CVB FINANCIAL CORP - Quarter Report: 2018 September (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2018

or

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

For the transition period from _____ to _____

Commission File Number: 0-10140

CVB FINANCIAL CORP.

(Exact name of registrant as specified in its charter)

 

California				95-3629339
(State or other jurisdiction of Incorporation or organization)				(I.R.S. Employer Identification No.)
701 North Haven Ave., Suite 350
Ontario, California				91764
(Address of principal executive offices)				(Zip Code)

(909) 980-4030

(Registrant’s telephone number,

including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes ☒    No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§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, non-accelerated filer or smaller reporting company, or emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer		☒		Accelerated filer		☐
Non-accelerated filer		☐		Smaller reporting company		☐
Emerging growth company		☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ☐

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

Yes ☐ No ☒

Number of shares of common stock of the registrant: 140,333,375 outstanding as of October 31, 2018.

TABLE OF CONTENTS

 

PART I –		FINANCIAL INFORMATION (UNAUDITED)			3
ITEM 1.		CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)			5
		NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)			10
ITEM 2.		MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS			46
		CRITICAL ACCOUNTING POLICIES			46
		OVERVIEW			46
		ANALYSIS OF THE RESULTS OF OPERATIONS			48
		ANALYSIS OF FINANCIAL CONDITION			58
		ASSET/LIABILITY AND MARKET RISK MANAGEMENT			74
ITEM 3.		QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK			76
ITEM 4.		CONTROLS AND PROCEDURES			76
PART II –		OTHER INFORMATION			77
ITEM 1.		LEGAL PROCEEDINGS			77
ITEM 1A.		RISK FACTORS			77
ITEM 2.		UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS			78
ITEM 3.		DEFAULTS UPON SENIOR SECURITIES			78
ITEM 4.		MINE SAFETY DISCLOSURES			78
ITEM 5.		OTHER INFORMATION			78
ITEM 6.		EXHIBITS			78
SIGNATURES					79

 

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:

 

●

local, regional, national and international economic and market conditions and events and the impact they may have on us, our customers and our assets and liabilities;

●

our ability to attract deposits and other sources of funding or liquidity;

●

supply and demand for real estate and periodic deterioration in real estate prices and/or values in California or other states where we lend, including both residential and commercial real estate;

●

a prolonged slowdown or decline in real estate construction, sales or leasing activities;

●

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

●

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

●

the costs or effects of mergers, acquisitions or dispositions we may make, including the recent merger of Community Bank with and into Citizens Business Bank, 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, including any anticipated cost savings or synergies, associated with any such mergers, acquisitions or dispositions;

●

the effect of changes in laws, regulations and applicable judicial decisions (including laws, regulations and judicial decisions concerning financial reforms, taxes, bank capital levels, consumer, commercial or secured lending, securities and securities trading and hedging, compliance, fair lending, employment, executive compensation, insurance, vendor management and information privacy and security) with which we and our subsidiaries must comply or believe we should comply, including additional legal and regulatory requirements to which we have or will become subject as a result of our total assets exceeding $10 billion, which first occurred in the third quarter of 2018 due to the closing of our merger transaction with Community Bank;

●

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

●

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

●

inflation, interest rate, securities market and monetary fluctuations;

●

changes in government interest rates or monetary or tax policies;

●

changes in the amount and availability of deposit insurance;

●

political developments, uncertainties or instability;

●

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

●

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

●

the Company’s relationships with and reliance upon outside vendors with respect to certain of the Company’s key internal and external systems and applications;

●

changes in commercial or consumer spending, borrowing and savings preferences or behaviors;

 

3

●

technological changes and the expanding use of technology in banking (including the adoption of mobile banking, funds transfer applications and electronic marketplaces for loans and other banking products or services);

●

our ability to retain and increase market share, retain and grow customers and control expenses;

●

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

●

competition and innovation with respect to financial products and services by banks, financial institutions and non-traditional providers including retail businesses and technology companies;

●

volatility in the credit and equity markets and its effect on the general economy or local or regional business conditions;

●

fluctuations in the price of the Company’s common stock or other securities, and the resulting impact on the Company’s ability to raise capital or make acquisitions;

●

the effect of changes in accounting policies and practices, as may be adopted from time-to-time by the regulatory agencies, as well as by the Public Company Accounting Oversight Board, the Financial Accounting Standards Board and other accounting standard-setters;

●

changes in our organization, management, compensation and benefit plans, and our ability to retain or expand our workforce, management team and/or board of directors;

●

the costs and effects of legal, compliance and regulatory actions, changes and developments, including the initiation and resolution of legal proceedings (such as securities, bank operations, consumer or employee class action litigation and any litigation which we inherited from our recent merger with Community Bank);

●

regulatory or other governmental inquiries or investigations, and/or the results of regulatory examinations or reviews;

●

our ongoing relations with our various federal and state regulators, including the SEC, Federal Reserve Board, FDIC and California DBO;

●

our success at managing the risks involved in the foregoing items; and

●

all other factors set forth in the Company’s public reports including its Annual Report on Form 10-K for the year ended December 31, 2017, and particularly the discussion of risk factors within that document.

The Company does not undertake, and specifically disclaims any obligation, to update any forward-looking statements to reflect occurrences or unanticipated events or circumstances after the date of such statements except as required by law. Any statements about future operating results, such as those concerning accretion and dilution to the Company’s earnings or shareholders, are for illustrative purposes only, are not forecasts, and actual results may differ.

