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 September 30, 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 September 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 incorporation (I.R.S. Employer
or organization) Identification No.)
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 Exchange Act of 1934
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: 7,324,545 outstanding as of
November 9, 1994
This Form 10-Q contains 20 pages.
PAGE 1
PART I - FINANCIAL INFORMATION
CVB FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
dollar amounts in thousands
September 30, December 31,
1994 1993
------------ ------------
(unaudited)
ASSETS
Investment securities held-to-maturity
(market values of $18,766 and $9,506) $ 20,050 $ 9,154
Investment securities available-for-sale
(market values of $178,143 and $141,378) 178,143 140,365
Federal funds sold and interest-bearing
deposits with other financial institutions 5,693 15,497
Loans and lease finance receivables, net 478,738 442,084
------- -------
Total earning assets 682,624 607,100
Cash and due from banks 67,671 45,356
Premises and equipment, net 12,481 9,066
Other real estate owned, net 13,318 9,768
Goodwill 9,277 2,037
Other assets 14,891 14,081
------- -------
$800,262 $687,408
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Noninterest-bearing $263,532 $221,553
Interest-bearing 459,445 374,404
------- -------
722,977 595,957
Demand note issued to U.S. Treasury 8,876 14,205
Long-term capitalized lease 499 512
Other liabilities 6,027 16,777
------- -------
738,379 627,451
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
7,324,061 and 7,274,582) 21,086 20,619
Retained earnings 45,130 39,338
Net unrealized gains(losses) on investment
securities available-for-sale (4,333) 0
-------- -------
61,883 59,957
-------- -------
$800,262 $687,408
======= =======
See accompanying notes to the consolidated financial statements.
PAGE 2
CVB FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(unaudited)
dollar amounts in thousands, except per share
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
1994 1993 1994 1993
Interest income:
Loans, including fees $11,696 $ 9,472 $31,334 $27,003
Investment securities:
Taxable 2,738 1,739 7,218 6,420
Tax-advantaged 99 41 273 89
-------- ------ ------ ------
2,837 1,780 7,491 6,509
Federal funds sold and
interest bearing deposits with
other financial institutions 245 122 341 237
------ ------ ------ ------
14,778 11,374 39,166 33,749
Interest expense:
Deposits 2,927 2,256 7,801 7,283
Other borrowings 207 65 375 183
------ ------ ------ ------
3,134 2,321 8,176 7,466
------ ------ ------ ------
Net interest income 11,644 9,053 30,990 26,283
Provision for credit losses 200 450 350 1,245
------ ------ ------ ------
Net interest income after
provision for credit losses 11,444 8,603 30,640 25,038
Other operating income:
Service charges on deposit
accounts 1,675 1,269 4,360 3,815
(Losses) Gains on sale of
investment securities 0 1,411 (128) 3,690
Gains on sale of other
real estate owned (11) 0 (6) 0
Other 510 646 1,159 1,424
------ ------ ------ ------
2,174 3,326 5,385 8,929
Other operating expenses:
Salaries and employee benefits 4,231 3,699 11,561 10,616
Deposit insurance premiums 360 300 983 876
Occupancy 829 561 2,033 1,580
Equipment 513 406 1,429 1,118
Provision for losses on
other real estate owned 500 355 1,050 2,680
Other 2,155 2,395 6,205 5,626
------- ------ ------ ------
8,588 7,716 23,261 22,496
------- ------ ------ ------
Earnings before income taxes 5,030 4,213 12,764 11,471
Provision for income taxes 2,131 1,723 5,214 4,494
------- ------ ------ ------
Net earnings $ 2,899 $2,490 $7,550 $6,977
======= ====== ====== ======
Earnings per common share $ 0.38 $ 0.33 $ 0.99 $ 0.93
======= ====== ====== ======
Cash dividends per common share $ 0.08 $ 0.07 $ 0.24 $ 0.22
======= ====== ====== ======
See accompanying notes to the consolidated financial statements.
