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August 12, 1994
Transmitted Via Edgar
Securities and Exchange Commission
Division of Corporate Finance
450 Fifth Street, N.W.
Washington, D.C. 20549
RE: CVB Financial Corp. - Form 10-Q
Commission File no. 1-10394
Gentleman:
On behalf of CVB Financial Corp. (the "Company"), pursuant to Section 13
of the Securities Exchange Act of 1934, as amended (the "1934 Act"),
we are submitting the Company's Quarterly Report on Form 10-Q.
A conforming paper copy of this filing is also being filed with the
Commission herewith pursuant to Rule 901(d) of Regulation S-T. Please
acknowledge receipt of this letter by stamping the enclosed copy of this
letter with your "RECEIVED" stamp and returning it to our office in the
enclosed envelope.
Very Truly Yours,
/s/ Robert J. Schurheck
Robert J. Schurheck
Chief Financial Officer
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June, 1994
or
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to _____
For Quarter Ended June 30, 1994 Commission File Number: 1-10394
CVB FINANCIAL CORP.
(Exact name of registrant as specified in its charter)
California 95-3629339
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
701 North Haven Ave, Suite 350, Ontario, California 91764
(Address of Principal Executive Offices) (Zip Code)
(Registrant's telephone number, including area code) (909) 980-4030
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 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 X NO
Number of shares of common stock of the registrant: 7,299,861 outstanding
as of August 9, 1994
This Form 10-Q contains 17 pages.
PART I - FINANCIAL INFORMATION
CVB FINANCIAL CORP. AND
SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DOLLAR AMOUNTS IN THOUSANDS
JUNE 30, DECEMBER 31,
1994 1993
(UNAUDITED)
ASSETS
Investment securities held-to-maturity
(market values of $19,297 and $9,506) $ 20,287 $ 9,154
Investment securities available-for-sale
(market values of $149,083 and $141,378) 149,083 140,365
Federal funds sold and interest-bearing
deposits with other financial institutions 18,080 15,497
Loans and lease finance receivables, net 472,473 442,084
----------- ---------
Total earning assets 659,923 607,100
Cash and due from banks 62,320 45,356
Premises and equipment, net 10,926 9,066
Other real estate owned, net 12,621 9,768
Goodwill 7,964 2,037
Other assets 12,525 14,081
---------- ----------
$ 766,279 $ 687,408
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Noninterest-bearing $ 236,654 $ 221,553
Interest-bearing 434,201 374,404
----------- ----------
670,855 595,957
Demand note issued to US Treasury 10,318 14,205
Long-term capitalized lease 503 512
Other liabilities 24,676 16,777
------------ ----------
706,352 627,451
Stockholders' Equity:
Preferred stock (authorized 20,000,000 shares
without par; none issued or outstanding) 0 0
Common stock (authorized, 50,000,000 shares
without par; issued and outstanding
7,299,166 and 7,274,582) 20,736 20,619
Retained earnings 42,818 39,338
Net unrealized gains(losses) on investment
securities available-for-sale (3,627) 0
----------- ---------
59,927 59,957
----------- ---------
$ 766,279 $ 687,408
=========== ===========
See accompanying notes to the consolidated financial statements.
CVB FINANCIAL CORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
DOLLAR AMOUNTS IN THOUSANDS, EXCEPT
PER SHARE
FOR THE THREE FOR THE SIX MONTHS
MONTHS ENDED JUNE 30,
ENDED JUNE 30,
1994 1993 1994 1993
Interest income:
Loans, including fees $ 10,047 $ 8,953 $ 19,638 $ 17,531
Investment securities:
Taxable 2,388 2,270 4,480 4,658
Tax-advantaged 102 1 174 47
------ ------ ------ ------
2,490 2,271 4,654 4,705
Federal funds sold and interest bearing
deposits with other financial institutions 11 87 96 139
------ ------ ------ ------
12,548 11,311 24,388 22,375
Interest expense:
Deposits 2,529 2,473 4,874 5,027
Other borrowings 96 47 168 118
------ ------ ------ ------
2,625 2,520 5,042 5,145
------ ------ ------ ------
Net interest income 9,923 8,791 19,346 17,230
Provision for credit losses 100 375 150 795
------ ------ ------ ------
Net interest income after
provision for credit losses 9,823 8,416 19,196 16,435
Other operating income:
Service charges on deposit accounts 1,437 1,293 2,685 2,546
(Losses) Gains on sale of investment securities 0 1,705 (128) 2,279
Gains on sale of other real estate owned 0 0 5 0
Other 321 456 649 778
------ ------ ------ ------
1,758 3,454 3,211 5,603
Other operating expenses:
Salaries and employee benefits 3,754 3,481 7,330 6,917
Deposit insurance premiums 312 292 623 576
Occupancy 609 523 1,205 1,019
Equipment 458 384 916 712
Provision for losses on other real estate owned 350 1,600 550 2,325
Other 2,091 1,721 4,049 3,231
------ ------ ------ ------
7,574 8,001 14,673 14,780
------ ------ ------ ------
Earnings before income taxes 4,007 3,869 7,734 7,258
Provision for income taxes 1,577 1,553 3,083 2,771
------ ------ ------ --------
Net earnings $ 2,430 $ 2,316 $ 4,651 $ 4,487
====== ====== ======= =======
Earnings per common share $ 0.32 $ 0.31 $ 0.61 $ 0.60
====== ====== ======= ========
Cash dividends per common share $ 0.08 $ 0.07 $ 0.16 $ 0.15
====== ====== ======= ========
See accompanying notes to the consolidated financial statements.