 

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,
		2018				2017
Assets
Cash and due from banks		$	174,083			$	119,841
Interest-earning balances due from Federal Reserve			20,392				24,536
Total cash and cash equivalents			194,475				144,377
Interest-earning balances due from depository institutions			8,812				17,952
Investment securities available-for-sale, at fair value (with amortized cost of $1,850,723 at September 30, 2018, and $2,078,131 at December 31, 2017)			1,806,231				2,080,985
Investment securities held-to-maturity (with fair value of $726,755 at September 30, 2018, and $819,215 at December 31, 2017)			759,029				829,890
Total investment securities			2,565,260				2,910,875
Investment in stock of Federal Home Loan Bank (FHLB)			17,688				17,688
Loans and lease finance receivables			7,582,459				4,830,631
Allowance for loan losses			(60,007	)			(59,585	)
Net loans and lease finance receivables			7,522,452				4,771,046
Premises and equipment, net			59,256				46,166
Bank owned life insurance (BOLI)			219,561				146,486
Accrued interest receivable			30,097				22,704
Intangibles			56,643				6,838
Goodwill			662,888				116,564
Other real estate owned (OREO)			420				4,527
Income taxes			75,432				40,046
Other assets			67,357				25,317
Total assets		$	11,480,341			$	8,270,586
Liabilities and Stockholders’ Equity
Liabilities:
Deposits:
Noninterest-bearing		$	5,224,154			$	3,846,436
Interest-bearing			3,885,672				2,700,417
Total deposits			9,109,826				6,546,853
Customer repurchase agreements			399,477				553,773
Other borrowings			30,000				-
Deferred compensation			19,159				18,223
Junior subordinated debentures			25,774				25,774
Other liabilities			77,525				56,697
Total liabilities			9,661,761				7,201,320
Commitments and Contingencies
Stockholders’ Equity
Common stock, authorized, 225,000,000 shares without par; issued and outstanding 140,334,671 at September 30, 2018, and 110,184,922 at December 31, 2017			1,299,052				573,453
Retained earnings			552,343				494,361
Accumulated other comprehensive (loss) income, net of tax			(32,815	)			1,452
Total stockholders’ equity			1,818,580				1,069,266
Total liabilities and stockholders’ equity		$	11,480,341			$	8,270,586

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)

 

		For the Three Months Ended September 30,								For the Nine Months Ended September 30,
		2018				2017				2018				2017
Interest income:
Loans and leases, including fees		$	79,818			$	55,998			$	192,382			$	158,253
Investment securities:
Investment securities available-for-sale			11,521				12,240				35,086				37,887
Investment securities held-to-maturity			4,666				5,184				14,238				16,014
Total investment income			16,187				17,424				49,324				53,901
Dividends from FHLB stock			329				318				959				1,070
Interest-earning deposits with other institutions and federal funds sold			304				130				1,475				683
Total interest income			96,638				73,870				244,140				213,907
Interest expense:
Deposits			2,967				1,555				6,041				4,547
Borrowings and customer repurchase agreements			606				402				1,396				1,213
Junior subordinated debentures			245				174				674				492
Total interest expense			3,818				2,131				8,111				6,252
Net interest income before (recapture of) provision for loan losses			92,820				71,739				236,029				207,655
(Recapture of) provision for loan losses			500				(1,500	)			(1,500	)			(7,000	)
Net interest income after (recapture of) provision for loan losses			92,320				73,239				237,529				214,655
Noninterest income:
Service charges on deposit accounts			4,295				4,085				12,431				11,794
Trust and investment services			2,182				2,523				6,738				7,432
Bankcard services			875				927				2,637				2,563
BOLI income			936				692				2,984				2,904
Gain on OREO, net			-				2				3,540				4
Other			1,824				1,809				4,393				4,839
Total noninterest income			10,112				10,038				32,723				29,536
Noninterest expense:
Salaries and employee benefits			26,319				21,835				69,684				65,116
Occupancy and equipment			5,324				4,400				13,834				12,638
Professional services			1,154				1,091				4,374				4,191
Software licenses and maintenance			2,317				1,510				5,836				4,698
Marketing and promotion			1,134				1,055				3,638				3,484
Amortization of intangible assets			1,736				343				2,395				991
Acquisition related expenses			6,645				250				7,942				2,176
Other			4,251				4,222				11,377				12,402
Total noninterest expense			48,880				34,706				119,080				105,696
Earnings before income taxes			53,552				48,571				151,172				138,495
Income taxes			14,994				18,888				42,328				51,935
Net earnings		$	38,558			$	29,683			$	108,844			$	86,560
Other comprehensive income (loss):
Unrealized (loss) gain on securities arising during the period, before tax		$	(10,387	)		$	1,221			$	(49,155	)		$	3,287
Less: Reclassification adjustment for net gain on securities included in net income			-				-				-				(402	)
Other comprehensive (loss) income, before tax			(10,387	)			1,221				(49,155	)			2,885
Less: Income tax benefit (expense) related to items of other comprehensive income			3,070				(513	)			14,532				(1,212	)
Other comprehensive (loss) income, net of tax			(7,317	)			708				(34,623	)			1,673
Comprehensive income		$	31,241			$	30,391			$	74,221			$	88,233
Basic earnings per common share		$	0.30			$	0.27			$	0.94			$	0.79
Diluted earnings per common share		$	0.30			$	0.27			$	0.94			$	0.79

See accompanying notes to the unaudited condensed consolidated financial statements.