Page 3
CVB FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
dollar amounts in thousands
For the Nine Months
Ended September 30,
1994 1993
-------- -------
CASH FLOWS FROM OPERATING ACTIVITIES:
Interest received $ 36,757 $ 33,382
Service charges and other fees received 5,513 5,239
Interest paid (7,876) (7,475)
Cash paid to suppliers and employees (23,464) (19,608)
Income taxes paid (3,676) (5,134)
--------- --------
7,254 6,404
--------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from the sale of investment securities 51,312 68,069
Proceeds from the maturity of investment securities 56,603 29,701
Purchase of investment securities (158,974) (86,035)
Net (increase) decrease in loans 7,809 (38,622)
Loan origination fees received 2,315 1,957
Proceeds from sale of premises and equipment 30 24
Purchase of premises and equipment (4,545) (1,683)
Payment for purchase of Fontana First National Bank 0 (5,043)
Payment for purchase of
Western Industrial National Bank (14,797) 0
Cash received for purchase of Pioneer Bank 26,619 0
Other investing activities (7,851) (163)
--------- --------
(41,479) (31,795)
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase(decrease) in transaction deposits 6,906 19,725
Net increase(decrease) in time deposits 23,870 (6,660)
Net increase(decrease) in short-term borrowings (5,342) 1,625
Dividends paid (1,758) (1,582)
Exercise of stock options 466 460
-------- ------
24,142 13,568
-------- ------
NET INCREASE(DECREASE) IN CASH AND CASH EQUIVALENTS (10,083) (11,823)
CASH AND CASH EQUIVALENTS, beginning of year 60,853 71,229
------ -------
CASH AND CASH EQUIVALENTS BEFORE ACQUISITIONS 50,770 59,406
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 RECEIVED IN THE PURCHASE OF
PIONEER BANK 5,999
-------- -------
CASH AND CASH EQUIVALENTS, September 30, $ 73,364 $67,641
======== =======
See accompanying notes to the consolidated financial statements.
Page 4
CVB FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
dollar amounts in thousands
For the Nine Months
Ended September 30,
1994 1993
-------- -------
RECONCILIATION OF NET EARNINGS TO NET CASH PROVIDED BY
OPERATING ACTIVITIES:
Net earnings $ 7,550 $ 6,977
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Loss (Gain) on sale of investment securities 128 (3,690)
Amortization of premiums on investment securities 277 557
Provision for loan and OREO losses 1,400 3,925
Accretion of deferred loan fees and costs (1,443) (1,246)
Loan origination costs capitalized (2,098) (1,170)
Depreciation and amortization 1,098 805
Change in accrued interest receivable (1,243) 321
Change in accrued interest payable 300 (9)
Change in other assets and liabilities 1,285 (66)
------- --------
(296) (573)
------- --------
$ 7,254 $ 6,404
======= =======
Supplemental Schedule of Noncash Investing and Financing Activities
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)
=========
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)
==========
Purchase of Pioneer Bank:
Cash and cash equivalents acquired $ (5,999)
Fair value of other assets acquired (19,007)
Fair value of liabilities assumed 52,925
Goodwill (1,300)
---------
Cash received for purchase of Pioneer Bank $ 26,619
========
Page 5
CVB FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------
For the Nine months ended September 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
September 30, 1994, the Company had entered into commitments with certain
customers amounting to $52.9 million compared to $61.5 million at December 31,
1993. Letters of credit at September 30, 1994 and December 31, 1993 were $7.9
million and $7.2 million, respectively.
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 September 30, 1994
are not necessarily indicative of results which may be expected for ny other
interim period or for the year as a whole.
5. The actual number of shares outstanding at September 30, 1994 was
7,324,061. 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 7,630,252 and 7,597,456
for the nine and three month periods ended September 30, 1994 and 7,552,686 and
7,641,645 for the nine and three month periods ended September 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 nine-month period ended
September 30, 1994, loans amounting to $7.7 million were transferred to Other
Real Estate Owned ("OREO") as a result of foreclosure on the real properties
held as collateral. OREO sold during the nine-month period ended September 30,
1994, amounted to $1.8 million.