CVB FINANCIAL CORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
DOLLAR AMOUNTS IN THOUSANDS
FOR THE SIX
MONTHS
ENDED JUNE 30,
1994 1993
CASH FLOWS FROM OPERATING ACTIVITIES:
Interest received $ 22,786 $ 22,271
Service charges and other fees received 3,339 3,324
Interest paid (4,866) (5,309)
Cash paid to suppliers and employees (15,707) (12,236)
Income taxes paid (2,026) (3,297)
---------- ----------
3,526 4,753
---------- ----------
CASHFLOWS FROM INVESTING ACTIVITIES:
Proceeds from the sale of investment securities 53,369 47,542
Proceeds from the maturity of investment securities 15,019 25,701
Purchase of investment securities (94,465) (50,249)
Net (increase) decrease in loans 58 (32,011)
Loan origination fees received 1,447 1,409
Proceeds from sale of premises and equipment 39 56
Purchase of premises and equipment (2,586) (1,074)
Payment for purchase of Fontana First
National Bank 0 (5,043)
Payment for purchase of Western Industrial
National Bank (14,797) 0
Other investing activities (5,087) 925
---------- ---------
(47,003) (12,744)
---------- ---------
CASHFLOWS FROM FINANCING ACTIVITIES:
Net increase in transaction deposits 19,080 3,620
Net increase in time deposits 12,298 2,436
Net increase in short-term borrowings 16,105 514
Dividends paid (1,171) (1,053)
Exercise of stock options 117 75
---------- ---------
46,429 5,592
---------- ---------
NET DECREASE IN CASH ADN CASH EQUIVALENTS 2,952 (2,399)
CASH AND CASH EQUIVALENTS, beginning of year 60,853 71,229
--------- ----------
CASH AND CASH EQUIVALENTS BEFORE ACQUISITIONS 63,805 68,830
CASH AND CASH EQUIVALENTS RECEIVED IN THE
PURCHASE OF FONTANA FIRST NATIONAL BANK 8,235
CASH AND CASH EQUIVALENTS RECEIVED IN THE
PURCHASE OF WESTERN INDUSTRIAL NATIONAL BANK 16,595
--------- ---------
CASH AND CASH EQUIVALENTS, June 30 $ 80,400 $ 77,065
========= ==========
See accompanying notes to the consolidated financial statements.
CVB FINANCIAL CORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
DOLLAR AMOUNTS IN THOUSANDS
FOR THE SIX
MONTHS
ENDED JUNE 30,
1994 1993
RECONCILATION OF NET EARNINGS TO NET CASH PROVIDED
BY OPERATING ACTITIVIES:
Net earnings $ 4,651 $ 4,487
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Loss (Gain) on sale of investment securities 128 (2,279)
Amortization of premiums on investment securities 175 428
Provision for loan and OREO losses 700 3,120
Accretion of deferred loan fees and costs (984) (821)
Loan origination costs capitalized (1,271) (890)
Depreciation and amortization 685 530
Change in accrued interest receivable (794) 289
Change in accrued interest payable 175 (164)
Change in other assets and liabilities 61 53
--------- ---------
(1,125) 266
--------- ---------
$ 3,526 $ 4,753
========= =========
Supplemental Schedule of Noncash Investing and
Financing Activiteses
Purchase of Fontana First National Bank:
Cash and cash equivalents acquired $ (8,235)
Fair value of other assets acquired (18,622)
Fair value of liabilities assumed 23,708
Goodwill (1,894)
-----------
Cash paid for purchase of Fontana First National Bank $ (5,043)
National Bank ===========
Purchase of Western Industrial National Bank:
Cash and cash equivalents acquired $ (16,595)
Fair value of other assets acquired (36,375)
Fair value of liabilities assumed 44,150
Goodwill (5,977)
---------
Cash paid for purchase of Western Industrial
National Bank $ (14,797)
=========
CVB FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------
For the Six months ended June 30, 1994 and 1993
1. Summary of Significant Accounting Policies. See note 1 of the Notes to
Consolidated Financial Statements in CVB Financial Corp.'s 1993 Annual
Report. Goodwill resulting from purchase accounting treatment of acquired
banks is amortized straight line over 15 years.