 

6

CVB FINANCIAL CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

Three months ended September 30, 2018 and 2017

(Dollars and shares in thousands)

(Unaudited)

 

														Accumulated
		Common												Other
		Shares				Common				Retained				Comprehensive
		Outstanding				Stock				Earnings				Income (Loss)				Total
Balance, January 1, 2017			108,252			$	531,192			$	449,499			$	10,171			$	990,862
Cumulative adjustment upon adoption of ASU 2016-09			-				116				(66	)			-				50
Repurchase of common stock			(45	)			(997	)			-				-				(997	)
Issuance of common stock for acquisition of Valley Commerce Bancorp			1,634				37,637				-				-				37,637
Exercise of stock options			270				2,537				-				-				2,537
Shares issued pursuant to stock-based compensation plan			46				2,200				-				-				2,200
Cash dividends declared on common stock ($0.40 per share)			-				-				(44,058	)			-				(44,058	)
Net earnings			-				-				86,560				-				86,560
Other comprehensive income			-				-				-				1,673				1,673
Balance, September 30, 2017			110,157			$	572,685			$	491,935			$	11,844			$	1,076,464
Balance, January 1, 2018			110,185			$	573,453			$	494,361			$	1,452			$	1,069,266
Cumulative adjustment upon adoption of ASU 2018-02			-				-				(356	)			356				-
Repurchase of common stock			(42	)			(988	)			-				-				(988	)
Issuance of common stock for acquisition of Community Bank			29,842				722,767				-				-				722,767
Exercise of stock options			145				1,504				-				-				1,504
Shares issued pursuant to stock-based compensation plan			205				2,316				-				-				2,316
Cash dividends declared on common stock ($0.42 per share)			-				-				(50,506	)			-				(50,506	)
Net earnings			-				-				108,844				-				108,844
Other comprehensive income			-				-				-				(34,623	)			(34,623	)
Balance, September 30, 2018			140,335			$	1,299,052			$	552,343			$	(32,815	)		$	1,818,580

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)

 

		For the Nine Months Ended
		September 30,
		2018				2017
Cash Flows from Operating Activities
Interest and dividends received		$	245,842			$	223,172
Service charges and other fees received			26,107				26,769
Interest paid			(8,642	)			(6,279	)
Net cash paid to vendors, employees and others			(110,799	)			(83,610	)
Income taxes			(35,879	)			(53,278	)
Payments to FDIC, loss share agreement			(65	)			(498	)
Net cash provided by operating activities			116,564				106,276
Cash Flows from Investing Activities
Proceeds from redemption of FHLB stock			17,250				1,952
Net change in interest-earning balances from depository institutions			11,934				27,806
Proceeds from sale of investment securities held-for-sale			716,996				5,403
Proceeds from repayment of investment securities available-for-sale			296,922				320,599
Proceeds from maturity of investment securities available-for-sale			20,260				20,937
Purchases of investment securities available-for-sale			(98,709	)			(280,365	)
Proceeds from repayment and maturity of investment securities held-to-maturity			67,861				96,447
Purchases of investment securities held-to-maturity			-				(36,166	)
Net increase in equity investments			(24,054	)			(1,454	)
Net increase in loan and lease finance receivables			(6,806	)			(29,713	)
Proceeds from BOLI death benefit			882				2,653
Proceeds from sale of asset held-for-sale			-				4,012
Purchase of premises and equipment			(3,483	)			(3,129	)
Proceeds from sales of other real estate owned			8,067				-
Cash acquired from acquisition, net of cash paid			(132,918	)			28,325
Net cash provided by investing activities			874,202				157,307
Cash Flows from Financing Activities
Net increase in other deposits			(241,934	)			(23,896	)
Net decrease in time deposits			(65,079	)			(39,485	)
Repayment of FHLB advances			(297,571	)			-
Net (decrease) increase in other borrowings			(136,000	)			10,000
Net decrease in customer repurchase agreements			(154,296	)			(147,959	)
Cash dividends on common stock			(46,304	)			(41,626	)
Repurchase of common stock			(988	)			(997	)
Proceeds from exercise of stock options			1,504				2,537
Net cash used in financing activities			(940,668	)			(241,426	)
Net increase in cash and cash equivalents			50,098				22,157
Cash and cash equivalents, beginning of period			144,377				121,633
Cash and cash equivalents, end of period		$	194,475			$	143,790

 

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)

 

		For the Nine Months Ended
		September 30,
		2018				2017
Reconciliation of Net Earnings to Net Cash Provided by Operating Activities
Net earnings		$	108,844			$	86,560
Adjustments to reconcile net earnings to net cash provided by operating activities:
Gain loss on sale of investment securities			-				(402	)
Gain on sale of other real estate owned			(3,540	)			-
Increase in BOLI			(3,053	)			(4,416	)
Net amortization of premiums and discounts on investment securities			10,661				13,585
Accretion of PCI discount			(2,137	)			(756	)
Recapture of provision for loan losses			(1,500	)			(7,000	)
Payments to FDIC, loss share agreement			(65	)			(498	)
Stock-based compensation			2,316				2,200
Depreciation and amortization, net			(582	)			(433	)
Change in other assets and liabilities			5,620				17,436
Total adjustments			7,720				19,716
Net cash provided by operating activities		$	116,564			$	106,276
Supplemental Disclosure of Non-cash Investing Activities
Securities purchased and not settled		$	-			$	1,625
Transfer of loans to other real estate owned		$	420			$	-
Issuance of common stock for acquisition		$	722,767			$	37,637

