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FORM 10-Q
UNITED STATES 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 March 31, 1997
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 March 31, 1997 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 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: 10,000,723 outstanding as
of May 7, 1997.
This Form 10-Q contains 23 pages. Exhibit index on page 21.
1
PART I - FINANCIAL INFORMATION
CVB FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
dollar amounts in thousands
March 31, December 31,
1997 1996
(unaudited)
ASSETS
Investment securities held-to-maturity
(market values of $54,941 and $51,548) $ 55,019 $ 50,734
Investment securities available-for-sale 344,524 333,348
Loans and lease finance receivables, net 564,786 576,686
-------------- --------------
Total earning assets 964,329 960,768
Cash and due from banks 94,364 142,502
Premises and equipment, net 23,881 24,235
Other real estate owned, net 13,219 6,196
Goodwill and intangibles 11,706 11,692
Other assets 16,441 15,028
-------------- --------------
$ 1,123,940 $ 1,160,421
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Noninterest-bearing $ 381,488 $ 431,183
Interest-bearing 571,547 559,413
-------------- --------------
953,035 990,596
Demand note issued to U.S. Treasury 10,917 12,610
Federal Funds Purchased 6,000 16,000
Repurchase Agreement 50,000 40,000
Long-term capitalized lease 447 453
Other liabilities 13,875 11,675
-------------- --------------
1,034,274 1,071,334
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
10,018,534 and 9,972,981 62,225 61,942
Retained earnings 29,676 27,341
Net unrealized losses on investment
securities available-for-sale (2,235) (196)
-------------- --------------
89,666 89,087
-------------- --------------
$ 1,123,940 $ 1,160,421
============== ==============
See accompanying notes to the consolidated financial statements.
2
CVB FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(unaudited)
dollar amounts in thousands, except per share
For the Three Months
Ended March 31
1997 1996
----------- -----------
Interest income:
Loans, including fees $ 14,000 $ 12,397
Investment securities:
Taxable 5,030 3,769
Tax-advantaged 555 193
----------- -----------
5,585 3,962
Federal funds sold and interest bearing
deposits with other financial institutions 72 143
----------- -----------
19,657 16,502
Interest expense:
Deposits 4,867 4,214
Other borrowings 713 640
----------- -----------
5,580 4,854
----------- -----------
Net interest income 14,077 11,648
Provision for credit losses 780 1,213
----------- -----------
Net interest income after
provision for credit losses 13,297 10,435
Other operating income:
Service charges on deposit accounts 1,777 1,735
Gains on sale of other real estate owned 1 80
Other 1,501 2,777
----------- -----------
3,279 4,592
Other operating expenses:
Salaries and employee benefits 5,499 4,236
Deposit insurance premiums 27 1
Occupancy 801 772
Equipment 828 644
Provision for losses on other real estate owned 315 2,069
Other 3,499 2,545
----------- -----------
10,969 10,267
----------- -----------
Earnings before income taxes 5,607 4,760
Provision for income taxes 2,257 2,002
----------- -----------
Net earnings $ 3,350 $ 2,758
=========== ===========
Earnings per common share $ 0.32 $ 0.27
=========== ===========
Cash dividends per common share $ 0.10 $ 0.07
=========== ===========
See accompanying notes to the consolidated financial statements.