2. Certain reclassifications have been made in the 1993 financial information
to conform to the presentation used in 1994.
3. In the ordinary course of business, CVB Financial Corp. enters into
commitments to extend credit to its customers. These commitments are not
reflected in the accompanying consolidated financial statements. As of
June 30, 1994, the Company had entered into commitments with certain
customers amounting to $43.3 million compared to $61.5 million at December
31, 1993. Letters of credit at June 30, 1994 and December 31, 1993 were
$7.2 million.
4. The interim consolidated financial statements are unaudited and reflect all
adjustments and reclassifications which, in the opinion of management, are
necessary for a fair statement of the results of operations and financial
condition for the interim period. All adjustments and reclassifications
are of a normal and recurring nature. Results for the period ending June
30, 1994 are not necessarily indicative of results which may be expected
for any other interim period or for the year as a whole.
5. The actual number of shares outstanding at June 30, 1994 was 7,299,166.
Earnings per share are calculated on the basis of the weighted average
number of shares outstanding during the quarter plus shares issuable upon
the assumed exercise of outstanding common stock options. The number of
shares used in the calculation of earnings per share was 7,646,922 and
7,750,546 for the six and three month periods ended June 30, 1994 and
7,507,469 and 7,483,264 for the six and three month periods ended June
30,1993. All 1993 per share information in the financial statements and in
management's discussion and analysis has been restated to give retroactive
effect to the 10% stock dividend declared on December 15, 1993.
6. Supplemental cash flow information. During the six-month period ending
June 30, 1994, loans amounting to $4.0 million were transferred to Other
Real Estate Owned ("OREO") as a result of foreclosure on the
collateralizing real properties. OREO sold during the six-month period
ended June 30, 1994 with financing substantially provided by Chino Valley
Bank, amounted to $1.2 million.
CVB FINANCIAL CORP. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
Management's discussion and analysis is written to provide greater insight
into the results of operations and the financial condition of CVB Financial
Corp. and its subsidiaries. Reference should be made to the financial
statements included in this report and in the Company's 1993 annual report for a
more complete understanding of CVB Financial Corp. and its operations.
Throughout this discussion, "Company" refers to CVB Financial Corp. and its
subsidiaries as a consolidated entity. "CVB" refers to CVB Financial Corp. as
the unconsolidated parent company, and "Bank" refers to Chino Valley Bank.
The Company adopted SFAS No. 115 as of January 1, 1994. Under the new
accounting rules securities which the Company has classified as available for
sale are reported at current market value with an adjustment net of taxes to
shareholders' equity. The adoption resulted in a $3.6 million decrease in
stockholder's equity net of $2.5 million of applicable income taxes. (See
Investment Securities and Debt Securities Available-for-Sale)
On November 16, 1993, the Company executed a definitive agreement and plan
of reorganization with Western Industrial National Bank. The agreement provided
for the Company to acquire Western Industrial National Bank through a merger of
the Bank and Western Industrial National Bank. The acquisition was consummated
on June 26, 1994 for a purchase price of $14.8 million. At the date of
acquisition, Western Industrial National Bank held total assets of approximately
$53.0 million, total deposits of approximately $43.5 million and total
shareholders' equity of approximately $9.0 million. Actual balances of assets
acquired and liabilities assumed from the acquisition Western Industrial
National Bank are included in the Company's financial statements at June 30,
1994. Average balances for the three and six months ended June 30, 1994,
include only 4 days of the acquired assets and liabilities.
On July 8, 1994, the Bank entered into an Insured Deposit Purchase and
Assumption Agreement (the "Agreement") with the Federal Deposit Insurance
Corporation ("FDIC") in its capacity as receiver for Pioneer Bank, Fullerton,
California ("Pioneer"). Pursuant to the Agreement, the Bank assumed an
aggregate of approximately $59.0 million in deposits of the former Pioneer Bank.
The Bank acquired certain assets of Pioneer Bank that included approximately
$1.5 million in loans, $3.0 million in federal funds sold and $5.2 million in
investment securities. The Bank received from the FDIC approximately $48.5
million in cash. The Bank has agreed to provide full service banking in the
trade area of Pioneer Bank and is currently occupying Pioneer's branch office
with an option to lease this facility. In addition, the Bank has the option to
purchase from the FDIC certain loans and other assets of the former Pioneer
Bank.
RESULTS OF OPERATIONS
The Company reported net earnings of $2,430,000, for the three months
ended June 30, 1994, and $4,651,000 for the six months ended June 30, 1994.
