic 104,765,645 104,456,267 104,657,144 104,379,558
Diluted 105,217,269 104,775,607 104,987,120 104,638,706
Dividends declared $ 10,511 $ 8,909 $ 29,925 $ 26,725

Dividend payout ratio [3]
43.36 % 96.24 % 42.56 % 48.46 %

[3] Dividends declared on common stock divided by net earnings.
Number of shares outstanding-EOP 105,209,875 104,813,389
Book value per share $ 7.30 $ 7.20
Tangible book value per share $ 6.76 $ 6.63
 
September 30,
(Non-covered loans)   2013     2012  
Nonperforming assets:
Nonaccrual loans $ 21,439 $ 32,889
Loans past due 90 days or more
and still accruing interest - -
Troubled debt restructured loans (nonperforming) 28,045 33,099
Other real estate owned (OREO), net   6,524     10,473  
Total nonperforming assets $ 56,008   $ 76,461  
Troubled debt restructured performing loans $ 59,195   $ 51,613  
 
Percentage of nonperforming assets
to total loans outstanding and OREO 1.70 % 2.36 %
 
Percentage of nonperforming
assets to total assets 0.85 % 1.21 %
 
Allowance for loan losses to
nonperforming assets 144.11 % 120.41 %
 
Net charge-offs to average loans 0.06 % 0.06 %
 
Allowance for loan losses:
Beginning balance $ 92,441 $ 93,964
Total loans charged-off (2,699 ) (4,844 )
Total recoveries on loans previously charged-off   921     2,947  
Net loans charged-off (1,778 ) (1,897 )
(Recapture of) provision for loan losses   (9,950 )   -  
Allowance for loan losses at end of period $ 80,713   $ 92,067  
 
CVB FINANCIAL CORP. AND SUBSIDIARIES
SELECTED FINANCIAL HIGHLIGHTS
(Unaudited)
(Dollars in thousands, except per share amounts)
         
Quarterly Common Stock Price
 
2013   2012 2011
Quarter End High Low High Low High Low
March 31, $ 12.30 $ 10.42 $ 11.97 $ 9.99 $ 9.32 $ 7.83
June 30, $ 11.99 $ 10.29 $ 11.92 $ 10.16 $ 9.94 $ 8.18
September 30, $ 13.77 $ 11.65 $ 12.95 $ 11.35 $ 10.00 $ 7.41
December 31, $ 12.17 $ 9.43 $ 10.27 $ 7.28
 
 
Quarterly Consolidated Statements of Earnings
 
3Q 2Q 1Q 4Q 3Q
  2013     2013     2013   2012   2012
Interest income
Loans, including fees $ 44,653 $ 44,975 $ 46,047 $ 47,206 $ 52,604
Investment securities and other   13,421     11,618     12,766   12,927   13,241
Total interest income 58,074 56,593 58,813 60,133 65,845
Interest expense
Deposits 1,228 1,158 1,241 1,306 1,398
Other borrowings   2,873     2,840     2,983   3,183   4,703
Total interest expense 4,101 3,998 4,224 4,489 6,101
Net interest income before
provision for loan losses 53,973 52,595 54,589 55,644 59,744
Provision for loan losses   (3,750 )   (6,200 )   -   -   -
Net interest income after
provision for loan losses 57,723 58,795 54,589 55,644 59,744
 
Noninterest income 4,957 7,695 6,745 5,729 2,626
Noninterest expense 25,714 28,248 30,798 28,979 29,641
Debt termination   -     -     -   -   20,379
Earnings before income taxes 36,966 38,242 30,536 32,394 12,350
Income taxes   12,727     13,776     8,921   10,258   3,093
Net earnings $ 24,239   $ 24,466   $ 21,615 $ 22,136 $ 9,257
 
Basic earning per common share $ 0.23 $ 0.23 $ 0.21 $ 0.21 $ 0.09
Diluted earnings per common share $ 0.23 $ 0.23 $ 0.21 $ 0.21 $ 0.09
 
Dividends declared per common share $ 0.100 $ 0.100 $ 0.085 $ 0.085 $ 0.085
 
Dividends declared $ 10,511 $ 10,502 $ 8,912 $ 8,917 $ 8,909
 
CVB FINANCIAL CORP. AND SUBSIDIARIES
SELECTED FINANCIAL HIGHLIGHTS
(Unaudited)
(Dollars in thousands)
           