3
CVB FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
dollar amounts in thousands
For the Three Months
Ended March 31,
1997 1996
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Interest received $ 19,355 $ 15,767
Service charges and other fees received 3,282 4,592
Interest paid (5,539) (4,630)
Cash paid to suppliers and employees (10,622) (8,758)
Income taxes paid 0 (265)
------------ ------------
6,476 6,706
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of securities available for sale 4,496 0
Proceeds from maturities of securities available for sale 19,334 24,537
Proceeds from maturities of securities held to maturity 342 395
Purchases of securities available for sale (38,669) (9,662)
Purchases of securities held to maturity (4,455) (7,408)
Net decrease in loans 3,467 6,749
Loan origination fees received 814 514
Proceeds from sale of premises and equipment 14 15
Purchase of premises and equipment (404) (439)
Consideration paid in business combinations 0 (18,322)
Other investing activities 433 (38)
------------ ------------
(14,628) (3,659)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (decrease) in transaction deposits (41,516) (24,506)
Net increase in time deposits 3,955 6,510
Net (decrease) increase in short-term borrowings (1,693) 326
Cash dividends on common stock (1,015) (725)
Proceeds from exercise of stock options 283 221
------------ ------------
(39,986) (18,174)
------------ ------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (48,138) (15,127)
CASH AND CASH EQUIVALENTS, beginning of period 142,502 111,886
------------ ------------
CASH AND CASH EQUIVALENTS BEFORE ACQUISITION 94,364 96,759
CASH AND CASH EQUIVALENTS RECEIVED IN THE PURCHASE OF
CITIZENS COMMERCIAL TRUST AND SAVINGS BANK OF PASADENA 0 15,522
------------ ------------
CASH AND CASH EQUIVALENTS, March 31, $ 94,364 $ 112,281
============ ============
See accompanying notes to the consolidated financial statements.
4
CVB FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
dollar amounts in thousands
For the Three Months
Ended March 31,
1997 1996
---------- ---------
RECONCILIATION OF NET EARNINGS TO NET CASH PROVIDED BY
OPERATING ACTIVITIES:
Net earnings $ 3,350 $ 2,758
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Amortization of premiums (accretion of discount) on investment securities (50) 146
Provisions for loan and OREO losses 1,095 3,282
Accretion of deferred loan fees and costs (602) (378)
Loan origination costs capitalized (520) (331)
Depreciation and amortization 760 576
Change in accrued interest receivable 351 (502)
Change in accrued interest payable 41 224
Change in other assets and liabilities 2,051 931
--------- ----------
3,126 3,948
--------- ----------
$ 6,476 $ 6,706
========= ==========
5
CVB FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the three months ended March 31, 1997 and 1996
1. Summary of Significant Accounting Policies. See Note 1 of the Notes to
Consolidated Financial Statements in CVB Financial Corp.'s 1996 Annual
Report. Goodwill resulting from purchase accounting treatment of acquired
banks is amortized on a straight line basis over 15 years.
On January 1, 1995, the Bank adopted Statement of Financial Accounting
Standards ("SFAS") No. 114, "Accounting by Creditors for Impairment of a
Loan," as amended by SFAS No. 118, "Accounting by Creditors for Impairment
of a Loan -- Income Recognition and Disclosures." The adoption of this
statement did not have a material effect on the results of operations or
the financial position of the Bank taken as a whole. Impaired loans totaled
$14.1 million at March 31, 1997. Of this total, $9.4 million, or 67.13%,
represented loans that were supported by collateral with a fair market
value, net of prior liens, of $23.3 million. At March 31, 1997, $4.6
million, or 32.87%, of total impaired loans represented loans for which
repayment was projected to come from cash flows.
2. Certain reclassifications have been made in the 1996 financial information
to conform to the presentation used in 1997.
3. In the ordinary course of business, the Company enters into commitments to
extend credit to its customers. These commitments are not reflected in the
accompanying consolidated financial statements. As of March 31, 1997, the
Company had entered into commitments with certain customers amounting to
$127.4 million compared to $103.7 million at December 31, 1996. Letters of
credit at March 31, 1997 and December 31, 1996, were $8.4 million and $8.5
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 March 31,
1997, 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 March 31, 1997, was 10,018,534.
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 10,395,497 at
March 31, 1997 and 10,148,691 at March 31, 1996. All 1996 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 18, 1996.
6. Supplemental cash flow information. During the three-month period ended
March 31, 1997, loans amounting to $7.9 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 three-month period
ended March 31, 1997, amounted to $149,000.