This represented an increase of $115,000, or 4.9%, over net earnings $2,316,000,
for the three months ended June 30, 1993, and an increase of $164,000, or 3.7%,
over earnings of $4,487,000 for the six months June 30, 1993. Earnings per
share increased from $0.31, to $0.32, and from $0.60 to $0.61, for the three and
six months ended June 30, 1993 and 1994, respectively.
The return on average assets decreased from 1.48% for the six months
ended June 30, 1993, to 1.34% for the six months ended June 30, 1994. The
return on average equity decreased from 16.69% for the six months ended
June 30, 1993, to 15.50% for the six months ended June 30, 1994. The
return on average assets during the quarter ended June 30, 1994 was 1.39%
and the return on average equity was 16.19%. During the second quarter
of 1993, the return on average assets was 1.50% and the return on average
equity was 16.96%
Pre-tax operating earnings, which exclude the impact of gains or losses on
sale of securities and OREO and provisions for losses on loans and OREO,
increased from $8,099,000 for the six months ended June 30, 1993, to $8,557,000
for the six months ended June 30, 1994, an increase of $458,000, or 5.7%. This
increase is attributable to the increase in the volume of average interest
earning assets for 1994 compared to 1993.
NET INTEREST INCOME/NET INTEREST MARGIN
The principal component of the Company's earnings is net interest income
which is the difference between interest and fees earned on loans and
investments and interest paid on deposits and other borrowings. When the net
interest income is expressed as a percentage of average earning assets, the
result is the net interest margin. The net interest spread ("NIS") is the yield
on average earning assets minus the average cost of interest-bearing funds.
Net interest income increased from $8.8 million for the three months ended
June 30, 1993, to $9.9 million for the three months ended June 30, 1994, an
increase of $1.1 million, or 12.9%. Net interest income increased from $17.2
million for the six months ended June 30, 1993, to $19.3 million for the six
months ended June 30, 1994, an increase of $2.1 million, or 12.3%. The
increase in net interest income for both the three month and six months period
was the result of increased volume of earning assets. For the six months ended
June 30, 1994, the net interest margin totaled 6.37%, down from 6.46% for the
same six month period for 1993. The net interest spread decreased from 5.73%
for the six months ended June 30, 1993, to 5.56% for the six months ended June
30, 1994.
For the quarter ended June 30, 1994, the net interest margin was 6.49%
compared to 6.50% during the same period last year. The net interest spread
decreased from 5.77% for the three months ended June 30, 1993, to 5.70% for
the three months ended June 30, 1994.
Interest income on average earning assets increased despite a decrease in
the average yield on investments. Interest and fee income from loans increased
from $17.5 million for the six months ended June 30, 1993, to $19.6 million for
the six months ended June 30, 1994, an increase of $2.1 million, or 12.0%. The
increase was the result of increased volume of average loans as yield on average
loans remained 8.8% for the two six month periods. Interest income from
investment securities decreased from $4.7 million for the six months ended June
30, 1993, to $4.6 million for the six months ended June 30, 1994. Yield on
average investments decreased from 7.1% for the six months ended June 30, 1993,
to 5.5% for the six months ended June 30, 1994, offsetting an increase in
average investments from $133.4 million for the first half of 1993, compared to
average investments of $167.2 million for the first half of 1994.
Interest expense decreased from $5.1 million for the six months ended June
30, 1993, to $5.0 million for the six months ended June 30, 1994, despite an
increase in average deposits of $75.3 million, or 13.9%. The decrease resulted
as the cost of average deposits decreased from 1.87% for the six months ended
June 30, 1993, to an average cost of 1.59% for the six months ended June 30,
1994.
Table 1 shows the average balances of assets, liabilities, and
stockholders' equity and the related interest income, expense, and rates for the
six month periods ended June 30, 1994 and 1993. Rates for tax-preferenced
investments are shown on a taxable equivalent basis using a 34.25% tax rate.
Table 2 summarizes the changes in interest income and interest expense based on
changes in average asset and liability balances (volume) and changes in average
rates (rate). For each category of earning assets and interest-bearing
liabilities, information is provided with respect to changes attributable to (1)
changes in volume (change in volume multiplied by initial rate), (2) changes in
rate (change in rate multiplied by initial volume) and (3) changes in
rate/volume (change in rate multiplied by change in volume).