Loan Portfolio by Type
 
  9/30/2013     6/30/2013     3/31/2013     12/31/2012     9/30/2012  
 
Commercial and industrial $ 531,391 $ 549,776 $ 558,255 $ 573,571 $ 554,000
Real estate:
Commercial real estate 2,273,704 2,163,034 2,156,267 2,169,535 2,206,339
Construction 48,309 47,372 56,764 61,300 72,485
SFR mortgage 192,457 180,438 163,343 160,703 159,730
Dairy & livestock and agribusiness 265,297 264,663 289,742 342,311 300,630
Municipal lease finance receivables 99,188 105,246 109,727 105,767 109,005
Consumer and other loans   57,988     58,811     62,505     66,610     67,450  
Gross loans 3,468,334 3,369,340 3,396,603 3,479,797 3,469,639
Less:
Purchase accounting discount (14,529 ) (17,526 ) (20,908 ) (25,344 ) (28,590 )
Deferred loan fees, net (9,119 ) (8,156 ) (7,487 ) (6,925 ) (6,337 )
Allowance for loan losses   (80,713 )   (85,457 )   (92,218 )   (92,441 )   (92,067 )
Net loans $ 3,363,973   $ 3,258,201   $ 3,275,990   $ 3,355,087   $ 3,342,645  
 
Non-covered loans, net $ 3,200,639 $ 3,084,358 $ 3,097,296 $ 3,159,872 $ 3,135,338
Covered loans, net   163,334     173,843     178,694     195,215     207,307  
Net loans $ 3,363,973   $ 3,258,201   $ 3,275,990   $ 3,355,087   $ 3,342,645  
 
CVB FINANCIAL CORP. AND SUBSIDIARIES
SELECTED FINANCIAL HIGHLIGHTS
(Unaudited)
(Dollars in thousands)
           
 
Nonperforming Assets and Delinquency Trends
(Non-Covered Loans)
September 30, June 30, March 31, December 31, September 30,
  2013     2013     2013     2012     2012  
Nonperforming loans:
Commercial and industrial $ 3,734 $ 5,012 $ 3,387 $ 3,136 $ 3,896
Real estate:
Commercial real estate 17,829 18,610 19,964 21,039 21,354
Construction 10,368 10,494 10,620 10,663 17,708
SFR mortgage 10,421 11,423 11,561 13,102 12,321
Dairy & livestock and agribusiness 6,973 7,655 9,371 9,842 10,345
Consumer and other loans   159     157     226     215     364  
Total $ 49,484 $ 53,351 $ 55,129 $ 57,997 $ 65,988
 
% of Total gross loans 1.51 % 1.68 % 1.73 % 1.78 % 2.04 %
 
 
Past due 30-89 days:
Commercial and industrial $ 417 $ 373 $ 2,026 $ 690 $ 286
Real estate:
Commercial real estate 1,015 1,251 1,820 - 298
Construction - - - - -
SFR mortgage - - 824 107 650
Dairy & livestock and agribusiness - - - - 170
Consumer and other loans   255     8     63     90     285  
Total $ 1,687 $ 1,632 $ 4,733 $ 887 $ 1,689
 
% of Total gross loans 0.05 % 0.05 % 0.15 % 0.03 % 0.05 %
 
OREO
Commercial and industrial $ - $ - $ - $ - $ 203
Real estate:
Commercial real estate - - 828 2,319 3,153
Construction

 
6,524 6,524 12,513 12,513 7,117
SFR mortgage - - - - -
Consumer and other loans   -     -     -     -     -  
Total $ 6,524   $ 6,524   $ 13,341   $ 14,832   $ 10,473  
 
Total nonperforming, past due, and OREO $ 57,695   $ 61,507   $ 73,203   $ 73,716   $ 78,150  
 
% of Total gross loans 1.76 % 1.94 % 2.30 % 2.27 % 2.42 %
 

Net Interest Income and Net Interest Margin Reconciliations (Non-GAAP)

We use certain non-GAAP financial measures to provide supplemental information regarding our performance. Net interest income for the three months ended September 30, 2013, and 2012 include a yield adjustment of $2.9 million, and $7.0 million, respectively. Net interest income for the nine months ended September 30, 2013, and 2012 include a yield adjustment of $10.8 million, and $19.3 million, respectively. These yield adjustments relate to discount accretion on covered loans, and are reflected in the Company's net interest margin. We believe that presenting net interest income and the net interest margin excluding these yield adjustments provides additional clarity to the users of financial statements regarding core net interest income and net interest margin.
           