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. For a more complete understanding of CVB Financial
Corp. and its operations, reference should be made to the financial statements
included in this report and in the Company's 1996 Annual Report 10K. Certain
statements in the Report on Form 10-Q constitute "forward-looking statements"
under the Private Securities Litigation reform Act of 1995 which involve risk
and uncertainties. The Company's actual results may differ significantly from
the results discussed in such forward-looking statements. Factors that might
cause such a difference include but are not limited to economic conditions,
competition in the geographic and business areas in which the Company conducts
operations, fluctuations in interest rates, credit quality and government
regulations. For additional information concerning these factors, see "Item 1.
Business - Factors that May Affect Results" contained in the Company's Annual
Report on Form 10-K for the year ended December 31, 1996.
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 Citizens Business Bank.
RESULTS OF OPERATIONS
The Company reported net earnings of $3.4 million for the first quarter of
1997. This represented and increase of $592,000, or 21.47%, over net earnings of
$2.8 million for the first quarter of 1996. Earnings per share increased to
$0.32 per share for the most recent quarter, compared to $0.27 per share for the
same period last year. The annualized return on average assets was 1.22%, and
the annualized return on average equity was 14.54%, for the first quarter of
1997. For the first quarter of 1996, the annualized return on average assets was
1.23%, and the annualized return on average equity was 13.73%.
Pre-tax operating earnings, which excludes the impact of gains or losses on
sale of securities and OREO, the provisions for credit and OREO losses, and the
settlement of litigation, totaled $6.7 million for the first quarter of 1997.
This represented an increase of $843,000, or 14.37%, over pre-tax operating
income of $5.9 million for the first quarter of 1996.
7
Net Interest Income/Net Interest Margin
The principal component of the Company's earnings is net interest income,
which is the difference between the interest and fees earned on loans and
investments, and the interest paid for deposits and borrowed funds. The net
interest margin is net interest income expressed as a percentage of average
earning assets. The net interest spread is the yield on average earning assets
minus the cost of average interest-bearing deposits and borrowed funds. The
Company's net interest margin was 5.96% for the first quarter of 1997, compared
to a net interest margin of 5.95% for the first quarter of 1996. The Company's
net interest spread was 4.71% for both the first quarter of 1997 and 1996.
Although the net interest margin and net interest spread changed little for
the first quarter of 1997 compared to the first quarter of 1996, net interest
income increased significantly. Net interest income totaled $14.1 million for
the first quarter of 1997. This represented an increase of $2.4 million, or
20.85%, over net interest income of $11.6 million for the first quarter of 1996.
The increase in net interest income for the first quarter of 1997 was the result
of a greater average balance of earning assets. Average earning assets totaled
$960.3 million for the first quarter of 1997. This represented an increase of
$172.6 million, or 21.90%, over average earning assets of $787.7 million for the
first quarter of 1996.
Total interest income was $19.7 million for the first quarter of 1997. This
represented an increase of $3.2 million, or 19.12%, greater than total interest
income of $16.5 million for the first quarter of 1996. Interest and fees from
loans totaled $14.0 million for the first quarter of 1997. This represented an
increase of $1.6 million, or 12.93%, over interest and fees from loans of $12.4
million for the first quarter of 1996. The increase in interest and fees on
loans resulted from an increase in the balance of average gross loans to $581.2
million for the first quarter of 1997, compared to an average of $503.8 million
for the first quarter of 1996. The yield on average gross loans decreased to
9.63% for the first quarter of 1997, compared to a yield of 9.84% for the first
quarter of 1996. The decrease reflected lower average interest rates in general
for the most recent quarter.
Interest from investments totaled $5.7 million for the first quarter of
1997. This represented an increase of $1.6 million, or 37.81%, over interest
from investments of $4.1 million for the first quarter of 1996. The increase in
interest from investments resulted from both a higher average yield and a
greater average balance of investments for the first quarter of 1997 compared to
the first quarter of 1996. The yield on average investments was 5.97% for the
first quarter of 1997, compared to a yield of 5.78% for the first quarter of
1996. Average investments increased to $379.1 million for the first quarter of
1997, compared to $283.9 million for the first quarter of 1996.