TABLE 1 - DISTRIBUTION OF AVERAGE ASSETS, LIABILITIES,
AND STOCKHOLDERS' EQUITY; INTEREST RATES AND INTEREST DIFFERENTIALS
(amounts in thousands)
SIX-MONTH PERIODS
ENDED JUNE 30,
1994 1993
Average Average
ASSETS Balance Interest Rate Balance Interest Rate
Investment Securities
Taxable $ 159,997 4,480 5.60% $ 130,413 4,658 7.14%
Tax preferenced 7,171 174 6.82% 2,997 47 4.44%
Federal Funds Sold & Interest-bearing
deposits with other financial institutions 6,072 96 3.16% 9,342 139 2.98%
Net Loans 436,323 19,638 9.00% 390,965 17,531 8.97%
---------- -------- ------ -------- -------- -----
Total Earnings Assets 609,563 24,388 8.02% 533,717 22,375 8.39%
Total Non-earning Assets 82,647 71,262
---------- --------
Total Assets $ 692,210 $ 604,979
========== ========
LIABILITIES AND STOCKHOLDERS'
EQUITY
Demand Deposits $ 214,891 $ 160,599
Savings Deposits 303,293 3,259 2.15% 284,548 3,345 2.35%
Time Deposits 96,158 1,615 3.36% 93,917 1,682 3.58%
---------- -------- ------ -------- -------- -----
Total Deposits 614,342 4,874 1.59% 539,064 5,027 1.87%
---------- -------- ------ -------- -------- -----
Other Borrowings 11,212 168 3.00% 8,941 118 2.64%
---------- -------- ------ -------- -------- -----
Interest-Bearing Liabilities 410,663 5,042 2.46% 387,406 5,145 2.66%
---------- -------- ------ -------- -------- -----
Other Liabilities 6,653 3,217
Stockholders' Equity 60,003 53,757
---------- --------
Total Liabilities and
Stockholders' Equity $ 692,210 $ 604,979
Net interest spread 5.56% 5.73%
Net interest margin 6.37% 6.46%
Yields are calculated on a taxable equivalent basis.
Loan fees are included in total interest income as follows: 1994, $1,159; 1993, $1,340.
Nonperforming loans are included in net loans as follows: 1994, $17,414; 1993, $13,840.
Includes interest-bearing demand and money market accounts.
TABLE 2 - RATE AND VOLUME ANALYSIS FOR CHANGES IN INTEREST
INCOME, INTEREST EXPENSE AND NET INTEREST INCOME
(amounts in thousands)
Comparison of six-month period
ended June 30, 1994 and 1993
Increase (decrease) in interest income
or expense due to changes in
Rate/
Volume Rate Volume Total
Interest Income:
Taxable investment securities 1,057 (1,007) (228) (178)
Tax preferenced securities 67 25 35 127
Federal funds sold & interest bearing
deposits with other institutions (49) 9 (3) (43)
Loans 2,033 66 8 2,107
------- ------- ------- -------
Total earnings assets 3,108 (907) (188) 2,013
------- ------- ------- -------
Interest Expense:
Savings deposits 220 (287) (19) (86)
Time deposits 40 (104) (3) (67)
Other borrowings 30 16 4 50
------- ------- ------- -------
Total interest-bearing liabilities 290 (375) (18) (103)
------- ------- ------- -------
Net Interest Income 2,818 (532) (170) 2,116
======= ======= ======= ======
The net interest spread and the net interest margin are largely
affected by the Company's ability to reprice assets and liabilities as interest
rates change. At June 30, 1994, the Bank's 90 days or less maturity/repricing
gap was a negative $26.3 million as compared to a positive $25.9 million at
December 31, 1993. Generally, a negative gap produces a higher net interest
margin and net interest spread when rates fall and a lower net interest margin
and net interest spread when rates rise. However, as interest rates for
different asset and liability products offered by the Bank respond differently
to changes in interest rate environment, gap analysis is only a general
indicator of interest rate sensitivity.
CREDIT LOSS EXPERIENCE
The Company maintains an allowance for potential credit losses that is
increased by a provision for credit losses charged against operating results and
recoveries on loans previously charged off, and reduced by actual loan losses
charged to the allowance. The provision for loan losses was $150,000 for the
six months ended June 30, 1994, compared to a provision of $795,000 for the six
months ended June 30, 1993. Loans charged to the allowance, net of recoveries
totaled $201,000 for the six months ended June 30, 1994, compared to $559,000
for the same period last year. At June 30, 1994, the allowance for credit
losses totaled $9.9 million, or 2.1% of total loans, compared to an allowance
of $6.9 million, or 1.6% of total loans, at June 30, 1993.
While management believes that the allowance was adequate at June 30, 1994
to absorb losses from any known or inherent risks in the portfolio, no assurance
can be given that economic conditions which adversely affect the Company's
service areas or other circumstances will not be reflected in increased
provisions or credit losses in the future. Table 3 shows comparative
information on net credit losses, provisions for credit losses, and the
allowance for credit losses.
