CVB Financial Corp. (CVBF) Q4 2012 Earnings Report, Transcript and Summary

Good morning, ladies and gentlemen, and welcome to the Fourth Quarter and Year-End 2012 CVB Financial Corp. and its subsidiary, Citizens Business Bank Earnings Conference Call. My name is Mike, and I'm the operator for today. [Operator Instructions] I would now like to turn the presentation over to your host for today's call, Ms. Christina Carrabino. You may proceed, ma'am.

Thank you, Mike, and good morning, everyone. Thank you for joining us today to review our financial results for the fourth quarter and year-end 2012. Joining me this morning is Chris Myers, President and Chief Executive Officer; and Rich Thomas, Executive Vice President and Chief Financial Officer. Our comments today will refer to the financial information that was included in the earnings announcement released yesterday. To obtain a copy, please visit our website at www.cbbank.com and click on the Our Investors tab. Before we get started, let me remind you that today's conference call will include some forward-looking statements. These forward-looking statements relate to, among other things, current plans, expectations, events and industry trends that may affect the company's future operating results and financial position. Such statements involve risks and uncertainties, and future activities and results may differ materially from these expectations. The speakers on this call claim the protection of the Safe Harbor provisions contained in the Private Securities Litigation Reform Act of 1995. For a more complete discussion of the risks and uncertainties that may cause actual results to differ materially from our forward-looking statements, please see the company's annual report on Form 10-K for the year ended December 31, 2011, and in particular, the information set forth in Item 1A, risk factors, therein. Now I will turn the call over to Chris Myers.

Thank you, Christina. Good morning, everyone, and thank you for joining us again this quarter. Yesterday, we reported earnings of $22.1 million for the fourth quarter of 2012, compared with $9.3 million for the third quarter of 2012 and $21.7 million for the fourth quarter of 2011. Earnings per share were $0.21 for the fourth quarter, compared with $0.09 for the third quarter and $0.21 for the year-ago quarter. For the year ended December 31, 2012, we earned $77.3 million, compared with $81.7 million for the year ended December 31, 2011. Earnings per share were $0.74 for 2012. 2012 represented the second most profitable year in CVB Financial history and would've been the most profitable year in our history had we not elected to take a one-time $20.4 million prepayment charge for repaying $250 million in Federal Home Loan Bank debt back in August 2012. The fourth quarter represented our 143rd consecutive quarter of profitability and 93rd consecutive quarter of paying a cash dividend to our shareholders. In fact, we actually also paid our 94th consecutive cash dividend to shareholders, accelerating payment of the fourth quarter dividend normally paid in January, into December 2012. This was done to provide potential tax benefits to our shareholders as personal income tax rates are scheduled to go higher for 2013. Excluding the impact of the yield adjustment on covered loans, our tax exempt net interest margin was 3.60% for the fourth quarter, consistent with 3.60% for the third quarter and down from 3.62% for the fourth quarter of 2011. The yield on investment securities continued to decline during 2012, partially driven by the Federal Reserve Bank's stimulus program of purchasing longer-term debt in the open market. Lower rates on mortgages have resulted in larger volumes of refinancing which, in turn, have impacted the prepayment speeds in our current portfolio. We also continue to see competitive pressure on yields in all classes of loans, particularly commercial real estate secured loans. At December 31, 2012, we had $3.45 billion in total loans, net of deferred fees and discounts, compared with $3.44 billion at September 30, 2012. Overall, non-covered loans increased $23.9 million during the fourth quarter to $3.25 billion, while covered loans decreased $12.1 million for an overall loan growth of $11.8 million in the quarter. While this is the second quarter in a row of organic loan growth, our enthusiasm is tempered as dairy loans increased by $39.1 million for the fourth quarter and most of that growth was seasonal as many dairies chose to draw down on their line of credit of [ph] prepaid seed expense. Nonperforming assets, defined as non-covered, nonaccrual loans plus OREO, decreased in the fourth quarter to $72.8 million, compared with $76.5 million for the prior quarter, and once again reported 0 provision for funded loan and lease losses for the fourth quarter. The allowance for loan and lease losses was $92.4 million or 2.84% of total non-covered loans at December 31, 2012, compared with $92.1 million or 2.85% of outstanding loans at September 30, 2012. Net recoveries for the fourth quarter were $374,000, compared with net recoveries of $175,000 for the third quarter. Net charge-offs totaled $1.5 million for the full year 2012, compared with $18.4 million for 2011. At December 31, 2012, we had loans delinquent 30 to 89 days of $887,000 or 0.03% of total non-covered loans. Classified loans for the fourth quarter were $314 million, compared with $302.5 million for the prior quarter. The $11.5 million increase is primarily due to the downgrading of dairy-related credits. We'll have more detailed information on classified loans available in our year-end Form 10-K. Moving on to covered loans. Covered loans represent loans in which we have loss sharing protection from the FDIC as a result of our acquisition of San Joaquin Bank in October 2009. At December 31, 2012, we had $220.5 million in total covered loans resulting from the San Joaquin Bank acquisition with a carrying value of $195.2 million compared with $235.9 million and the carrying value of $207.3 million at September 30, 2012. As of quarter end, our remaining purchase discount was $25.3 million. Now I'd like to discuss deposits. We continue to grow our non-interest-bearing deposits. For the fourth quarter of 2012, our non-interest-bearing deposits grew to $2.42 billion compared with $2.32 billion for the prior quarter and $2.03 billion for the same quarter a year ago. This represents a 19.4% increase year-over-year, completely organic. Non-interest-bearing deposits now represent 50.7% of our total deposits. Our total cost of deposits for the fourth quarter was 11 basis points compared with 12 basis points for the third quarter. At year-end 2012, our total deposits and customer repurchase agreements were $5.2 billion, $17.3 million higher than at September 30, 2012 and $133.3 million higher than at December 31, 2011. Noninterest income. Noninterest income was $5.7 million for the fourth quarter of 2012 compared with $2.6 million for the third quarter. Noninterest income for the fourth quarter was reduced by a $2.6 million net decrease in the FDIC loss sharing asset compared with a $7.1 million net decrease for the third quarter. Interest income and fees on loans for the fourth quarter totaled $47.2 million compared with $52.6 million for the third quarter. The $47.2 million for the fourth quarter included $3.3 million of discount accretion from principal reductions, payoffs, as well as the improved credit loss experienced on covered loans. This compares to $7 million of discount accretion for the prior quarter. So if the discount accretion was eliminated, interest income and fees on loans declined by $1.7 million for the quarter or about 3.73%. The decline was primarily due to the refinancing and repricing of commercial real estate loans at lower rates. Now expenses. We continue to closely monitor and manage our expenses. Noninterest expense for the fourth quarter was $29 million, compared with $29.6 million for the third quarter, assuming the $20.4 million impact of prepaying $250 million in FHLB debt was excluded from the third quarter. Noninterest expense, excluding the FHLB debt termination expense, declined by $19.9 million in 2012. Expense reductions were primarily achieved in the legal and professional services expense area, which decreased $8.8 million; OREO related expenses, which decreased $4.6 million; salaries and employee benefits, which decreased $1.5 million; and regulatory assessments, which decreased $1.4 million. One of our expense-related strategies is to examine our branch locations and look for opportunities to expand or contract, as appropriate. In October 2012, we consolidated a branch location in Orange County, California where we had 3 branch locations within a 5-mile radius of each other. We anticipate approximately $350,000 to $400,000 in annual cost savings and little or no revenue loss. Looking ahead, we will consider other branch closures or consolidations where we can realize cost savings without material loss of business. Now I will turn the call over to Rich Thomas to discuss our effective tax rate, investment portfolio and overall capital position. Rich?