Total interest expense was $5.6 million for the first quarter of 1997. This
represented an increase of $726,000, or 14.96%, over total interest expense of
$4.9 million for the first quarter of 1996. The cost of average deposits and
other interest bearing liabilities decreased to 3.57% for the first quarter of
1997, compared to an average cost of 3.71% for the first quarter of 1996. The
decrease reflected lower average interest rates in general for the most recent
quarter.
8
Interest on deposits totaled $4.9 million for the first quarter of 1997.
This represented an increase of $653,000, or 15.49%, over interest on deposits
of $4.2 million for the first quarter of 1996. Average deposits increased to
$937.8 million for the first quarter of 1997, compared to $759.2 million for the
first quarter of 1996. Interest on other borrowed funds totaled $713,000 for the
first quarter of 1997. This represented an increase of $73,000, or 11.41%, over
interest on other borrowed funds of $640,000, for the first quarter of 1996. The
cost of other borrowed funds decreased to 5.14% for the first quarter of 1997,
compared to 5.44% for the first quarter of 1996. Average borrowed funds
increased to $55.5 million for the first quarter of 1997, compared to an average
of $47.0 million for the first quarter of 1996.
Table 1 shows the average balances of assets, liabilities, and
stockholders' equity and the related interest income, expense, and rates for the
three month periods ended March 31, 1997 and 1996. Rates for tax-advantaged
investments are shown on a taxable equivalent basis using a 34.0% 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).
9
TABLE 1 - Distribution of Average Assets, Liabilities, and Stockholders' Equity;
Interest Rates and Interest Differentials
(dollars in thousands)
Three-month periods ended March 31,
1997 1996
-------------------------- -------------------------
Average Average
ASSETS Balance Interest Rate Balance Interest Rate
-------------------------- -------------------------
Investment Securities
Taxable $ 328,319 5,030 6.13% $ 257,921 3,769 5.85%
Tax-advantaged (F1) 44,981 555 6.92% 15,201 193 7.13%
Federal Funds Sold & Interest-bearing
deposits with other financial institutions 5,755 72 5.00% 10,808 143 5.29%
Loans (F2)(F3) 581,226 14,000 9.63% 503,800 12,397 9.84%
-------------------------- -------------------------
Total Earning Assets 960,281 19,657 8.28% 787,730 16,502 8.42%
Total Non-earning Assets 139,651 106,786
---------- ----------
Total Assets $1,099,932 $ 894,516
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Demand Deposits $ 367,287 $ 283,029
Savings Deposits (F4) 368,653 2,281 2.47% 302,032 1,874 2.48%
Time Deposits 201,878 2,586 5.12% 174,161 2,340 5.37%
-------------------------- -------------------------
Total Deposits 937,818 4,867 2.08% 759,222 4,214 2.22%
-------------------------- -------------------------
Other Borrowings 55,521 713 5.14% 47,020 640 5.44%
-------------------------- -------------------------
Total Interest-Bearing Liabilities 626,052 5,580 3.57% 523,213 4,854 3.71%
---------- ---------
Other Liabilities 14,424 7,954
Stockholders' Equity 92,169 80,320
---------- ---------
Total Liabilities and
Stockholders' Equity $1,099,932 $ 894,516
========== =========
Net interest spread 4.71% 4.71%
Net interest margin 5.96% 5.95%
(F1) Yields are calculated on a taxable equivalent basis.
(F2) Loan fees are included in total interest income as follows: 1997, $897; 1996, $561.
(F3) Nonperforming loans are included in net loans as follows: 1997, $13,355; 1996, $12,907.
(F4) Includes interest-bearing demand and money market accounts.