TABLE 3 - Summary of Credit Loss Experience
(amounts in thousands)
Six months
ended June 30,
1994 1993 1992 1991 1990 1989
Amount of Total Loans at End of Period 482,396 450,933 381,123 370,837 367,849 347,593
Average Total Loans Outstanding 444,935 416,984 368,452 362,457 361,241 291,476
Allowance for Credit Losses at Beginning of Period 8,849 6,461 5,263 5,092 5,037 3,713
Loans Charged-Off:
Real Estate Loans 0 530 120 154 7 0
Commercial and Industrial 167 334 452 282 548 142
Consumer Loans 70 154 115 42 85 105
------- ------- ------- ------- ------- -------
Total Loans Charged-Off 237 1,018 687 478 640 247
------- ------- ------- ------- ------- -------
Recoveries:
Real Estate Loans 0 0 0 0 0 0
Commercial and Industrial 23 57 94 15 101 98
Consumer Loans 13 42 19 30 49 59
------- ------- ------- ------- ------- -------
Total Loans Recovered 36 99 113 45 150 157
------- ------- ------- ------- ------- -------
Net Loans Charged-Off 201 919 574 433 490 90
------- ------- ------- ------- ------- -------
Provision Charged to Operating Expense 150 1,720 1,772 603 545 1,414
------- ------- ------- ------- ------- -------
Adjustment Incident to Mergers 1,125 1,587
------- -------
Allowance for Credit Losses at End of period 9,923 8,849 6,461 5,262 5,092 5,037
======= ======= ======== ======= ======== =======
Net Loans Charged-Off to Average Total Loans 0.09% 0.22% 0.16% 0.12% 0.14% .03%
Net Loans Charged-Off to Total Loans at End of Period 0.08% 0.20% 0.15% 0.12% 0.13% .03%
Allowance for Credit Losses to Average Total Loans 2.23% 2.12% 1.75% 1.45% 1.41% 1.73%
Allowance for Cr. Losses to Total Loans at End of Period 2.06% 1.96% 1.70% 1.42% 1.38% 1.45%
Net Loans Charged-Off to allowance for Credit Losses 4.05% 10.39% 8.88% 8.23% 9.62% 1.79%
Net Loans Charged-Off to Provision for Credit Losses 134.00% 53.43% 32.39% 71.69% 89.91% 6.36%
Net Loan Charge-Off amounts are annualized.
OTHER OPERATING INCOME
Other operating income includes service charges on deposit accounts, gain
on sale of securities, gross revenue from Community Trust Deed Services, the
Company's non bank subsidiary, and other revenues not derived from interest on
earning assets. Other operating income, excluding gains on sales of securities
and OREO, for the six months ended June 30, 1994 was $3.3 million, compared to
the $3.3 million in other operating income for the same period last year. Other
operating income for the six months ended June 30, 1993 included $2.3 million in
gains realized from the sale of securities. For the six months ended June 30,
1994, other operating income includes a loss on the sale of securities of
$128,000.
OTHER OPERATING EXPENSES
Other operating expenses decreased from $14.8 million for the six months
ended June 30, 1993, to $14.7 million for the six months ended June 30, 1994.
Other operating expenses for 1993 included $2,325,000 as a provision for
possible losses on other real estate owned (OREO), compared to a provision for
the six months ended June 30, 1994 of $550,000. Excluding provisions for
possible losses on other real estate owned ("OREO"), total other operating
expenses for the six months ended June 30, 1994 and 1993 were $14,123,000 and
$12,455,000, respectively, an increase of $1,668,000, or 13.39%. Such
allowances reduce the possibility that the Company will experience additional
losses on the ultimate disposition of the properties. However, a further
decline in prices in southern California real estate may cause the Company to
increase its valuation allowance in the future. Note 1 of the financial
statements included in the Company's 1993 annual report describes the Company's
accounting for OREO. As a percent of average assets, other operating expenses
decreased from 4.8% for the six months ended June 30, 1993 to 4.2% for the six
months ended June 30, 1994.
BALANCE SHEET ANALYSIS
At June 30, 1994 total assets were $766.3 million, representing an increase
of $78.9 million or 11.47% from total assets of $687.4 million at December 31,
1993. Total deposits of $670.9 million at June 30, 1994, increased $74.9
million, or 12.57%, from $596.0 million at December 31, 1993. Net loans
increased $30.4 million, or 6.87%, from $442.1 million at December 31, 1993 to
$472.4 million at June 30, 1994.
INVESTMENT SECURITIES AND DEBT SECURITIES AVAILABLE-FOR-SALE
In May 1992, the Financial Accounting Standards Board adopted
Statement of Financial Accounting Standards No. 115, "Accounting for Certain
Investments and Debt and Equity Securities" (SFAS 115"). The Company adopted
SFAS 115 in the first quarter of 1994. Under the new rules, securities
"available for sale" are carried at their market values and changes in the
securities' market values, net of taxes, are recorded to equity capital. The
Company recorded a decrease in equity capital of $3.6 million, net of $2.5
million of applicable income taxes during the six months ended June 30, 1994.
