CVB Financial Corp. in Ontario, Calif., said late Monday that it had sold the vast majority of the problem loans related to what had been its largest borrower.
The $41 million sale delivers sorely needed relief to the $6.4 billion-asset company, which had disclosed details of the borrower's loans in mid-2009 while also revealing an investigation by the Securities and Exchange Commission.
CVB sold six of the seven nonaccruing loans from its lending relationship last Friday for about 4% less than their $42.9 million value. It was a nearly 48% discount from the loans' principal balance of $78.1 million.
As part of the sale, CVB said it received $36 million in cash and $5 million through a note secured by a first-position lien on a nearby office building. CVB did not disclose the buyer.
Including the $1.9 million writedown from the sale, CVB has charged off a total of $36 million from this relationship since July 2010.
The seventh loan that was not sold is connected to the same relationship but was extended to another borrower. That loan, secured by 26 residential lots in Oceanside, Calif., was written down by 15%, to $2.3 million, CVB said in a press release.
Though the divested loans were an positive sign for CVB financially, it was not enough to move Sandler O'Neill's "hold" rating on the company. Investors on Tuesday were encouraged by the move; shares of CVB common stock rose 9.1% to close at $8.84 a share.
"This loan sale is an encouraging development for the company, putting behind it a difficult chapter and allowing management to spend more time building the franchise and less time trying to clean up credit issues," Aaron James Deer, a Sandler analyst, wrote in a Tuesday morning note to clients. "Still, the company remains the subject of an ongoing SEC inquiry, and that leaves some uncertainty on the table."
In his note, Deer estimated that the sale will reduce CVB's nonperforming assets to 3.58% of total assets, compared with 4.75% before the disposition. Those figures exclude assets covered by the Federal Deposit Insurance Corp.