10
TABLE 2 - Rate and Volume Analysis for Changes in Interest Income, Interest
Expense and Net Interest Income
(amounts in thousands)
Comparison of three-month period
ended March 31, 1997 and 1996
Increase (decrease) in interest income or expense
due to changes in
Rate/
Volume Rate Volume Total
Interest Income:
Taxable investment securities $ 1,028 $ 183 $ 50 $ 1,261
Tax-advantaged securities 377 (5) (10) 362
Fed funds sold & interest bearing
deposits with other institutions (67) (7) 3 (71)
Loans 1,904 (261) (40) 1,603
--------------------------------------
Total earning assets 3,242 (90) 3 3,155
--------------------------------------
Interest Expense:
Savings deposits 413 (5) (1) 407
Time deposits 373 (110) (17) 246
Other borrowings 115 (36) (6) 73
--------------------------------------
Total interest-bearing liabilities 901 (151) (24) 726
--------------------------------------
Net Interest Income $ 2,341 $ 61 $ 27 $ 2,429
======================================
11
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 March 31, 1997, the Bank's 90 days or less maturity/repricing gap was
a negative $233.3 million, compared to a negative gap of $182.1 million at
December 31, 1996. 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 earned on
different asset products and interest rates paid for different liability
products offered by the Bank respond differently to changes in market interest
rates, gap analysis is only a general indicator of interest rate sensitivity.
Credit Loss Experience
The Company maintains an allowance for potential credit losses. The
allowance is increased by a provision for credit losses charged against
operating results and from recoveries on loans previously charged off. The
allowance is reduced by loan losses charged to the allowance. The allowance for
credit losses was $10.3 million at March 31, 1997. This represented a decrease
of $1.9 million, or 15.62%, over the allowance for credit losses of $12.2
million at December 31, 1996. At March 31, 1997, the allowance for credit losses
was equal to 1.80% of gross loans, representing a decrease from an allowance for
credit losses that was equal to 2.08% of gross loans at December 31, 1996.
For the first quarter of 1997, the provision for credit losses was
$780,000. This represented a decrease of $433,000, or 35.69%, from a provision
for credit losses of $1,213,000, for the first quarter of 1996. The decrease
reflected slower overall loan growth, and lower levels of nonperforming loans
for the most recent quarter. Loans charged to the allowance for credit losses,
net of recoveries, totaled $2,692,000 for the first quarter of 1997, compared to
net loans charged to the allowance of $387,000 for the first quarter of 1996.
Nonaccrual loans decreased to $13.4 million at March 31, 1997, compared to
$17.6 million at December 31, 1996. This represented a decrease of $4.2 million,
or 23.96%. Table 6 presents nonperforming assets (nonaccrual loans, loans 90
days or more past due, restructured loans, and other real estate owned) as of
March 31, 1997, and December 31, 1996. The Company has adopted the methods
prescribed by Statement of Financial Accounting Standards No. 114 for
determining the fair value of specific loans for which the eventual collection
of all principal and interest is considered impaired.
While management believes that the allowance was adequate at March 31, 1997
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 for the periods indicated.
12
TABLE 3 - Summary of Credit Loss Experience
(amounts in thousands)
Three Months
ended March 31,
1997 1996
Amount of Total Loans at End of Period $ 575,113 $ 556,879
============ ===========
Average Total Loans Outstanding $ 581,226 $ 503,800
============ ===========
Allowance for Credit Losses at Beginning of Period $ 12,239 $ 9,626
Loans Charged-Off:
Real Estate Loans 2,582 300
Commercial and Industrial 75 152
Consumer Loans 39 23
------------ -----------
Total Loans Charged-Off 2,696 475
------------ -----------
Recoveries:
Real Estate Loans 0 84
Commercial and Industrial 1 2
Consumer Loans 3 2
------------ -----------
Total Loans Recovered 4 88
------------ -----------
Net Loans Charged-Off 2,692 387
------------ -----------
Provision Charged to Operating Expense 780 1,213
------------ -----------
Adjustment Incident to Mergers 0 1,020
------------ -----------
Allowance for Credit Losses at End of period $ 10,327 $ 11,472
============ ===========
Net Loans Charged-Off to Average Total Loans* 1.85% 0.31%
Net Loans Charged-Off to Total Loans at End of Period* 1.87% 0.28%
Allowance for Credit Losses to Average Total Loans 1.78% 2.28%
Allowance for Credit Losses to Total Loans at End of Period 1.80% 2.06%
Net Loans Charged-Off to allowance for Credit Losses* 104.27% 13.49%
Net Loans Charged-Off to Provision for Credit Losses 345.13% 31.90%
* Net Loan Charge-Off amounts are annualized.