Note 1 to the financial statements in the Company's 1993 Annual Report discusses
its current accounting policy.
Table 4 sets forth investment securities held-to-maturity
and available-for-sale, at June 30, 1994 and December 31, 1993.
TABLE 4 - COMPOSITION OF SECURITIES PORTFOLIO
(amounts in thousands)
June 30, 1994 December 1, 1993
Amortized Market Net Unreal- Yield Amortized Market Net Unreal- Yield
Cost Value ized Gain/ Cost Value ized Gain/
(Loss) (Loss)
U.S. Treasury securities
Available for Sale 37,665 37,695 30 6.05% 32,923 34,262 1,339 7.70%
FHLMC, FNMA CMO's, REMIC's
and mortgage-backed pass-through securities
Available for Sale 106,812 100,994 (5,818) 5.47% 92,442 92,111 (331) 5.46%
Held to Maturity 9,635 8,807 (828) 5.61% 0 0 0
Government Agency Fund
Available for Sale 0 0 0 15,000 15,005 5 4.50%
Other Government Agency Securities
Available for Sale 10,655 10,268 (387) 4.66% 0 0 0 0.0%
GNMA mortgage-backed pass-through securities
Available for Sale 0 0 0 2,750 2,995 245 8.29%
Held to Maturity 1,843 1,946 103 8.29% 0 0 0
Tax-exempt Municipal Securities
Available for Sale 0 0 0 5,857 5,964 107 4.90%
Held to Maturity 8,219 7,953 (266) 4.95% 0 0 0
Other securities
Available for Sale 126 126 0 6.00% 547 547 0 7.81%
Held to Maturity 590 590 0 7.62% 0 0 0
-------------------------------------- ----------------------------------------
175,545 168,379 (7,166) 5.57% 149,519 150,884 1,365 5.90%
======================================= ========================================
LOANS COMPOSITION AND NONPERFORMING ASSETS
Table 5 sets forth the distribution of the loan portfolio by type as
of the dates indicated (amounts in thousands):
TABLE 5 - DISTRIBUTION OF LOAN PORTFOLIO BY TYPE
June 30, December 31,
1994 1993
Commercial and Industrial (1) $333,500 $282,177
Real Estate:
Construction 27,087 56,358
Mortgage 82,777 79,929
Consumer, net of discount 19,060 12,517
Lease finance receivables 22,043 21,556
-------- --------
Gross Loans $484,467 $452,537
Less:
Allowance for credit losses 9,923 8,849
Deferred net loan fees 2,071 1,604
-------- --------
Net loans $472,473 $442,084
======== =========
(1) Includes $210.0 and $188.5 million of loans for which the
Company holds real property as collateral at June 30, 1994 and December 31,
1993, respectively.
As set forth in Table 6, nonperforming assets (nonaccrual loans,
loans 90 days or more past due, restructured loans, and other real estate owned)
totaled $30.0 million, or 3.92% of total assets, at June 30, 1994. This
compares to $23.0 million, or 3.35% of total assets, at December 31, 1993, an
increase of $7.0 million or 30.4 % between the two periods. Although
management believes that nonperforming loans are generally well secured and that
potential losses are reflected in the allowance for credit losses, there can be
no assurance that the continued deterioration in economic conditions or
collateral values will not result in future credit losses.
TABLE 6 - NONPERFORMING ASSETS
June 30,1994 December 31, 1993
Nonaccrual loans $ 9,252 $ 12,492
Loans past due 90 days or more
and still accruing interest 335 -0-
Restructured loans 7,827 770
Other real estate owned (OREO), net 12,621 9,768
--------- ---------
Total nonperforming assets $ 30,035 $23,030
========= =========
Percentage of nonperforming assets
to total loans outstanding & OREO 6.07% 5.00%
Percentage of nonperforming
assets to total assets 3.92% 3.35%
At June 30, 1994, nonaccrual loans were $9.3 million, down from $12.5
million at December 31, 1993. All nonaccrual loans were collateralized by real
property at June 30, 1994. The estimated ratio of the outstanding loan balances
to the fair values of related collateral (loan-to-value ratio) for nonaccrual
loans at that date ranged from approximately 25% to 90%. The Bank has allocated
specific reserves to provide for any potential loss on these loans. Management
cannot, however, predict the extent to which the current economic environment
may persist or worsen or the full impact such environment may have on the
Company's loan portfolio.
DEPOSITS AND OTHER BORROWINGS
Total deposits increased to $670.9 million at June 30, 1994, from $596.0
million at December 31, 1993, an increase of $74.9 million, or 12.57%. For
the six months ended June 30, 1994, noninterest-bearing deposits averaged 35.0%
of total deposits, compared to 29.8% for the same six month period last year.