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,” “our” or the “Company”) and its wholly owned subsidiary, Citizens Business Bank (the “Bank” or “CBB”), after elimination of all intercompany transactions and balances. The Company has one inactive subsidiary, Chino Valley Bancorp. The Company is also the common stockholder of CVB Statutory Trust III. CVB Statutory Trust III was created in January 2006 to issue trust preferred securities in order to raise capital for the Company. In accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 810, Consolidation, this trust does not meet the criteria for consolidation.

The Company’s primary operations are related to traditional banking activities. This includes the acceptance of deposits and the lending and investing of money through the operations of the Bank. The Bank also provides trust and investment-related services to customers through CitizensTrust. The Bank’s customers consist primarily of small to mid-sized businesses and individuals located in the Inland Empire, Los Angeles County, Orange County, San Diego County, Ventura County, Santa Barbara County, and the Central Valley area of California. The Bank operates 68 banking centers and three trust office locations. The Company is headquartered in the city of Ontario, California.

On August 10, 2018, we completed the acquisition of Community Bank (“CB”), headquartered in Pasadena, California with 16 banking centers located throughout the greater Los Angeles and Orange County areas and total assets of approximately $4.09 billion. Our condensed consolidated financial statements for 2018 include CB operations, post-merger. See Note 4 – Business Combinations, included herein.

 

2.	BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements and notes thereto have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”) for Form 10-Q and conform to practices within the banking industry and include all of the information and disclosures required by accounting principles generally accepted in the United States of America (“GAAP”) for interim financial reporting. The accompanying unaudited condensed consolidated financial statements reflect all adjustments (consisting only of normal recurring adjustments), which are necessary for a fair presentation of financial results for the interim periods presented. The results of operations for the three and nine months ended September 30, 2018 are not necessarily indicative of the results for the full year. Certain information and note disclosures normally included in annual financial statements prepared in accordance with GAAP have been condensed or omitted. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements, accounting policies and financial notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2017, filed with the SEC. A summary of the significant accounting policies consistently applied in the preparation of the accompanying unaudited condensed consolidated financial statements follows.

Reclassification – Certain amounts in the prior periods’ unaudited condensed consolidated financial statements and related footnote disclosures have been reclassified to conform to the current presentation with no impact on previously reported net income or stockholders’ equity. The operating segments previously reported have been aggregated into one segment to conform to the current period’s presentation format. These reclassifications do not affect previously reported net earnings.

 

3.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Except as discussed below, our accounting policies are described in Note 3 — Summary of Significant Accounting Policies, of our audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2017 as filed with the SEC (“Form 10-K”).

 

10

Business Segments — We regularly assess our strategic plans, operations and reporting structures to identify our reportable segments. Changes to our reportable segments are expected to be infrequent. For the years ended December 31, 2016 through June 30, 2018, we operated as two reportable segments: Banking Centers and Dairy & Livestock and Agribusiness. As a result of the Community Bank acquisition, along with changes in personnel, reporting structure, and operations, we re-evaluated our segment reporting for the third quarter ended September 30, 2018.

As of September 30, 2018, we operated as one reportable segment. The factors considered in making this determination include the nature of products and offered services, geographic regions in which we operate, the applicable regulatory environment, and the materiality of discrete financial information reviewed by our key decision makers. Through our network of banking centers, we provide relationship-based banking products, services and solutions for small to mid-sized companies, real estate investors, non-profit organizations, professionals and other individuals. Our products include loans for commercial businesses, commercial real estate, multi-family, construction, land, dairy & livestock and agribusiness, consumer and government-guaranteed small business loans. We also provide business deposit products and treasury cash management services, as well as deposit products to the owners and employees of the businesses we serve. The decision to combine our two reportable segments was made to align the segment reporting with the changes in our operations and reporting structure, and to be consistent with the level and materiality of information reviewed by our key decision makers.

Use of Estimates in the Preparation of Financial Statements — The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. A material estimate that is particularly susceptible to significant change in the near term relates to the determination of the allowance for loan losses. Other significant estimates, which may be subject to change, include fair value determinations and disclosures, impairment of investments, goodwill, loans, as well as valuation of deferred tax assets.

Adoption of New Accounting Standards — In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606)”, which provides revenue recognition guidance that is intended to create greater consistency with respect to how and when revenue from contracts with customers is shown in the income statement. This update to the ASC requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The ASU replaces most existing revenue recognition guidance in U.S. GAAP. In applying the revenue model to contracts within its scope, an entity should apply the following steps: (1) Identify the contract(s) with a customer, (2) Identify the performance obligations in the contract, (3) Determine the transaction price, (4) Allocate the transaction price to the performance obligations in the contract, and (5) Recognize revenue when (or as) the entity satisfies a performance obligation. The standard applies to all contracts with customers except those that are within the scope of other topics in the FASB Codification. The standard also requires significantly expanded disclosures about revenue recognition. In August 2015, the FASB issued ASU No. 2015-14, “Revenue from Contracts with Customers (Topic 606) - Deferral of the Effective Date”, which deferred the effective date of ASU No. 2014-09 to January 1, 2018. The Company adopted the ASU during the first quarter of 2018, as required, using the modified retrospective approach. The adoption of this ASU did not have a material impact on the Company’s consolidated financial statements, as substantially all of the Company’s revenues are excluded from the scope of the new standard. Since there was no net income impact upon adoption of this ASU, a cumulative effect adjustment to opening retained earnings was not deemed necessary. See Note 14 – Revenue Recognition for more information.

