News & Media

CVB Financial Corp. Reports Strong Earnings for the Third Quarter of 2013

  • Net earnings were $24.2 million for the third quarter of 2013, or $0.23 per diluted share.
  • Total loans and leases grew by $101.0 million for the quarter, or 3.02%.
  • Improved credit quality resulted in a $3.8 million reduction of the allowancefor loan losses. The allowance for loan losses was $80.7 million at quarter-end,or 2.46% of total non-covered loans.
  • Noninterest bearing deposits totaled $2.54 billion, or 51.85% of total deposits.

Ontario, CA, October 23, 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 by14 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.

Download press release >

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.

 

Visit us.