Noninterest-bearing deposits were $236.6 million, $221.6 million and $181.9
million at June 30, 1994, December 31, 1993 and June 30, 1993, respectively.
Savings deposits (money market, savings and interest-bearing checking) increased
$40.3 million during the first six months of 1994. Savings deposits averaged
49.4% of total deposits during the first six months of 1994 compared to 52.8%
for the first six months of 1993. Time deposits increased by $19.5 million
during the first six months of 1994. For the six months ended June 30, 1994,
time deposits averaged 15.7% of total deposits, down from 17.4% during the same
period in 1993.
LIQUIDITY
The 1993 annual report describes the Company's principal sources of
liquidity, liquidity management objectives and liquidity measurements.
There are several accepted methods of measuring liquidity. Since
the balance between loans and deposits is integral to liquidity, the Company
monitors its loan-to-deposit ratio (gross loans divided by total deposits) as an
important part of its liquidity management. In general, the closer this ratio
is to 100%, the more reliant an institution becomes on its illiquid loan
portfolio to absorb fluctuations in deposits. At June 30,1994, the Company's
loan-to-deposit ratio was 71.9% compared to 75.7% at December 31, 1993.
Another method used to measure liquidity is the liquidity ratio.
This ratio is calculated by dividing the difference between short-term liquid
assets (federal funds sold and investments maturing within one year) and large
liabilities (time deposits over $100,000 maturing within one year, federal funds
purchased, and other borrowed funds) by the sum of loans and long-term
investments. As of June 30, 1994 the ratio was a negative 9.3% as compared to a
negative 2.7% at December 31, 1993. Conceptually, this shows that the Company
was funding a modest 9.3% and 2.7% of its long-term, illiquid assets with large
liabilities at these dates respectively.
On July 8, 1994, CVB purchased from the FDIC a commercial office
building located in the city of Brea, California. The purchase price was $1.5
million. The ground floor suite of the building is currently occupied as the
Brea office of the Bank. The Bank will lease the office from CVB. The building
is also occupied by two accounting firms with no relation to the Bank or CVB
other than as tenants. The funds for the purchase price of the building were
obtained by CVB through a dividend from the Bank.
On June 24, 1994, the acquisition of Western Industrial National Bank and
merger of Western Industrial National Bank into the Bank was consummated. The
purchase price was $14.8 million. CVB obtained the funds for the acquisition
through a dividend received from the Bank.
CAPITAL RESOURCES
The Company's equity capital was $59.9 million at June 30, 1994. The
primary source of capital for the Company continues to be the retention of
operating earnings. The Company's 1993 annual report (management's discussion
and analysis and note 12 of the accompanying financial statements) describes the
regulatory capital requirements of the Company and the Bank.
Table 7 below presents the Company's and the Bank's risk-based and
leverage capital ratios as of June 30, 1994 and December 31, 1993:
TABLE 7 - REGULATORY CAPITAL RATIOS
REQUIRED
MINIMUM JUNE 30, 1994 DECEMBER 31,1993
CAPITAL RATIOS RATIOS COMPANY BANK COMPANY BANK
Risk-based Capital Ratios:
Tier I 4.00% 9.8% 9.4% 11.8% 11.7%
Total 8.00% 11.1% 10.7% 13.1% 13.0%
Leverage Ratio 3.00% 7.4% 7.1% 8.4% 8.3%
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
Not Applicable
Item 2 - Changes in Securities
Not Applicable
Item 3 - Defaults upon Senior Securities
Not Applicable
Item 4 - Submission of Matters to a Vote of Security Holders
The Annual Meeting of Shareholders of CVB Financial Corp. was held May
18, 1994. At the meeting, the following individuals were elected to
serve as the Company's Board of Directors until the 1994 Annual
Meeting of Shareholders and until their successors are elected and
have qualified:
Authority
For Withheld
George A. Borba 6,299,848 4,264
John A. Borba 6,299,606 4,506
Ronald O. Kruse 6,299,848 4,264
John J. LoPorto 6,299,848 4,264
Charles M. Magistro 6,299,848 4,264
John Vander Schaaf 6,299,606 4,506
D. Linn Wiley 6,299,606 4,506
The appointment of Deloitte and Touche as independent public
accountants of the Company for the year ended December 31, 1994 was
ratified at the 1994 annual meeting of shareholders by the following:
6,285,186 shares voted for
3,677 shares voted against
15,249 shares abstained
Item 5 - Other Information
Not Applicable
Item 6 - Exhibits and Reports on Form 8-K
Not Applicable
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CVB FINANCIAL CORP.
(Registrant)
Date: August 11, 1994
/s/ Robert J. Schurheck
-----------------------
Robert J. Schurheck
Chief Financial Officer