Citizens Business Banks reports double-digit income growth

10:00 PM PDT on Thursday, April 22, 2010 (http://www.pe.com/business)

By CHRIS H. SIEROTY
Special to The Press-Enterprise

Despite continued moderate loan losses, CVB Financial Corp., the holding company for Citizens Business Bank, announced Thursday that its net income for the first quarter jumped 22.42 percent.

Citizens reported net income of $16.1 million, or 15 cents per share, an increase of $3.9 million compared with net income of $13.2 million, or 13 cents per share, for the first quarter of 2009. Joe Glade, an equity analyst with B. Riley & Co. in Philadelphia, said Citizens Business Bank beat Wall Street estimates by 4 cents per share in the first quarter.

“Their loan losses were in line with expectations,” said Glade, who expected continued growth in the “performance of its bad loans over the next few quarters.”

First-quarter operating results included a $12.2 million provision for credit losses and were impacted by the accounting treatment of credit-related transactions from the San Joaquin Bank loan portfolio, according to the company. Christopher Myers, president and chief executive of Citizens Business Bank, said the bank continues to “run through those loans” acquired from San Joaquin Bank, but it was well positioned to handle them, due to its loss-sharing agreement with the Federal Deposit Insurance Corp.

He said loan losses for noncovered loans in the first quarter totaled $8.8 million. As of March 31, the bank had $112.3 million set aside to handle credit losses.

“The good news was we added more for loan losses than we needed,” Myers said. “We now have more reserves in our war chest. I’ve got a good war chest to handle any additional losses.”

By comparison, for the first quarter of 2009, Citizens Business Bank had net charge-offs of $10.2 million and a $22 million provision for credit losses. The allowance for credit losses was 3.2 percent and 1.8 percent of total loans and leases outstanding as of the end of the first quarter of 2010 and 2009, respectively.

“We are pleased with our top-line performance,” said Myers in a statement. “Our deleveraging strategy has positively impacted our net interest margin and reduced our sensitivity to a potential future rise in interest rates.”

At the end of the first quarter, total deposits were $5.05 billion, an increase of $130 million, or 2.64 percent, from $4.92 billion on Dec. 31. The company also reported total assets of $6.79 billion, an increase of $48.9 million, or 0.73 percent, over total assets of $6.74 billion at the end of 2009.

Earning assets totaling $6.07 billion decreased $117.5 million, or 1.9 percent, when compared with earning assets of $6.18 billion at Dec. 31, 2009. The decrease in earnings assets was due to a decrease in the loan portfolio, the company said.

At the end of the first quarter, Citizens Business Bank reported $602.4 million in gross loans from San Joaquin Bank, with a carrying value of $438.5 million.

Glade said loans associated with Citizens’ acquisition of San Joaquin “are pretty much guaranteed by the FDIC” and weren’t expected to be a problem. On Oct. 16, Citizens Business Bank entered into an agreement to purchase most of the assets and assume most of the deposit liabilities of the Bakersfield-based bank in an agreement with the FDIC.

Myers described the San Joaquin Bank deal as strictly an “acquisition that was about expansion.”

Myers said the acquisition was completed about six weeks ago. As a result, Citizens Business Bank shut down one San Joaquin branch and laid off about 80 employees.

“It was a real challenge to convert all of their systems over to our systems,” he said. “We had a lot of redundancies, which led to layoffs of human resources, finance, accounting and technology employees. We expect the cost savings to be realized in the coming quarters.”

Myers admitted that the bank was “definitely looking at other opportunities to acquire another bank,” whether it’s through the FDIC or on our own.

“We want to make another acquisition this year,” he said. “However, if it doesn’t fit into our culture, we won’t pull the trigger. We are interested in a business bank with a strong local presence in California.”

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