Thanks, Chris. Good morning, everyone. Our effective tax rate was 31.7% for the fourth quarter compared with 25% for the prior quarter. The overall tax rate for the full year 2012 was 32.6%. Now to our investment portfolio. During the fourth quarter of 2012, we provided an average of approximately $120.3 million in overnight funds to the Federal Reserve and received a yield of approximately 25 basis points on collected balances. We also maintained $70 million in short-term CDs with other financial institutions, yielding approximately 69 basis points. At December 31, 2012, investment securities totaled $2.45 billion, up $191.8 million from the third quarter of 2012. Investment securities currently represent approximately 38.5% of our total assets. Our available-for-sale investment portfolio continued to perform well. At December 31, 2012, we had an unrealized gain of $74.6 million, a decrease from $83.6 million for the prior quarter. 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 4 private label mortgage-backed securities totaling $1.2 million. We have been strategically reinvesting our cash flow runoff from our investment portfolio, carefully weighing current rates and overall interest rate risk. During the fourth quarter, we purchased $110.4 million in mortgage-backed securities, with an average yield of 1.61%. We also purchased about $150.5 million in U.S. government callable agencies with an average yield of 1.92% and $114.7 million of small business pools with an average yield of 1.71%. Our new purchases of mortgage-backed securities and small business administration pools have an average duration of approximately 7 years. The purchase of securities in the fourth quarter substantially reduced our cash position, as we actually ended up, for the year, owing the Federal Home Loan Bank $26 million on an overnight basis. Our current strategy is to keep cash levels at or near 0 to maximize our profitability. We currently are experiencing about $50 million to $60 million in cash flow monthly from our securities portfolio. But we feel comfortable in reducing existing cash reserves. For the year 2012, we purchased $546.1 million of mortgage-backed securities with an average yield of 1.79%, $23.1 million of municipal securities with an average tax equivalent yield of 3.42%, $166 million of SBA pools with an average yield of 1.79% and $176.5 million of callable agencies with an average yield of 1.74%. Finding bank qualified municipal securities that meet our investment criteria remains challenging but desirable. We were not able to find any municipal securities to purchase in the fourth quarter that fit our investment criteria. Now turning to our capital position. Our capital ratios are well above regulatory standards and we believe they remain above our peer group average. Our December 31, 2012 capital ratios will be released soon, concurrently with our fourth quarter Form 10-K. Shareholders' equity increased by $48.2 million for the year 2012. We continue to look at many different opportunities to deploy our capital and liquidity. Subsequent to year-end 2012, on January 7, 2013, we redeemed a portion of the outstanding capital and common securities issued by CVB Statutory Trust II for total consideration of approximately $20.6 million. The cost of these securities was LIBOR, -- 3-month LIBOR plus 2.85%. This will save us approximately $600,000 annually. Now I will turn the call back to Chris for some closing remarks.