PAGE 6
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.
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 had the option to
purchase from the FDIC certain loans and other assets of the former Pioneer
Bank. Subsequent to July 8, 1994, the Bank purchased approximately $12.3
million in loans from the FDIC.
RESULTS OF OPERATIONS
The Company reported net earnings of $2,899,000, for the three months ended
September 30, 1994, and $7,550,000 for the nine months ended September 30, 1994.
This represented an increase of $409,000, or 16.4%, over net earnings
$2,490,000, for the three months ended September 30, 1993, and an increase of
$573,000, or 8.2%, over earnings of $6,977,000 for the nine months September 30,
1993. Earnings per share increased from $0.33, to $0.38, and from $0.93 to
$0.99, for the three and nine months ended September 30, 1993 and 1994,
respectively.
The return on average assets decreased from 1.52% for the nine months ended
September 30, 1993, to 1.39% for the nine months ended September 30, 1994. The
return on average equity decreased from 16.98% for the nine months ended
September 30, 1993, to 16.60% for the nine months ended September 30, 1994.
The return on average assets during the quarter ended September 30, 1994 was
1.47%, and the return on average equity was 18.93%. During the third quarter of
1993, the return on average assets was 1.60%, and the return on average equity
was 17.56%.
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 $11,707,000 for the nine months ended September 30, 1993, to
$14,297,000 for the nine months ended September 30, 1994, an increase of
$2,590,000, or 22.1%. This increase is attributable to the increase in the
volume of average interest earning assets for 1994 compared to 1993.
Page 7
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 $9.1 million for the three months ended
September 30, 1993, to $11.6 million for the three months ended September 30,
1994, an increase of $2.6 million, or 28.6%. Net interest income increased from
$26.3 million for the nine months ended September 30, 1993, to $31.0 million for
the nine months ended September 30, 1994, an increase of $4.7 million, or 17.9%.
The increase in net interest income for both the three month and nine months
period was the result of increased volume of earning assets. However, a change
in the mix of earning assets and a decrease in the yield on average investments
has resulted in a decrease in the net interest margin and the net interest
spread for the nine months ended September 30, 1994 compared to the same period
for 1993. During the nine months ended September 30, 1994, the net interest
margin totaled 6.54%, down from 6.59% for the same nine month period for 1993.
The net interest spread decreased from 5.85% for the nine months ended September
30, 1993, to 5.73% for the nine months ended September 30, 1994. For the
quarter ended September 30, 1994, the net interest margin was 6.84% compared to
6.74% during the same period last year. The net interest spread decreased from
5.99% for the three months ended September 30, 1993, to 5.97% for the three
months ended September 30, 1994.
Interest income from average earning assets increased despite a decrease in
the average yield on investments. Interest and fee income from loans increased
from $27.0 million for the nine months ended September 30, 1993, to $31.3
million for the nine months ended September 30, 1994, an increase of $4.3
million, or 16.0%. The increase was the result of increased volume of average
loans and an increase in the yield on average loans. Interest income from
investment securities increased from $6.5 million for the nine months ended
September 30, 1993, to $7.5 million for the nine months ended September 30,
1994.
Investments, as a percentage of average earning assets have increased from
23.1% for the nine months ended September 30, 1993, to 26.9% for the nine months
ended September 30, 1994. Yield on average investments decreased from 6.9% for
the nine months ended September 30, 1993, to 5.8% for the nine months ended
September 30, 1994, offsetting an increase in average investments from $125.5
million for the first nine months of 1993, compared to average investments of
$172.9 million for the same period of 1994.
Interest expense increased from $7.5 million for the nine months ended
September 30, 1993, to $8.2 million for the nine months ended September 30,
1994. The increase in interest expense resulted in part as average deposits
increased by $104.2 million, or 19.2%. Average interest bearing deposits
increased by $45.3 million or 43.5% of the total increase in average deposits.