Three Months Ended September 30,
(Dollars in thousands) 2013 2012

Average Balance
  Interest Yield

Average Balance
  Interest Yield
Total interest-earning assets (te) $ 6,076,176 $ 60,093 3.95% $ 6,054,251 $ 67,973 4.48%
Discount on acquired loans 16,798 (2,947) 35,248 (7,045)
Total interest-earning assets, excluding SJB loan

discount and yield adjustment
$ 6,092,974 $ 57,146 3.75% $ 6,089,499 $ 60,928 3.99%
 
Net interest income and net interest margin (te) $ 55,992 3.68% $ 61,872 4.08%
Yield adjustment to interest income from discount

accretion
(2,947) (7,045)
Net interest income and net interest margin (te),

excluding yield adjustment
$ 53,045 3.48% $ 54,827 3.60%
 
 
Nine Months Ended September 30,
(Dollars in thousands) 2013 2012

Average Balance
  Interest Yield

Average Balance
  Interest Yield
Total interest-earning assets (te) $ 5,976,142 $ 179,555 4.03% $ 6,082,297 $ 208,550 4.59%
Discount on acquired loans 20,269 (10,796) 42,425 (19,258)
Total interest-earning assets, excluding SJB loan

discount and yield adjustment
$ 5,996,411 $ 168,759 3.77% $ 6,124,722 $ 189,292 4.13%
 
Net interest income and net interest margin (te) $ 167,232 3.75% $ 187,767 4.14%
Yield adjustment to interest income from discount

accretion
(10,796) (19,258)
Net interest income and net interest margin (te),

excluding yield adjustment
$ 156,436 3.49% $ 168,509 3.69%

Tangible book value reconciliations (Non-GAAP)

The tangible book value per share 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 tangible book value to the Company stockholders' equity computed in accordance with GAAP, as well as a calculation of tangible book value per share as of September 30, 2013.
 
September 30, 2013
(Dollars in thousands)
 
Stockholders' equity $ 768,222
Less: Goodwill (55,097 )
Less: Intangible assets   (2,386 )
Tangible book value $ 710,739
Common shares issued and outstanding   105,209,875  
Tangible book value per share $ 6.76  
 

Noninterest Expense and Efficiency Ratio Reconciliation (Non-GAAP)

We use certain non-GAAP financial measures to provide supplemental information regarding our performance. Noninterest expense for the three and nine months ended September 30, 2012, includes debt termination expense of $20.4 million. We believe that presenting the efficiency ratio, and the ratio of noninterest expense to average assets, excluding the impact of debt termination expense, provides additional clarity to the users of financial statements regarding core financial performance. The Company did not incur debt termination expense during the three and nine month periods ended September 30, 2013.
     
Three Months Ended

September 30,
Nine Months Ended

September 30,
2013 2012 2013 2012
(Dollars in thousands)
Net interest income $ 53,973 $ 59,744 $ 161,157 $ 181,306
Noninterest income 4,957 2,626 19,397 10,174
Noninterest expense 25,714 50,020 84,760 109,181
Less: debt termination expense   -     (20,379 )   -     (20,379 )
Adjusted noninterest expense $ 25,714 $ 29,641 $ 84,760 $ 88,802
 
Efficiency ratio 43.63 % 80.20 % 46.94 % 57.02 %
Adjusted efficiency ratio 43.63 % 47.52 % 46.94 % 46.38 %
 
Adjusted noninterest expense $ 25,714 $ 29,641 $ 84,760 $ 88,802
Average assets 6,451,473 6,454,500 6,356,927 6,509,019
Adjusted noninterest expense to average assets [1] 1.58 % 1.83 % 1.78 % 1.82 %
 
[1] Annualized

Copyright Business Wire 2010

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