In January 2016, the FASB issued ASU No. 2016-01, “Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities”, which addresses certain aspects of recognition, measurement, presentation and disclosure of financial instruments. The guidance in this ASU among other things, (i) requires equity investments with certain exceptions, to be measured at fair value with changes in fair value recognized in net income, (ii) simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment, (iii) eliminates the requirement for public entities to disclose the methods and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet, (iv) requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes, (v) requires an entity to present separately in other comprehensive income the portion of the change in fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments, (vi) requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset on the balance sheet or in the accompanying notes to the financial statements and (vii) clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities. This amendment is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Entities are required to apply the amendment by means of a cumulative-effect adjustment as of the beginning of the fiscal year of adoption, with the exception of the amendment related to equity securities without readily determinable fair values, which should be applied prospectively to equity investments that exist as of the date of adoption. The Company adopted ASU 2016-01 effective January 1, 2018 and it did not have a material impact on the Company’s consolidated financial statements. In accordance with (iv) above, the Company measured the fair value of its loan portfolio at September 30, 2018 using an exit price notion. See Note 9 – Fair Value Information.

 

11

In August 2016, the FASB issued ASU No. 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments.” The new guidance clarifies the classification within the statement of cash flows for certain transactions, including debt extinguishment costs, zero-coupon debt, and contingent consideration related to business combinations, insurance proceeds, equity method distributions and beneficial interests in securitizations. The guidance also clarifies that cash flows with aspects of multiple classes of cash flows, or that cannot be separated by source or use, should be classified based on the activity that is likely to be the predominant source or use of cash flows for the item. This guidance is effective for fiscal years beginning after December 15, 2017 and will require application using a retrospective transition method. The Company adopted this ASU retrospectively effective January 1, 2018 and it did not have a material impact on the Company’s consolidated financial statements.

In May 2017, the FASB issued ASU No. 2017-09, “Compensation – Stock Compensation (Topic 718): Scope of Modification Accounting.” The amendments in ASU 2017-09 provide guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting. An entity should account for the effects of a modification unless all the following are met: (1) the fair value (or calculated value or intrinsic value, if such an alternative measurement method is used) of the modified award is the same as the fair value (or calculated value or intrinsic value, if such an alternative measurement method is used) of the modified award is the same as the fair value (or calculated value or intrinsic value, if such an alternative measurement method is used) of the original award immediately before the original award is modified. If the modification does not affect any of the inputs to the valuation technique that the entity uses to value the award, the entity is not required to estimate the value immediately before and after the modification. (2) the vesting conditions of the modified award are the same as the vesting conditions of the original award immediately before the original award is modified. (3) the classification of the modified award as an equity instrument or a liability instrument is the same as the classification of the original award immediately before the original award is modified. The amendments in ASU No. 2017-09 are effective for annual periods, and interim within those annual reporting periods, beginning after December 15, 2017; early adoption is permitted. The amendments in this ASU should be applied prospectively to an award modified on or after the adoption date. The Company adopted this ASU and it did not have a material impact on the Company’s consolidated financial statements.

In February 2018, the FASB issued ASU No. 2018-02, “Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income.” The amendments in ASU 2018-02 allow a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Job Act (“Tax Reform Act”). The amendments in this update also require entities to disclose their accounting policy for releasing income tax effects from accumulated other comprehensive income. The ASU is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2018. Early adoption is permitted, and the provisions of the amendment should be applied either in the period of adoption or retrospectively to each period (or periods) in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Reform Act is recognized. The Company elected to early adopt ASU 2018-02 in the first quarter of 2018 and reclassified $356,000 related to the stranded tax effects from accumulated other comprehensive income to retained earnings within our consolidated statements of stockholders’ equity.

Recent Accounting Pronouncements — In February 2016, FASB issued ASU No. 2016-02, “Leases (Topic 842)”. ASU 2016-02 establishes a right-of-use (“ROU”) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. In July 2018, the FASB issued ASU 2018-10, “Codification Improvements to Topic 842, Leases”, which clarifies and corrects errors in ASC 842. The effective date and transition requirements of ASU 2018-10 are the same as the effective date and transition requirements of 2016-02.

 

12

In July 2018, the FASB issued ASU No. 2018-11, “Leases (Topic 842): Targeted Improvements”, which creates a new optional transition method for implementing the new standard on leases, ASU No. 2016-02, and provides lessors with a practical expedient for separating lease and non-lease components. Specifically, under the amendments in ASU 2018-11: (1) the transition option allows entities to not apply the new leases standard in the comparative periods presented when transitioning to the new accounting standard for leases, and (2) lessors may elect not to separate lease and non-lease components when certain conditions are met. The amendments have the same effective date as ASU 2016-02.