Despite the increase in average interest bearing deposits, the cost of average
deposits decreased from 1.83% for the nine months ended September 30, 1993, to
an average cost of 1.69% for the nine months ended September 30, 1994. The
decrease in the cost of average deposits is attributable to changes in the
composition of average deposits. As a percentage of total deposits, demand
deposits averaged $226.3 million or 34.98% of total deposits during the nine
months ended September 30, 1994 versus an average of $167.3 million or 30.84% of
total deposits during the same period last year. Average savings deposits
totaled $316.2 million or 48.87% of total deposits during the first nine months
PAGE 8
of this year compared to $285.3 million or 52.58% of total deposits during the
same period in 1993. Average time deposits amounted to $104.5 million or 16.15%
of total deposits during the nine months ended September 30, 1994 compared to
$90.0 million or 16.58% of total deposits during the nine months ended September
30, 1993.
Table 1 shows the average balances of assets, liabilities, and stockholders'
equity and the related interest income, expense, and rates for the nine month
periods ended September 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).
PAGE 9
TABLE 1 - Distribution of Average Assets, Liabilities, and Stockholders' Equity;
Interest Rates and Interest Differentials
(amounts in thousands)
Nine-month periods ended September 30,
1994 1993
--------------------------- -----------------------
Average Average
ASSETS Balance Interest Rate Balance Interest Rate
--------------------------- -----------------------
Investment Securities
Taxable $ 165,398 7,218 5.82% $ 122,439 6,420 6.99%
Tax preferenced (1) 7,520 273 6.80% 3,051 89 5.46%
Federal Funds Sold &
Interest-bearing
deposits with other
financial institutions 11,414 341 3.98% 10,470 237 3.02%
Net Loans (2) (3) 450,173 31,334 9.28% 401,105 27,003 9.04%
-------------------------- -----------------------
Total Earnings Assets 634,505 39,166 8.25% 537,065 33,749 8.44%
Total Non-earning Assets 89,806 73,221
-------- -------
Total Assets $ 724,311 $ 610,286
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Demand Deposits $ 226,251 $ 167,348
Savings Deposits (4) 316,150 5,085 2.14% 285,319 4,914 2.30%
Time Deposits 104,475 2,716 3.47% 90,001 2,369 3.51%
------------------------ -----------------------
Total Deposits 646,876 7,801 1.61% 542,668 7,283 1.79%
------------------------ -----------------------
Other Borrowings 10,771 375 4.64% 9,474 183 2.58%
------------------------ -----------------------
Interest-Bearing
Liabilities 431,396 8,176 2.52% 384,794 7,466 2.59%
Other Liabilities 6,014 3,353
Stockholders' Equity 60,650 54,791
-------- -------
Total Liabilities and
Stockholders' Equity $ 724,311 $ 610,286
======= ========
Net interest spread 5.73% 5.85%
Net interest margin 6.54% 6.59%
(1) Yields are calculated on a taxable equivalent basis.
(2) Loan fees are included in total interest income as follows: 1994, $1,660;
1993, $2,034.
(3) Nonperforming loans are included in net loans as follows: 1994, $31,708;
1993, $23,346.
(4) Includes interest-bearing demand and money market accounts.