Thanks, Rich. Now let's talk about the California economy. Overall, California has had a bumpy ride in its path to economic recovery but the state had made progress and it continues to be a driving force behind the national economic recovery. According to local economists, California led the nation in job, income and consumer spending growth during 2012. According to the state's Employment Development division, the California unemployment rate fell to 9.8% in November, compared with 10.1% in October 2012, and 11.3% all the way back in November 2011. Local economists are forecasting 2% job growth for 2013. The housing sector continued to mend in 2012, with home sales and prices on the upswing. Home prices grew at approximately 7% in 2012, and are expected to grow at approximately 5% in 2013. The state still faces major housing challenges. Despite having a more acute need for housing, California has lagged the nation in terms of growth in the number of new housing permits, largely due to significant regulatory, zoning and permit-related constraints. The recent adoption of 2 ballot propositions, 30 and 39, are projected to help California close its persistent budget deficits over the next few years and eventually return the state to surpluses, something we haven't enjoyed for the better part of the last decade. We remain skeptical. Overall, California is currently one of the fastest growing states in the nation and it's helping to drive the U.S. economic recovery. We still have a long way to go before we can declare ourselves fully recovered, but the fundamentals of the economy are improving and are expected to continue to do so in 2013. Our dairy and livestock clients continue to experience a difficult operating environment. Milk prices have increased but high feed costs put pressure on profit margins. According to the California Department of Food and Agriculture data for the third quarter of 2012, feed costs in California represented 65.4% of total milk production costs, compared with 65.0% of total milk production costs for the second quarter. Albeit modest, we would like to see this upward trend reverse itself in the next quarter. Many of you are aware that our founder and Chairman, George Borba, passed away in October. We remain committed to honoring George's legacy. We vow to never forget the strong culture George created here. His character, honor, integrity and tenacity served as the foundation for many of our company's achievements. As 2012 is now in the books, so to speak, I would like to thank our employees for their continued hard work and commitment, our customers for their loyalty, our shareholders for their support and our Board of Directors for their continued wisdom and guidance. And last, we've established our critical few -- official critical few for 2013. They are as follows: grow loans, expand credit product offerings and capabilities, build core deposits, drive service charge and fee income growth, manage operating efficiency and finally, grow through acquisitions. Well, that concludes today's presentation and now Rich and I will be happy to take any questions that you might have.

[Operator Instructions] The first question we have comes from Hugh Miller of Sidoti. Hugh M. Miller - Sidoti & Company, LLC: I guess I wanted to start off with a question kind of on the margin and more specifically, on the loan yields that we saw some contraction during the fourth quarter. You guys have referenced some pressure on the refinancing market in CRE, I'm wondering if you could provide some color on that? And the follow-up was just with -- if you could detail the benefit from prepays in the third quarter versus the fourth quarter?

Yes. I think, in general, we still are under a lot of pricing pressure and the loans -- the commercial real estate loans that we have in the books that are 6% or 5.5% and have 4, 5, 6 years left on the maturity, are all -- not all, but a lot of those are coming around to us and our customers want to reprice those loans, extend the maturities a lot of times, or just modify the rates. And those negotiations are pretty active and a lot of times, they're going to other banks getting competitive offers and forcing our hand to redo those and modify those loans. When we do modify those loans, we do -- the vast majority of our loans -- commercial real estate loans have prepayment penalties embedded in those loans. And as you can see, I think in 2012, our total prepayment fees were somewhere around $3.7 million as compared to $1.9 million in 2011. So there was a lot more prepayment momentum, if you will, in 2012. And we're seeing that continue or we're hoping it's going to slow down pretty soon because we've already repriced a lot of these loans. I'm sorry, is that -- did that answer your question? Hugh M. Miller - Sidoti & Company, LLC: Yes. I guess, it was more specifically then on the prepay benefit in 4Q relative to 3Q. And I guess, in the CRE market, I mean, how aggressive would you categorize kind of the competitive environment at this point?

Yes. I think it's been aggressive for a while, and if anything, it's getting a little bit more aggressive but I am -- let me give you 4 numbers in a row here. Prepayments in the first quarter were $869,000, second quarter were $814,000, third quarter were $1.266 million and in the fourth quarter were $751,000. So at least, I'm relieved to see we're $0.5 million lower than the third quarter and slightly lower than the first 2 quarters. So I'm -- hopefully, that will start slowing down a little bit, but it is what it is. And we're trying to be smart about the way we do this. We're also -- we had the biggest interest rate swap year that we've had in our history, which means some of these deals and new pieces of business we put on at variable rates which may affect our margin, but will help our interest rate sensitivity going forward. And our interest rate swap fees were about -- I think $1.250 million for the year.