The Company established a project to consider the impact of Topic 842. The leasing portfolio consists of real estate leases, which are used for the banking operations of the Company. All leases in the current portfolio have been classified as operating leases, although this may change in the future. Management does not anticipate a material impact to the consolidated statement of earnings. Management estimates the ROU asset and liability to be between $15 million and $20 million. This amount is based on the present value of currently-committed cash flows from leases discounted at the Company’s incremental rate of borrowing on an arms-length basis. This liability includes the non-lease components as the Company has elected to include these components as a practical expedient.

In addition, there are a number of practical expedients that have been elected, which included electing not to adjust comparative financial statements at the effective date of the new accounting standard, with the effect of initially applying ASC 842 recognized as a cumulative-effect adjustment to retained earnings in the period of adoption.

In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” This ASU significantly changes how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. The standard will replace the current “incurred loss” approach with an “expected loss” model. The new model, referred to as the Current Expected Credit Loss (“CECL”) model, will apply to: (1) financial assets subject to credit losses and measured at amortized cost, and (2) certain off-balance sheet credit exposures. This includes, but is not limited to, loans, leases, held-to-maturity securities, loan commitments, and financial guarantees. The CECL model does not apply to available-for-sale debt securities. For AFS debt securities with unrealized losses, entities will measure credit losses in a manner similar to what they do today, except that the losses will be recognized as allowances rather than reductions in the amortized cost of the securities. As a result, entities will recognize improvements to estimated credit losses immediately in earnings rather than as interest income over time, as they do today. ASU No. 2016-13 is effective for interim and annual reporting periods beginning after December 15, 2019. Entities will apply the standard’s provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective (i.e., modified retrospective approach). The Company is currently evaluating the impact of adoption of this ASU on its consolidated financial statements.

In January 2017, the FASB issued ASU No. 2017-04, “Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment.” ASU 2017-04 eliminates the second step in the goodwill impairment test, which requires an entity to determine the implied fair value of the reporting unit’s goodwill. Instead, an entity should recognize an impairment loss if the carrying value of the net assets assigned to the reporting unit exceeds the fair value of the reporting unit, with the impairment loss not to exceed the amount of goodwill allocated to the reporting unit. The standard will be effective for the Company beginning January 1, 2020, with early adoption permitted for goodwill impairment tests performed after January 1, 2017. The Company does not expect this ASU to have a material impact on the Company’s consolidated financial statements.

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

In June 2018, the FASB issued ASU No. 2018-07, “Compensation - Stock Compensation (Topic 718): Improvements to Nonemployees Share-Based Payment Accounting.” The intention of ASU 2018-07 is to expand the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. These share-based payments will now be measured at grant-date fair value of the equity instrument issued. Upon adoption, only liability-classified awards that have not been settled and equity-classified awards for which a measurement date has not been established should be re-measured through a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year of adoption. ASU 2018-07 is effective for fiscal years beginning after December 15, 2019 and is applied retrospectively. The Company does not expect this ASU to have a material impact on the Company’s consolidated financial statements.

 

13

In August 2018, the FASB issued ASU No. 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement.” This ASU eliminates, adds and modifies certain disclosure requirements for fair value measurements. Among the changes, entities will no longer be required to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, but will be required to disclose the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements. ASU No. 2018-13 is effective for interim and annual reporting periods beginning after December 15, 2019; early adoption is permitted. Entities may early adopt any eliminated or modified disclosure requirements and delay adoption of the additional disclosure requirements until their effective date. The Company does not expect this ASU to have a material impact on the Company’s consolidated financial statements.

 

4.	BUSINESS COMBINATIONS

Community Bank Acquisition

On August 10, 2018, the Company completed the acquisition of CB, headquartered in Pasadena, California. The Company acquired all of the assets and assumed all of the liabilities of CB for $180.7 million in cash and $722.8 million in stock. As a result, CB was merged with the Bank, the principal subsidiary of CVB. The primary reason for the acquisition was to further strengthen the Company’s presence in Southern California. At close, CB had 16 banking centers located throughout the greater Los Angeles and Orange County areas.

The assets acquired and liabilities assumed have been accounted for under the acquisition method of accounting. The assets and liabilities, both tangible and intangible, were recorded at their estimated fair values as of August 10, 2018. As the final CB tax return has not yet been completed, initial accounting for taxes was incomplete as of September 30, 2018. These fair values are estimates and are subject to adjustment for up to one year after the acquisition date or when additional information relative to the closing date fair values becomes available and such information is considered final, whichever is earlier. The application of the acquisition method of accounting resulted in the recognition of goodwill of $546.3 million and a core deposit intangible (“CDI”) of $52.2 million, or 2.26% of core deposits. Goodwill represents the excess purchase price over the fair value of the net assets acquired. Goodwill is not deductible for income tax purposes.

 

14

The table below summarizes the amounts recognized for the estimated fair value of assets acquired and the liabilities assumed as of the acquisition date.

 

		August 10, 2018
		(Dollars in thousands)
Merger Consideration
Cash paid		$	180,719
CVBF common stock issued			722,767
Total merger consideration						$	903,486
Identifiable net assets acquired, at fair value
Assets Acquired
Cash and cash equivalents			47,802
Investment securities			716,996
FHLB stock			17,250
Loans			2,734,081
Accrued interest receivable			7,916
Premises and equipment			14,632
BOLI			70,904
Core deposit intangible			52,200
Other assets			58,130
Total assets acquired							3,719,911
Liabilities assumed
Deposits			2,869,986
FHLB advances			297,571
Other borrowings			166,000
Other liabilities			29,192
Total liabilities assumed							3,362,749
Total fair value of identifiable net assets, at fair value							357,162
Goodwill						$	546,324

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

For the three and nine months ended September 30, 2018, the Company incurred $6.6 million and $7.9 million, respectively, in merger related expenses associated with the CB acquisition.