PAGE 10
TABLE 2 - Rate and Volume Analysis for Changes in Interest Income, Interest
Expense and Net Interest Income
(amounts in thousands)
Comparison of nine-month period
ended September 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 2,253 (1,077) (378) 798
Tax preferenced securities 130 22 32 184
Federal funds sold & interest
bearing deposits with other
institutions 21 76 7 104
Loans 3,304 915 112 4,331
------- ------ ------ ------
Total earnings assets 5,708 (64) (227) 5,417
------- ------- ------ ------
Interest Expense:
Savings deposits 530 (324) (35) 171
Time deposits 382 (30) (5) 347
Other borrowings 26 146 20 192
------ ------ ------ -----
Total interest-bearing
liabilities 938 (208) (20) 710
------ ------ ------ -----
Net Interest Income 4,770 144 (207) 4,707
====== ====== ====== =====
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 September 30, 1994, the Bank's 90 days or less maturity/repricing
gap was a negative $49 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 $350,000 for the
nine months ended September 30, 1994, compared to a provision of $1,245,000 for
the nine months ended September 30, 1993. Loans charged to the allowance, net
of recoveries totaled $669,000 for the nine months ended September 30, 1994,
compared to $814,000 for the same period last year. At September 30, 1994, the
allowance for credit losses totaled $9.7 million, or 1.98% of total loans,
compared to an allowance of $7.1 million, or 1.65% of total loans, at September
30, 1993. The decrease in provisions to the allowance for loan losses is
PAGE 11
attributable in part to the decline in non-accrual loans. Non-accrual loans
have declined from $12.5 million at December 31, 1993 to $10.6 million at
September 30, 1994, a decrease of $1.9 million or 15.2%. Table 6 presents
nonperforming assets (nonaccrual loans, loans 90 days or more past due,
restructured loans, and other real estate owned) as of December 31, 1993 and
September 30, 1994. As a result of acquisitions, the allowance for loan losses
increased. The Company acquired reserves of $1.1 million from the purchases of
Western Industrial National Bank.
While management believes that the allowance was adequate at September 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.
PAGE 12
TABLE 3 - Summary of Credit Loss Experience
(amounts in thousands)
Nine-months
ended September 30,
1994 1993 1992 1991 1990 1989
Amount of Total Loans at End of Period $488,393 $450,933 $381,123 $370,837 $367,849 $347,593
======== ================================================
Average Total Loans Outstanding $459,183 $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 261 530 120 154 7 0
Commercial and
Industrial 370 334 452 282 548 142
Consumer Loans 102 154 115 42 85 105
------- -----------------------------------------------
Total Loans Charged-Off 733 1,018 687 478 640 247
------- -----------------------------------------------
Recoveries:
Real Estate Loans 0 0 0 0 0 0
Commercial and Industrial 39 57 94 15 101 98
Consumer Loans 25 42 19 30 49 59
------ -----------------------------------------------
Total Loans Recovered 64 99 113 45 150 157
------ -----------------------------------------------
Net Loans Charged-Off 669 919 574 433 490 90
------ -----------------------------------------------
Provision Charged to Operating Expense 350 1,720 1,772 604 545 1,414
------- -----------------------------------------------
Adjustment Incident to Mergers 1,125 1,587 0 0 0 0
------- -----------------------------------------------
Allowance for Credit Losses at End
of period $ 9,655 $ 8,849 6,461 5,263 5,092 5,037
======= ===============================================
Net Loans Charged-Off to Average
Total Loans 0.19% 0.22% 0.16% 0.12% 0.14% 0.03%
Net Loans Charged-Off to Total Loans
at End of Period 0.18% 0.20% 0.15% 0.12% 0.13% 0.03%
Allowance for Credit Losses to Average
Total Loans 2.10% 2.12% 1.75% 1.45% 1.41% 1.73%
Allowance for Credit Lossess to Total
Loans at End of Period 1.98% 1.96% 1.70% 1.42% 1.38% 1.45%
Net Loans Charged-Off to allowance
for Credit Losses 9.24% 10.39% 8.88% 8.23% 9.62% 1.79%
Net Loans Charged-Off to Provision
for Credit Losses 191.14% 53.43% 32.39% 71.69% 89.91% 6.36%
Net Loan Charge-Off amounts are annualized.
Page 13
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 nine months ended September 30, 1994 was $5.5 million,
compared to the $5.2 million in other operating income for the same period last
year. Other operating income for the nine months ended September 30, 1993
included $3.7 million in gains realized from the sale of securities. For the
nine months ended September 30, 1994, other operating income includes a loss on
the sale of securities of $128,000.