Next we have Aaron Deer with Sandler O'Neill + Partners. Aaron James Deer - Sandler O'Neill + Partners, L.P., Research Division: Just following up a little bit on Hugh's question and then, kind of the mixed data or thoughts that you gave on the California economy. Just kind of curious what your sense is in speaking with customers, what the loan demand is out there and where line usage stands and just trying to get a sense of what your outlook is for loan growth going forward?

Yes. Line usage is pretty modest right now and we're still not experiencing any great pickup in borrowings for our C&I borrowers out there. On the dairy side, line usage is higher, although, I think the fourth quarter of 2012 was actually a pretty -- was an improving quarter for the dairy industry over the third quarter and second quarter. The -- as we look at loan growth and try to drive loan growth, the demand is not great out there. A lot of it is, the banks are competing against each other on a refinance basis. There's still a lot of cautious outlook for a lot of our clients and the economy is still relatively sluggish. We're not seeing huge loan demand. But I would say, one of the things we're doing to counterbalance that is we're driving new loan initiatives in the bank and we're setting those things up and a couple of those things, we've come out with our own residential mortgage program that we kicked off in the fourth quarter of 2012. I haven't talked much about that because I want to make sure we start showing results before we talk about it, but that is something that we've got fully in force right now. We're getting after that and we're looking at expanding our Equipment Leasing and Vehicle Leasing business as we go forward, and then we're looking at different niches in other areas to drive loan -- to drive other aspects of loan growth. And that's -- when you saw our critical few, you saw that when I talked about our -- expand credit product offerings and capabilities, that's what that's all about. It's finding ways that we can capture a bigger credit wallet of our clients out there and do more things for them without taking a lot of credit risks. Because again, we're lending money out at 4% and 5% or if it's variable, maybe even lower than that, and it's just we have to be smart in the way we build our asset book. Aaron James Deer - Sandler O'Neill + Partners, L.P., Research Division: That's great. And then the -- I guess, can you guys give some color on the expected accretion that you still expect to get on the $25 million loan discounts. I think you said it's around $16 million that should be realized as interest income. Is there a similar measure that you can give on the -- with respect to the FDIC loss share asset in terms of what percentage of that will be written down through the income statement?

Rich, I mean, what do we have? $18-point-something million left in our loss sharing and that's going to be -- that will fully extinguish itself by October of 2014. The discount accretion will materially extinguish itself by October 2014, but there will be some left, we anticipate, at that point in time because there's still -- the mark is what the mark is and it doesn't necessarily match up with the loss share...

FDIC.

FDIC loss share. Rich, do you have any comments to expand on that?

I would just echo what Chris indicated, Aaron, is that we have $18.5 million worth of FDIC asset remaining at year-end. That asset is the receivable we have against claims that we would file with the FDIC for reimbursement. That reimbursement period ends October of 2014, so that $18.5 million has to be 0 by that period of time, naturally. But what we're doing is we're watching the claims that we file with the FDIC and actually withdraw that number down from losses that are incurred in the remaining SJB portfolio and then, any remaining asset that's there as a result of basically a difference in the credit quality and the credit performance of that portfolio, which will decrease the accretion -- the non-accretable accretion, which we'll then pair against that asset. So they'll kind of stair-step down to the extent that there's improvement in the credit quality of that portfolio. Aaron James Deer - Sandler O'Neill + Partners, L.P., Research Division: Okay. So I guess what I'm trying to get at is...

I love that word, non-accretable accretion. I don't know what that means, but it's -- I love that phrase.

It's basically this, the allowance for loan losses under the current accounting literature. Aaron James Deer - Sandler O'Neill + Partners, L.P., Research Division: So I guess, what I'm getting at is, what's the second half of that piece? The piece that will need to be written down through the income statement that's not actually applied to the FDIC. If the accretable yield is, say, $16 million of the $25 million or let's call it half for the sake of argument, would half of the $18 million then be written down through the income statement? Is that a reasonable way of thinking about this?

Well, if the accretion is -- what we do every quarter -- I mean, we look at that portfolio every quarter and we try to forecast because the accounting literature says that you can put loans that are homogeneous in pools. Loans that were not homogeneous have to be evaluated individually. But we look at both the individually-assessed loans in that portfolio, as well as the pool of loans, that we try to go through and estimate the cash flows that are expected from the portfolio, and we estimate the severity of the losses and the cash flow model of the expected cash flows and we try to estimate the best we can on the remaining losses that we expect to incur on that portfolio. So that is on the accretion side. On the receivables side, what we do is, we try to match that also against the recoveries that we have and the expenses that we match against the FDIC. We have to file a loss sharing certificate at the end of every single quarter of the losses incurred on that portfolio. And then, when we receive the cash back from the FDIC, that goes against the receivable, naturally. So I mean, if it was just a straight line, we had no losses from the remainder of that portfolio, that FDIC receivable would have to come down on a pro rata share over the next 1.75 years, right? I mean, there can be -- we expect that there could be some continued losses in that portfolio, but we're trying to work with borrowers along the way to mitigate those losses. It's hard to predict exactly how that receivable will come down. But if you did it on a straight line basis, I mean, you're talking about a $900,000 charge to the P&L on a monthly basis, if it was just straight line and there was no losses incurred over the remaining life of the loss sharing agreement with the FDIC.

