Add
CVBF to Portfolio
Set Alert
Email to a
Friend
| |||
|
|
Quotes & Info
|
| CVBF > SEC Filings for CVBF > Form 10-Q on 7-May-2009 | All Recent SEC Filings |
7-May-2009
Quarterly Report
our loan portfolio. Continued weaknesses in the local and state economy could
adversely affect us through diminished loan demand, credit quality
deterioration, and increases in loan delinquencies and defaults.
Over the past few years, we have been active in acquisitions and we will
continue to consider acquisition targets which will enable us to meet our
business objectives and enhance shareholder value along with organic growth.
Since 2000, we have acquired four banks and a leasing company, and we have
opened five de novo branches: Glendale, Bakersfield, Fresno, Madera, and
Stockton, California. We have five Commercial Banking Centers. Although able to
take deposits, these centers operate primarily as sales offices and focus on
business clients and their principals, professionals, and high net-worth
individuals. One of these centers is located in the San Fernando Valley. The
other four centers are located within a Business Financial Center in San
Bernardino, Los Angeles, and Orange counties.
The full impact of the decreases in interest rates during 2008 was realized
during the first quarter of 2009. Our net interest income before provision for
credit losses of $55.3 million, increased by $11.2 million or 25.29%, compared
to net interest income before provision for credit losses of $44.1 million for
the same period in 2008. The Bank has always had an excellent base of interest
free deposits primarily due to our specialization in businesses and
professionals as customers. As of March 31, 2009, 36.9% of our deposits are
interest-free. This has allowed us to have a low cost of deposits, currently
0.74% for the first quarter of 2009, which contributed to a substantial
reduction in interest expense for the first three months of 2009 compared to the
same period last year.
Our net income decreased to $13.2 million for the first three months of 2009
compared with $16.2 million for the first three months of 2008, a decrease of
$3.0 million or 18.64%. The decrease of $3.0 million is primarily the result of
the increase in provision for credit losses of $20.3 million and an increase in
non-interest expense of $3.0 million, offset by an increase in net interest
income before provision for credit losses of $11.2 million and gain on sale of
securities of $8.9 million. Diluted earnings per share decreased to $0.13 per
share for the first quarter of 2009, from $0.19 per share in the first quarter
of 2008. Of the $0.06 decrease per share, $0.03 represents costs associated with
dividends paid and amortization of the discount on our preferred stock issued in
December 2008 to the United States Treasury as a result of our participation in
their Capital Purchase Program.
CRITICAL ACCOUNTING ESTIMATES
Critical accounting estimates are defined as those that are reflective of
significant judgments and uncertainties, and could potentially result in
materially different results under different assumptions and conditions. We
believe that our most critical accounting estimates upon which our financial
condition depends, and which involve the most complex or subjective decisions or
assessments are as follows:
Allowance for Credit Losses: Arriving at an appropriate level of allowance
for credit losses involves a high degree of judgment. Our allowance for credit
losses provides for probable losses based upon evaluations of known and inherent
risks in the loan portfolio. The determination of the balance in the allowance
for credit losses is based on an analysis of the loan and lease finance
receivables portfolio using a systematic methodology and reflects an amount
that, in our judgment, is adequate to provide for probable credit losses
inherent in the portfolio, after giving consideration to the character of the
loan portfolio, current economic conditions, past credit loss experience, and
such other factors as deserve current recognition in estimating inherent credit
losses. The provision for credit losses is charged to expense. For a full
discussion of our methodology of assessing the adequacy of the allowance for
credit losses, see the "Risk Management" section of this Management's Discussion
and Analysis of Financial Condition and Results of Operations.
Investment Portfolio: The investment portfolio is an integral part of the
Company's financial performance. We invest primarily in fixed income securities.
Accounting estimates are used in the presentation of the investment portfolio
and these estimates do impact the presentation of our financial
condition and results of operations. We classify as held-to-maturity those debt
securities that we have the positive intent and ability to hold to maturity.
Securities classified as trading are those securities that are bought and held
principally for the purpose of selling them in the near term. All other debt and
equity securities are classified as available-for-sale. Securities
held-to-maturity are accounted for at cost and adjusted for amortization of
premiums and accretion of discounts. Trading securities are accounted for at
fair value with the unrealized holding gains and losses being included in
current earnings. Securities available-for-sale are accounted for at fair value,
with the net unrealized gains and losses, net of income tax effects, presented
as a separate component of stockholders' equity. At each reporting date,
securities are assessed to determine whether there is an other-than-temporary
impairment. Such impairment, if any, is required to be recognized in current
earnings rather than as a separate component of stockholders' equity. Realized
gains and losses on sales of securities are recognized in earnings at the time
of sale and are determined on a specific-identification basis. Purchase premiums
and discounts are recognized in interest income using the effective-yield method
over the terms of the securities. Our investment in Federal Home Loan Bank
("FHLB") stock is carried at cost.