For illustrative purposes only, the following table presents certain unaudited pro forma information for the nine months ended September 30, 2018 and 2017. This unaudited estimated pro forma financial information was calculated as if CB had been acquired as of the beginning of the year prior to the date of acquisition. This unaudited pro forma information combines the historical results of CB with the Company’s consolidated historical results and includes certain adjustments reflecting the estimated impact of certain fair value adjustments for the respective periods. The pro forma information is not indicative of what would have occurred had the acquisition occurred as of the beginning of the year prior to the acquisition. The unaudited pro forma information does not consider any changes to the provision for credit losses resulting from recording loan assets at fair value, cost savings, or business synergies. As a result, actual amounts would have differed from the unaudited pro forma information presented.

 

		Unaudited Pro Forma Nine Months Ended September 30,
		2018				2017
		(Dollars in thousands)
Total revenues (net interest income plus noninterest income)		$	364,846			$	354,990
Net Income		$	138,274			$	118,419
Earnings per share - basic		$	0.99			$	0.85
Earnings per share - diluted		$	0.99			$	0.85

 

15

Valley Commerce Bancorp Acquisition

On March 10, 2017, the Company completed the acquisition of Valley Commerce Bancorp (“VCBP”), the holding company for Valley Business Bank (“VBB”), headquartered in the Central Valley area of California. The Company acquired all of the assets and assumed all of the liabilities of VCBP for $23.2 million in cash and $37.6 million in stock. As a result, VBB was merged with the Bank, the principal subsidiary of CVB. The Company believes this transaction serves to further strengthen its presence in the Central Valley area of California. At close, VBB had four branches located in Visalia, Tulare, Fresno, and Woodlake. The systems integration of VCBP and CBB was completed in May 2017. Three of these center locations were consolidated with nearby CBB locations in the third quarter of 2017 and the Company sold the Woodlake branch in the fourth quarter of 2017.

Goodwill of $27.0 million from the acquisition represents the excess of the purchase price over the fair value of the net tangible and intangible assets acquired.

The total fair value of assets acquired approximated $405.9 million, which included $28.3 million in cash and cash equivalents net of cash paid, $2.0 million in FHLB stock, $309.7 million in loans and lease finance receivables, $5.3 million in fixed assets, $9.4 million in BOLI, $3.2 million in core deposit intangible assets acquired and $21.0 million in other assets. The total fair value of liabilities assumed was $368.3 million, which included $361.8 million in deposits, and $6.5 million in other liabilities. The assets and liabilities, both tangible and intangible, were recorded at their estimated fair values as of March 10, 2017. The assets acquired and liabilities assumed have been accounted for under the acquisition method of accounting. The purchase price allocation was finalized in the third quarter of 2017.

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

For the nine months ended September 30, 2018, the Company did not incur any merger related expenses associated with the VCBP acquisition and incurred $250,000 and $2.2 million for the three and nine months ended September 30, 2017, respectively.

 

5.	INVESTMENT SECURITIES

The amortized cost and estimated fair value of investment securities are summarized below. The majority of securities held are available-for-sale securities with fair value based on quoted prices for similar assets in active markets or quoted prices for identical assets in markets that are not active. Estimated fair values were obtained from an independent pricing service based upon market quotes.

 

		September 30, 2018
		Amortized Cost				Gross Unrealized Holding Gain				Gross Unrealized Holding Loss				Fair Value				Total Percent
		(Dollars in thousands)
Investment securities available-for-sale:
Residential mortgage-backed securities		$	1,570,072			$	1,014			$	(38,208	)		$	1,532,878				84.87	%
CMO/REMIC - residential			229,832				152				(6,167	)			223,817				12.39	%
Municipal bonds			50,022				308				(1,591	)			48,739				2.70	%
Other securities			797				-				-				797				0.04	%
Total available-for-sale securities		$	1,850,723			$	1,474			$	(45,966	)		$	1,806,231				100.00	%
Investment securities held-to-maturity:
Government agency/GSE		$	144,871			$	-			$	(5,129	)		$	139,742				19.09	%
Residential mortgage-backed securities			158,769				-				(5,502	)			153,267				20.92	%
CMO			216,980				-				(13,960	)			203,020				28.58	%
Municipal bonds			238,409				225				(7,908	)			230,726				31.41	%
Total held-to-maturity securities		$	759,029			$	225			$	(32,499)			$	726,755				100.00	%

 

16

		December 31, 2017
		Amortized Cost				Gross Unrealized Holding Gain				Gross Unrealized Holding Loss				Fair Value				Total Percent
		(Dollars in thousands)
Investment securities available-for-sale:
Residential mortgage-backed securities		$	1,747,780			$	11,231			$	(8,102	)		$	1,750,909				84.14	%
CMO/REMIC-residential			274,634				1,277				(2,082	)			273,829				13.16	%
Municipal bonds			54,966				774				(244	)			55,496				2.66	%
Other securities			751				-				-				751				0.04	%
Total available-for-sale securities		$	2,078,131			$	13,282			$	(10,428	)		$	2,080,985				100.00	%
Investment securities held-to-maturity:
Government agency/GSE		$	159,716			$	854			$	(2,134	)		$	158,436				19.25	%
Residential mortgage-backed securities			176,427				667				(382	)			176,712				21.26	%
CMO			225,072				-				(8,641	)			216,431				27.12	%
Municipal bonds			268,675				2,751				(3,790	)			267,636				32.37	%
Total held-to-maturity securities		$	829,890			$	4,272			$	(14,947)			$	819,215				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.