Next, we have Tim Coffey with FIG Partners.

Chris, you talked about this in your closing comments about the changes that were done at the board -- happened to the board this quarter. My question is, how does this change or alter the strategic direction of the company going forward?

Just to make sure I heard your question clearly, it's about the transition that we were going through on the board, certainly, with our Chairman passing away and then, bringing on new directors and what's the strategic direction, is that correct?

Correct.

I -- certainly, in the short run, I don't think there's any change in strategic direction. We still have 4 board members who have been board members for the last -- well, 2 of them have been board members for the last 20-plus years, and 2 other board members have been here that predated me. So there's still a great level of experience on the board. I do think this is an opportunity for us to bring on new board members. We have 3 new directors: George Borba, Jr., which I think -- I think he's going to be a great director for us and there's been already [indiscernible] and is also -- is based in Bakersfield, where we have a big market share. [indiscernible] and very involved in the community and a friend of [indiscernible] our balance sheet committee and was a former director of American Business Bank. So we've got some good experience coming on there and I look at us, as far as strategy going forward, I think right now it's probably status quo on the business side. But I do think you're going to see us really think hard about M&A going forward and potentially, be less sensitive to dilution for the appropriate deal.

Okay. And then, follow-up question, does M&A concern just banks? Or would you also be considering leasing equipment companies?

I think we would look at that, and we'd also look at potential RIAs, registered investment advisors, or other trust companies. The one thing about an equipment company or an equipment leasing company, we would probably want that to be materially in California, because we don't want to just buy something to buy assets and then watch them go away or let it run as a subsidiary. We'd want to have the cross-sell potential in there and try to drive more relationships. And the relationship banking is really what we're all about and that's why you see, when you look at our deposits, that 50.7% non-interest-bearing deposits, we truly are building each and every day, a better relationship bank. And our cross-sell potential through the fee income is something that we're building out too, between our Merchant BankCard, our Treasury services, improving our technology, our International department, CitizensTrust, Investment Services. All those areas are add-ons to what the normal kind of deposit and loan business is that we drive every day.

The next question we have comes from Brian Zabora of Stifel, Nicolaus. Brian James Zabora - Stifel, Nicolaus & Co., Inc., Research Division: A question on the securities. Was the cash deployment late in the quarter? Because it looked like, I think, end-of-period available-for-sale securities were above the average rates? I just wanted to kind of confirm that, or any details on that?

I think a good chunk of our securities were purchased in the last 45 days of the quarter and the latter half of the quarter, so we didn't receive the full benefit of that pickup. And the same thing, on the branch closure that we talked about, that branch closure -- we had to realize a lease that went through the end of the year and so forth in fourth quarter, so we won't really realize the pickup of those cost savings until the first quarter of this year. And also finally, we just paid back $20 million in trust preferreds, which we did on January 7 -- is that right, January 7?

That's correct.

And so that's going to save us about $600,000 annually or $150,000 a quarter. So there are some good expense things that we're doing here but the bottom line is, the expense things are great and they're great for efficiency and I'm really proud of our organization in the way we've handled that. But we've got to reverse our trend and get the top line moving in the right direction. Brian James Zabora - Stifel, Nicolaus & Co., Inc., Research Division: And as a follow-up, on the M&A side, could you maybe comment on how bid-ask spreads look, or just are conversations continuing to pick up with this current environment?

I think everybody is kind of starting to enter the ring, I guess, I'll use a boxing analogy. Everybody's starting to enter the ring, but we're still a little apart from touching gloves and fighting, but we're getting after it. And there is still a bid -- the bid-ask is still wider than we'd like. I think the realization of the net interest margin pressure that these banks are feeling, as are we feeling, is going to become a greater and greater concern as we go forward. And one of the things is, I think, if you're a small community bank, you don't have the fee income drivers that we do, notwithstanding what the big banks do, who are running 50% of their income -- of fee income. So that -- the spread banks and the real spread banks, which really, a vast, vast majority of the community banks are spread banks -- are going to feel more and more pressure going forward. And they were able to kind of stem the tide with improved credit in 2011 and probably, more material in 2012. That's going to start to dissipate in 2013, and then, they're going to be standing there dealing with all the repricing pressure and being reliant -- primarily reliant on the spread between deposits and loans.

Next, we have Julianna Balicka of KBW. Julianna Balicka - Keefe, Bruyette, & Woods, Inc., Research Division: I have a couple of questions. One, you've already talked about being more proactive on the M&A front going forward, but just kind of thinking about your TCE levels, which are building and are getting reasonably high, any thoughts about more proactive capital management from higher dividends, special dividends, buybacks, et cetera?