Other Operating Expenses
Other operating expenses increased from $22.5 million for the nine months
ended September 30, 1993, to $23.3 million for the nine months ended September
30, 1994. Other operating expenses for 1993 included $2,680,000 as a provision
for possible losses on other real estate owned (OREO), compared to a provision
for the nine months ended September 30, 1994 of $1,050,000. Excluding
provisions for possible losses on other real estate owned ("OREO"), total other
operating expenses for the nine months ended September 30, 1994 and 1993 were
$22,211,000 and $19,816,000, respectively, an increase of $2,395,000, or 12.1%.
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 result of acquisitions, the Bank has increased the number of branches to
nineteen resulting in an increase in operating expenses. However, as a percent
of average assets, other operating expenses have decreased from 4.9% for the
nine months ended September 30, 1993 to 4.3% for the nine months ended September
30, 1994.
BALANCE SHEET ANALYSIS
At September 30, 1994 total assets were $800.3 million, representing an
increase of $112.9 million or 16.42% from total assets of $687.4 million at
December 31, 1993. Total deposits of $723.0 million at September 30, 1994,
increased $127.0 million, or 21.31%, from $596.0 million at December 31, 1993.
Net loans increased $36.7 million, or 8.29%, from $442.1 million at December 31,
1993 to $478.7 million at September 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 $4.3 million, net of $3.0 million of applicable income taxes
during the nine months ended September 30, 1994. Note 1 to the financial
statements in the Company's 1993 Annual Report discusses its current accounting
policy.
PAGE 14
Table 4 sets forth investment securities held-to-maturity and available-for-
sale, at September 30, 1994 and December 31, 1993.
Table 4 - Composition of Securities Portfolio
(amounts in thousands)
September 30, 1994 December 31, 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 59,308 58,892 (416) 5.85% 32,923 34,262 1,339 7.70%
FHLMC, FNMA CMO's, REMIC's
and mortgage-backed pass
- - -through securities
Available for Sale 114,642 108,123 (6,519) 5.65% 92,442 92,111 (331) 5.46%
Held to Maturity 9,343 8,421 (922) 5.61% 0 0 0.00%
Government Agency Fund
Available for Sale 0 0 0 15,000 15,005 5 4.50%
Other GovernmentAgency
Securities Available
for Sale 11,045 10,603 (442) 4.67% 0 0 0 0.00%
GNMA mortgage -backed
pass-through securities
Available for Sale 0 0 0 0 2,750 2,995 245 8.29%
Held to Maturity 1,857 1,937 80 8.29% 0 0 0
Tax-exempt Municipal
Securities
Available for Sale 0 0 0 0 5,857 5,964 107 4.90%
Held to Maturity 8,217 7,775 (442) 4.95% 0 0 0
Other securities
Available for Sale 525 525 0 N/A 547 547 0 7.81%
Held to Maturity 633 633 0 7.55% 0 0 0
------------------------------------ ---------------------------------------
205,570 196,909 (8,661) 5.64% 149,519 150,884 1,365 5.90%
==================================== =======================================
Note: "Amortized Cost" excludes mark-to-market adjustment required under SFAS 115. CVB Financial Corp. adpoted SFAS 115
as of January 1, 1994.
PAGE 15
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
September 30, December 31,
1994 1993
-------- --------
Commercial and Industrial (1) $319,569 $282,177
Real Estate:
Construction 26,383 56,358
Mortgage 107,347 79,929
Consumer, net of discount 16,140 12,517
Lease finance receivables 21,393 21,556
________ ________
Gross Loans $490,832 $452,537
Less:
Allowance for credit losses 9,655 8,849
Deferred net loan fees 2,439 1,604
________ ________
Net loans $478,738 $442,084
======== ========
(1) Includes $181.3 and $188.5 million of loans for which the Company holds real
property as collateral at September 30, 1994 and December 31, 1993,
respectively.