Income Taxes: We account for income taxes using the asset and liability
method by deferring income taxes based on estimated future tax effects of
differences between the tax and book basis of assets and liabilities considering
the provisions of enacted tax laws. These differences result in deferred tax
assets and liabilities, which are included in our balance sheets. We must also
assess the likelihood that any deferred tax assets will be recovered from future
taxable income and establish a valuation allowance for those assets determined
to not likely be recoverable. Our judgment is required in determining the amount
and timing of recognition of the resulting deferred tax assets and liabilities,
including projections of future taxable income. Although we have determined a
valuation allowance is not required for any of our deferred tax assets, there is
no guarantee that these assets are recoverable.
Goodwill and Intangible Assets: We have acquired entire banks and branches of
banks. Those acquisitions accounted for under the purchase method of accounting
have given rise to goodwill and intangible assets. We record the assets acquired
and liabilities assumed at their fair value. These fair values are determined
through the use of internal and external valuation techniques. The purchase
price is allocated to assets and liabilities, including identified intangibles.
The identified intangibles are amortized over the estimated lives of the assets
or liabilities. Any excess purchase price after this allocation results in
goodwill. Goodwill is tested on an annual basis for impairment.
ANALYSIS OF THE RESULTS OF OPERATIONS
Earnings
We reported net earnings of $13.2 million for the three months ended
March 31, 2009. This represented a decrease of $3.0 million or 18.64%, from net
earnings of $16.2 million for the three months ended March 31, 2008. Basic and
diluted earnings per share for the three-month period decreased to $0.13 per
share for 2009, compared to $0.19 per share for 2008. The annualized return on
average assets was 0.81% for the three months of 2009 compared to an annualized
return on average assets of 1.05% for the three months of 2008. The annualized
return on average equity was 8.56% for the three months ended March 31, 2009,
compared to an annualized return of 14.91% for the three months ended March 31,
2008. The decrease in annualized return on average equity for the three month
period is attributed to overall decreased earnings for the first quarter of 2009
and an increase in our average equity balance as a result of the preferred stock
we issued to the U.S. Treasury in December 2008 as a result of our participation
in the Capital Purchase Program.
Net Interest Income
The principal component of our earnings is net interest income, which is the
difference between the interest and fees earned on loans and investments
(earning assets) and the interest paid on deposits and borrowed funds
(interest-bearing liabilities). Net interest margin is the taxable-equivalent of
net interest
income as a percentage of average earning assets for the period. The level of
interest rates and the volume and mix of earning assets and interest-bearing
liabilities impact net interest income and net interest margin. The net interest
spread is the yield on average earning assets minus the cost of average
interest-bearing liabilities. Our net interest income, interest spread, and net
interest margin are sensitive to general business and economic conditions. These
conditions include short-term and long-term interest rates, inflation, monetary
supply, and the strength of the economy, in general, and the local economies in
which we conduct business. Our ability to manage the net interest income during
changing interest rate environments will have a significant impact on our
overall performance. Our balance sheet is currently liability-sensitive; meaning
interest-bearing liabilities will generally reprice more quickly than earning
assets. Therefore, our net interest margin is likely to decrease in sustained
periods of rising interest rates and increase in sustained periods of declining
interest rates. We manage net interest income by affecting changes in the mix of
earning assets as well as the mix of interest-bearing liabilities, changes in
the level of interest-bearing liabilities in proportion to earning assets, and
in the growth of earning assets.
Our net interest income, before the provision for credit losses, totaled
$55.3 million for the three months ended March 31, 2009. This represented an
increase of $11.2 million, or 25.29%, over net interest income, before provision
for credit losses, of $44.1 million for the same period in 2008. The increase in
net interest income of $11.2 million resulted from a $15.4 million decrease in
interest expense, offset by a $4.2 million decrease in interest income.
Interest income totaled $79.9 million for the first three months of 2009.
This represented a decrease of $4.2 million, or 5.12%, compared to total
interest income of $83.2 million for the same period last year. The decrease in
interest income was primarily the result of the decrease in average yield on
earning assets to 5.26% for the three months of 2009 from 5.91% for the same
period of 2008, or 65 basis points. Average earning assets increased by
$414.2 million, or 7.07%, from $5.86 billion to $6.28 billion.
Interest expense totaled $23.7 million for the first three months of 2009.
This represented a decrease of $15.4 million, or 39.45%, from total interest
expense of $39.1 million for the same period last year. The decrease in interest
expense was primarily the result of a decrease in the average rate paid on
interest-bearing liabilities to 2.07% for the first three months of 2009 from
3.45% for the same period in 2008, or 138 basis points. The decrease in rates
paid on deposits and borrowings was offset by an increase in average
interest-bearing deposits of $210.2 million, or 10.25%, from $2.05 billion to
$2.26 billion.
Table 1 shows the average balances of assets, liabilities, and stockholders'
equity and the related interest income, expense, and yields/rates for the
three-month period ended March 31, 2009 and 2008. Yields for tax-preferenced
investments are shown on a taxable equivalent basis using a 35% tax rate.
|
|