We still are focused on our efficiency, what we're going to do with that stock, but our first choice is M&A and it hasn't come as quickly as we'd like it to come, but we do feel like we're in a very good spot in terms of how many buyers are really out there for these $500 million to $1 billion in asset banks. There's not a tremendous number of buyers there who have our currency, have our capital, that can go out and execute a deal. So we feel like we're in the driver's seat, we're just waiting for the right opportunities and don't want to shoot our silver bullet, if you will, on a deal that isn't ready to be done. And in terms of the previous question, it's not the right -- the spread between the bid and the ask is still too wide. But as we go forward, we're looking at all those things, and if you look at the trust preferred, we're still buying -- we bought back trust -- we've repurchased some trust preferred January 7. There's another $20 million out there that we're going to be looking heavily at here, very quickly, that's still at that 3-month LIBOR plus 2.85%, that's an opportunity. And then -- and we have, I think, somewhere over 7 million shares of buyback potential that are still authorized by our Board of Directors, that we haven't executed. And so I have to say, we have 7 -- a little over 7.7 million shares of buyback potential we have. So that's an option too, but our first preference remains the -- using our capital to buy another bank, or buy a trust company or buy an equipment or vehicle leasing company. Julianna Balicka - Keefe, Bruyette, & Woods, Inc., Research Division: Okay, that makes sense. And then, just to follow up on the loan growth commentary that you were talking about for the coming year. On the micro question, is there any seasonality in the first quarter that we should be looking for? And more towards 2013, you discussed driving growth, including equipment leasing and then, expanding into different niches. So can you talk, give us a little bit more color and details around these different niches and loan growth expectations for 2013?

Well, at the end of the year, we have a seasonal buildup in dairy. And I think dairy loans were up $39 million for the fourth quarter, and I think the majority of that was seasonal buildup. So we -- that will unwind itself here early in the first quarter. But there is -- it's not a huge amount of money when we're talking about $3.4 billion in loans, but it is a little bit of a headwind for us there. As far as our initiatives are, we're building those out. I think the one that we're prepared to talk about that is live, so to speak, is the residential lending initiative and we're really focused on a lot of our relationships and cross-selling residential mortgages to our clients. The products -- we're keeping these on our books. We're not doing any 30-year fixed-rate paper. We're doing 5-, 7- and 10-year fixed-rate paper. As much as the 30-year amortization, we're doing 15-year fully amortizing paper and we're also doing 5-year and 10-year fixed rate, interest-only paper that adjusts to an ARM after that on a 30-year amortization basis. So we're not trying to take a tremendous amount of interest rate risk on this, but it is -- it's -- the way we've designed the program, it's more conducive to the jumbo loan market than I'd say your Fannie Mae and those type of loans. Julianna Balicka - Keefe, Bruyette, & Woods, Inc., Research Division: Those are going into your portfolio?

Yes. Julianna Balicka - Keefe, Bruyette, & Woods, Inc., Research Division: To ask another way, and then I'll step back the same question maybe, then, since you're not prepared to talk about the initiatives that make sense but -- if barring any M&A organic loan growth of your legacy loans for the coming year, if you achieved 5% year-over-year growth in your legacy portfolio next year, would that be disappointing? Would that be on track? Would you hope to beat it?

That's a great question, Julianna. You're pinning me down here. But the bottom line is, our objectives for 2013 are to grow organically at a greater rate than 5%.

And next, we have Gary Tenner of D.A. Davidson. Gary P. Tenner - D.A. Davidson & Co., Research Division: Just a follow-up on some M&A questions. It really -- you've touched on that a bit. Can you talk kind of the alternative which, I guess, will be trying to hire specific lenders in areas you want to target? And whether that has a better payoff in the near-term than, perhaps, waiting for M&A?

Yes. No. It's something that we're really -- we're looking at everyday, and we're trying to look at teams and migrating those teams over the bank and we have been successful along the way in acquiring a few of those teams in 2012 and even more successful in the preceding few years before that. It's something we're looking at all the time. I think most of the banks, their productive people, they've got their arms around them pretty well. So it's not that easy to just migrate these teams out of banks and then, a lot of times you get banks where their credit underwriting criteria might not be quite as disciplined as our credit underwriting criteria. So some of these teams may be more successful in a looser credit atmosphere than they're going to be successful at CVB. So we have to really carefully manage that process, and when we interview these people and go through their books and all that kind of stuff, we've got to do it very carefully because what we don't want to do is spend money and buy something that's not going to be a successful expansion for us. And so, but we're very much focused on it, we're looking at teams throughout our markets particularly, in L.A. County, Orange County and the Central Valley. Gary P. Tenner - D.A. Davidson & Co., Research Division: When you look at bringing teams over, if you're going to generalize on, say, a 12- or 18-month basis, what sort of assumption do you make in terms of how much of their book they could bring over? Is there a general range you could give us?

So what we -- when we look at their -- the expense of paying them and their total, I guess, salary and bonus and all the different expense of bringing them over, setting up their facilities, we like to make sure that they're accretive to our earnings within that 12- to 18-month period of time. And so that -- depending on the magnitude of the team and depending on the level of the employee, that can be anywhere from $10 million, $15 million in loans per relationship manager you hire, depending on what we're compensating them.