 

		For the Three Months Ended September 30,								For the Nine Months Ended September 30,
		2018				2017				2018				2017
		(Dollars in thousands)
Investment securities available-for-sale:
Taxable		$	11,126			$	11,767			$	33,861			$	36,113
Tax-advantaged			395				473				1,225				1,774
Total interest income from available-for-sale securities			11,521				12,240				35,086				37,887
Investment securities held-to-maturity:
Taxable			2,961				3,111				8,887				9,591
Tax-advantaged			1,705				2,073				5,351				6,423
Total interest income from held-to-maturity securities			4,666				5,184				14,238				16,014
Total interest income from investment securities		$	16,187			$	17,424			$	49,324			$	53,901

Approximately 89% of the total investment securities portfolio at September 30, 2018 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 tables below show the Company’s investment securities’ gross unrealized losses and fair value by investment category and length of time that individual securities have been in a continuous unrealized loss position at September 30, 2018 and December 31, 2017. Management has reviewed individual securities to determine whether a decline in fair value below the amortized cost basis is other-than-temporary. The unrealized losses on these securities were primarily attributed to changes in interest rates. The issuers of these securities have not, to our knowledge, evidenced any cause for default on these securities. These securities have fluctuated in value since their purchase dates as market rates have fluctuated. However, we have the ability to hold and do not have the intent to sell these securities. As such, management does not deem these securities to be Other-Than-Temporarily-Impaired (“OTTI”).

 

17

		September 30, 2018
		Less Than 12 Months								12 Months or Longer								Total
		Fair Value				Gross Unrealized Holding Losses				Fair Value				Gross Unrealized Holding Losses				Fair Value				Gross Unrealized Holding Losses
		(Dollars in thousands)
Investment securities available-for-sale:
Residential mortgage-backed securities		$	1,193,435			$	(24,475	)		$	287,707			$	(13,733	)		$	1,481,142			$	(38,208	)
CMO/REMIC - residential			139,064				(3,053	)			60,925				(3,114	)			199,989				(6,167	)
Municipal bonds			11,257				(389	)			12,987				(1,202	)			24,244				(1,591	)
Total available-for-sale securities		$	1,343,756			$	(27,917	)		$	361,619			$	(18,049	)		$	1,705,375			$	(45,966	)
Investment securities held-to-maturity:
Government agency/GSE		$	99,203			$	(2,326	)		$	40,539			$	(2,803	)		$	139,742			$	(5,129	)
Residential mortgage-backed securities			101,083				(3,206	)			52,184				(2,296	)			153,267				(5,502	)
CMO			-				-				203,020				(13,960	)			203,020				(13,960	)
Municipal bonds			116,918				(2,143	)			67,284				(5,765	)			184,202				(7,908	)
Total held-to-maturity securities		$	317,204			$	(7,675	)		$	363,027			$	(24,824	)		$	680,231			$	(32,499	)
		December 31, 2017
		Less Than 12 Months								12 Months or Longer								Total
		Fair Value				Gross Unrealized Holding Losses				Fair Value				Gross Unrealized Holding Losses				Fair Value				Gross Unrealized Holding Losses
		(Dollars in thousands)
Investment securities available-for-sale:
Residential mortgage-backed securities		$	414,091			$	(1,828	)		$	303,746			$	(6,274	)		$	717,837			$	(8,102	)
CMO/REMIC - residential			95,137				(487	)			71,223				(1,595	)			166,360				(2,082	)
Municipal bonds			946				(4	)			13,956				(240	)			14,902				(244	)
Total available-for-sale securities		$	510,174			$	(2,319	)		$	388,925			$	(8,109	)		$	899,099			$	(10,428	)
Investment securities held-to-maturity:
Government agency/GSE		$	18,950			$	(27	)		$	43,495			$	(2,107	)		$	62,445			$	(2,134	)
Residential mortgage-backed securities			51,297				(188	)			55,306				(194	)			106,603				(382	)
CMO			-				-				216,431				(8,641	)			216,431				(8,641	)
Municipal bonds			32,069				(492	)			66,217				(3,298	)			98,286				(3,790	)
Total held-to-maturity securities		$	102,316			$	(707	)		$	381,449			$	(14,240	)		$	483,765			$	(14,947	)

At September 30, 2018 and December 31, 2017, investment securities having a carrying value of approximately $1.60 billion and $1.91 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, 2018, by contractual maturity, are shown in the table below. Although mortgage-backed and CMO/REMIC securities have contractual maturities through 2057, expected maturities will differ from contractual maturities because borrowers may have the right to prepay such obligations without penalty. Mortgage-backed and CMO/REMIC securities are included in maturity categories based upon estimated average lives which incorporate estimated prepayment speeds.

 

18