As a result of acquisitions and marketing efforts of the Bank, real estate
mortgage loans have increased since December 31, 1993. Real estate mortgage
loans were $70.4 million at March 31, 1994, $82.8 million at June 30, 1994 and
$107.3 million at September 30, 1994
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 $31.7
million, or 3.96% of total assets, at September 30, 1994. This compares to
$23.0 million, or 3.35% of total assets, at December 31, 1993, an increase of
$8.7 million or 37.7 % 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
September 30, 1994 December 31, 1993
Nonaccrual loans $10,588 $12,492
Loans past due 90 days or more
and still accruing interest 155 -0-
Restructured loans 7,647 770
Other real estate owned (OREO), net 13,318 9,768
_______ _______
Total nonperforming assets $31,708 $23,030
Percentage of nonperforming assets
to total loans outstanding & OREO 6.32% 5.00%
Percentage of nonperforming
assets to total assets 3.96% 3.35%
PAGE 16
At September 30, 1994, nonaccrual loans were $10.6 million, down from $12.5
million at December 31, 1993. The majority of nonaccrual loans were
collateralized by real property at September 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 $723.0 million at September 30, 1994, from $596.0
million at December 31, 1993, an increase of $127.0 million, or 21.3%. For
the nine months ended September 30, 1994, noninterest-bearing deposits averaged
34.9% of total deposits, compared to 30.8% for the same nine month period last
year. Noninterest-bearing deposits were $263.5 million, $221.6 million and
$204.8 million at September 30, 1994, December 31, 1993 and September 30, 1993,
respectively. Savings deposits (money market, savings and interest-bearing
checking) increased $41.1 million during the first nine months of 1994. Savings
deposits averaged 48.9% of total deposits during the first nine months of 1994
compared to 52.6% for the first nine months of 1993. Time deposits increased by
$44.0 million during the first nine months of 1994. For the nine months ended
September 30, 1994, time deposits averaged 16.2% of total deposits, down from
16.6% 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 September 30,1994, the Company's loan-to-deposit
ratio was 67.6% 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 September 30, 1994 the ratio was a negative 6.8% as compared
to a negative 2.7% at December 31, 1993. Conceptually, this shows that the
Company was funding a modest 6.8% 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 is leasing 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.
PAGE 17
Capital Resources
The Company's equity capital was $61.9 million at September 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.
As of December 31, 1993, the Bank and the Company were required to meet the
risk-based capital standards set by the respective regulatory authorities. The
risk-based capital standards require the achievement of a minimum ratio of total
capital to risk-weighted assets of 8.0% (of which at least 4.0% must be Tier 1
capital). In addition, the regulatory institutions require the highest rated
institutions to maintain a minimum leverage ratio of 3.0% as of December 31,
1993. At September 30, 1994, the Bank and the Company met the minimum risk-
based capital ratio and leverage ratio requirements.
Table 7 below presents the Company's and the Bank's risk-based and leverage
capital ratios as of September 30, 1994 and December 31, 1993:
Table 7 - Regulatory Capital Ratios
Required
Minimum September 30, 1994 December 31, 1993
Capital Ratios Ratios Company Bank Company Bank
Risk-based Capital Ratios:
Tier I 4.00% 10.6% 10.1% 11.8% 11.7%
Total 8.00% 11.8% 11.4% 13.1% 13.0%
Leverage Ratio 3.00% 7.2% 6.9% 8.4% 8.3%
The Bank and the Company's risk-based capital ratios and leverage ratios
have declined since December 31, 1993. This is attributable primarily to an
increase in goodwill due to the acquisitions of Pioneer Bank and Western
Industrial National Bank.
Page 18
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
Not Applicable
Item 5 - Other Information
Not Applicable
Item 6 - Exhibits and Reports on Form 8-K
Not Applicable
PAGE 19
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: November 14, 1994 /s/ Robert J. Schurheck
Robert J. Schurheck
Chief Financial Officer
PAGE 20