[Operator Instructions] The next question we have comes from Don Worthington of Raymond James. Donald Allen Worthington - Raymond James & Associates, Inc., Research Division: Just a question on the unrealized gain in the securities portfolio. Would you, at some point, consider harvesting some of those gains?

Yes, we have had discussions about our unrealized gain. It did drop from the third quarter to the fourth quarter by, I think, $7 million or $8 million or something like that. And it is something we're looking at, and we're also looking at -- as we look at these prepayments speeds, do we reposition our portfolio a little bit to get away from some of these prepayments speeds? And that could come in, in the form of both selling securities that we have a gain and maybe selling some securities that we have a loss in, and rebalancing our portfolio a little bit. Rich, I don't know if you have anything to add to that, but...

That's exactly the strategy, Chris, that we've been looking at.

And the other thing we -- you've seen we've been buying these SBA pools, which we haven't been buying before, and the reason we've been buying those is we can get a little bit more yield from them. They have slower prepays and the only negative is that they go out longer on the curve, they're 7 years or 8 years in duration. But when we look at our asset sensitivity, liability sensitivity of our company right now, we are as asset-sensitive as we've ever been or, at least, at the end of the third quarter -- we haven't measured at the end of the fourth quarter -- but at the end of the third quarter, we were the most asset-sensitive we've been in at least the last 10 years. So that's a consideration in looking at going out a little further on the curve as we do have -- if you shock rates up 200 basis points or 300 basis points, we make more money. Donald Allen Worthington - Raymond James & Associates, Inc., Research Division: Okay, great. And then, I assume the SEC inquiry is status quo over the last quarter?

Yes. It's hard -- I can't comment on the substance of the SEC investigation, but now we're in -- we're 2.5 years into this right now and we and our outside counsel have -- we've fully cooperated with the SEC staff and we'll continue to do so, to the extent any further information is requested. And last, we've received no indication from the SEC staff as to when this investigation may be formally concluded or whether, at this point, any additional information will be sought. It's really -- it's not something we're even focused on at this point. Donald Allen Worthington - Raymond James & Associates, Inc., Research Division: Okay. Are you still incurring any legal fees there?

Not on the SEC investigation side. On the shareholder lawsuit, we are. And there are 2 cases there, 2 related cases: one is in Federal Court and the other one is in State Court. But let me give you a kind of a little procedural update if I can. And I've commented on this before, but as you may recall, the judge in the federal class action, dismissed the plaintiff's initial complaint in January 2012 -- this is the shareholder lawsuit -- upholding that it did not meet the pleading thresholds under the Private Securities Litigation Reform Act. The plaintiffs then filed an amended complaint in February 2012, and we filed our motion to dismiss in March of 2012. The judge held a hearing on the amended complaint in June 2012, and issued an order dismissing the amended complaint this past August. So we've had 2 dismissals on this. For the record, the judge found additional deficiency in the plaintiff's claims, and again, twice in a row we had this dismissed. However, the judge did give the plaintiffs leave to make a third attempt to plead a case against CVB Financial, and I guess that's typical. And so the plaintiffs filed another amended complaint in September 2012. We filed our third consecutive motion to dismiss the latest version of this complaint, which is basically the same set of claims in October 2012. The hearing on our motion to dismiss is currently scheduled for February 11, 2013, and we obviously cannot predict when the court may reach a decision on our motion or what the outcome will be, but we intend to continue to vigorously contest the plaintiff's claims. We feel they're without merit, and as long as this action is allowed to continue -- I'd like to give you a dissertation on tort reform and all that kind of stuff, but probably, you just don't want to hear that. In the meantime, the companion state court derivative shareholder action, which is the second part of this, is on hold until at least March 2013, as both sides have essentially agreed to wait until we have resolution on the federal act -- federal action, which is the shareholder lawsuit. So that's probably about all I can comment on. On the legal fees for -- we -- shareholder lawsuit and we're not really spending much on the derivative lawsuit, and we're not spending anything right now on the SEC investigation. Those legal fees are materially and I mean, the vast, vast majority of those are reimbursed by insurance. So we may have to spend money but we're getting our money -- the vast majority of that money back in insurance. So you're going to see legal costs being not a big factor in 2013, and then, I would hope and obviously, I can't predict, that our legal costs will go down in 2013 vis-à-vis 2012.

And next, we have Hugh Miller of Sidoti. Hugh M. Miller - Sidoti & Company, LLC: Chris, you made some comments just about the bank being more asset-sensitive than you've ever been. I was wondering if you could just talk about your strategy for kind of the positioning of loans and securities for 2013. I mean, we have seen a little bit of a lift at the long end of the curve over the last month, at the 10- and 30-year. I just, I guess, wanted to get your outlook kind of for that as we head into '13 on the yield curve, and how you're thinking about that in terms of positioning the assets at the bank?

Yes, we talk a lot about that and it's hard to predict what's going to happen, but we do feel that the yield curve will materially, probably, not have a lot of changes in the first half of the year. But as we get into the second half of the year and we look at the -- our government and supposedly their comments about not continuing to buy $80 billion of paper every single month, sometime, that's going to get -- that's going to stop or that's going to slow down. And what we've heard is that's going to start slowing down in the fourth quarter or late third quarter of 2013. So we're trying not to go out too far in the curve on our loans. We're trying to balance out relationship loans. We may put 10-year fixed rate loans on the books for relationship-type loans on the commercial real estate side. But when we get -- deal more of a transactional type of loan, which may have good credit merits but not have the full relationship impact, we're trying more and more to swap those loans and do variable-rate interest on that because we do feel that, at some point, rates are going to go back up and we like to keep that asset sensitivity edge, which we worked so hard to achieve by deleveraging our balance sheet over the last 5 years.

Next, we have Julianna Balicka of KBW. Julianna Balicka - Keefe, Bruyette, & Woods, Inc., Research Division: I have a couple of follow-ups. You started to talk a little bit about your reinvestment -- some new strategies in terms of reinvesting your securities portfolio. But in one of your remarks, you mentioned that 38% of your total assets are now in investment securities. So aside from strategies for managing duration, are there any strategies or capital-related issues you need to think about as that becomes a greater part of your total assets from managing the bank's perspective, maybe from a regulatory oversight perspective? Or does that change anything?

Well, we're constantly looking, Julianna, at the deployment of our liquidity. Clearly, we'd like to, as Chris has indicated before, we'd like to grow our loan portfolio and that's the #1 achievement that we're striving to get to. And as loans have been a little sluggish, we've been trying to look at how to maximize the yield on our assets. And I would say that we constantly, through our Balance Sheet Management Committee and our -- the Board of Directors, as well as our Liquidity Committee of the management team at the bank, we constantly look at yield curves, we constantly look at the type of instruments that are out there in the market. We have really gone against putting credit risk in our investment portfolio. We're really looking to have pretty much rock-solid instruments in our investment portfolio. But we really haven't got any sort of corporate debt and those types of things, junk bonds and those types of things, in our investment portfolio.

And one thing to kind of add on that, there is a little bit of a shift in our strategy in the fourth quarter on our investment portfolio. We were carrying in typically $300 million, $400 million, maybe $250 million -- whatever the number was -- in excess cash that was going overnight to the Fed. And now we're kind of managing that down to 0. And so why have we changed our strategy? Well, we've changed our strategy primarily because we're getting so much cash back on a monthly basis through our -- from our investment portfolio and prepayment speeds and so forth, of probably $55 million, $60 million a month that, even if we get to the point where we say, "Okay. You know what? We're neutral. We're neither a funds provider or a funds borrower with the Fed on average." We could quickly rectify that and get back to that $250 million, $300 million in surplus cash levels over a short period of time, several months, because of the amount of cash that we're getting in. So we're trying to put off and keep our money to work without taking too much duration risk. But loan growth is the name of the game, quality loan growth and M&A. And on the M&A side we have to, unfortunately, there's still this bid-ask spread and it's just not coming to us as fast as we'd like. We are having a lot of conversations, we're meeting with a lot of different people and I think we're always on the list of, at least within California, we're always on the list of the smaller banks to come and talk to because of our currency and I think, the overall success of the bank for -- and consistency of the bank for the past 35 years.

Next, we have Aaron Deer of Sandler O'Neill. Aaron James Deer - Sandler O'Neill + Partners, L.P., Research Division: Just one quick clean-up question on the noninterest income breakout, the Other line drops by a little over $1 million in that level where it had been running over the past couple of quarters. Just wondering if there's some noise in there? Or what we should expect for that line item going forward?

That's a really important area for us, and in the fourth quarter, we did have a little drop over to the third quarter. One of the areas that we're feeling a little bit more, we feel it's going to be a challenge to increase fees in 2013 as in the Merchant BankCard area. A lot of those -- it's getting -- the payment processing area and so forth, is getting more competitive on a price basis all the time. So we're having to do stuff, having to lower prices, just like we are on our commercial real estate loans, to maintain that. We -- so we did have a decline in that area and then, what are the other components? I know there was a few other of those -- Where are those lists? This is not what I'm looking for -- here it is. And we also -- also, our trust business, our fees were down a couple of hundred thousand dollars quarter-over-quarter in the trust area and we're working hard to rectify that going forward. In fact, we've hired -- in the middle of the year, we hired both a new Chief Investment Officer and a new head of CitizensTrust, and we really feel these 2 individuals are doing a great job in getting the Trust company positioned for growth in 2013. So we have had a little transition here. And then, we really -- and our service charges were also down a little bit in the fourth quarter, not material, but a little bit down.

[Operator Instructions] It appears that there are no further questions at this time. I would now like to turn the call back over to Mr. Myers for any closing remarks. Sir?

Yes, thank you, and thank you, all, very much for joining us on our call today. We truly appreciate your interest, and look forward to speaking with you again on our first quarter 2013 earnings conference call in April. In the meantime, please feel free to contact me or Rich Thomas, and have a great day. Take care.

And we thank you, sir, and to the rest of the management for your time, and you also have a great day. The conference is now concluded. Again, we thank you, all, for attending today's presentation. At this time, you may disconnect your lines. Thank you, and take care.