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 income for the first quarter of 1997 totaled $3.3 million.
This represented a decrease of $1.3 million, or 28.61%, from total other
operating income of $4.6 million for the first quarter of 1996. Included as
other income for the first quarter of 1996 was a $2.1 million settlement paid to
the Bank resulting from litigation with a former officer of the Bank and
Company.
Net of the legal settlement paid to the Bank in 1996, other operating
income for the first quarter of 1997 increased $787,000, or 31.58%, over other
operating income for the first quarter of 1996. The increase was primarily the
result of trust fee income. On March 29, 1996, the Bank purchased Citizens
Commercial Trust and Savings Bank of Pasadena (Citizens Bank of Pasadena),
including their trust division with trust assets in excess of $800.0 million.
Gross fee income from trust services for the first quarter of 1997 totaled
$755,000.
Other Operating Expenses
Other operating expenses totaled $10.9 million for the first quarter of
1997. This represented an increase of $702,000, or 6.84%, over other operating
expenses of $10.3 million for the first quarter of 1996. Other operating
expenses for the first quarter of 1997 were affected by the addition of four
branch offices and the trust division associated with the acquisition of
Citizens Bank of Pasadena on March 29, 1996.
Salaries and related expenses totaled $5.5 million for the first quarter of
1997. This represented an increase of $1.3 million, or 29.81%, over total
salaries and related expenses of $4.2 million for the first quarter of 1996.
Occupancy and equipment expense totaled $1.6 million for the first quarter of
1997. This represented an increase of $213,000, or 15.05%, over total occupancy
and equipment expense of $1.4 million for the first quarter of 1996. The
increases for these expense categories for the first quarter of 1997 compared to
the same period for 1996, were primarily the result of the increases in branches
and operating units resulting from the acquisition.
The Bank provides an allowance for the potential of losses on other real
estate owned (OREO) by charging a provision to earnings. For the first quarter
of 1997, the provision for potential OREO losses totaled $315,000, compared to a
provision of $2.1 million for the first quarter of 1996. OREO, net of the
allowance, totaled $13.2 million at March 31, 1997. This represented an increase
of $7.0 million, or 113.36%, over OREO net of the reserve of $6.2 million at
December 31, 1996.
Other operating expenses, measured as a percent of average assets were
3.99% for the first quarter of 1997, compared to 4.59% for the first quarter of
1996. The efficiency ratio, which compares other operating expenses to net
revenue, was 63.19% for the first quarter of 1997, compared to 63.22% for the
first quarter of 1996.
BALANCE SHEET ANALYSIS
At March 31, 1997, total assets were $1.1 billion. This represented a
decrease of $36.5 million, or 3.14%, from total assets of $1.2 billion at
December 31, 1996. Gross loans totaled $575.1 million at March 31, 1997. This
represented a decrease of $13.8 million, or 2.35%, from gross loans of $588.9
million at December 31, 1996. Total deposits were $953.0 million at March 31,
1997, representing a decrease $37.6 million, or 3.79%, from total deposits of
$990.6 million at December 31, 1996. The decrease in loans, deposits and assets
at March 31, 1997 compared to December 31, 1996 is due in part to normal
seasonal trends related to the Bank's agricultural related customers.
Investment Securities and Debt Securities Available-for-Sale
At March 31, 1997, investment securities totaled $399.5 million. This
represented an increase of $15.5 million, or 4.03%, over total investments of
$384.1 million at December 31, 1996. Table 4 sets forth investment securities
classified as held-to-maturity and available-for-sale at March 31, 1997 and
December 31, 1996.
14
Table 4 - Composition of Securities Portfolio
(dollars in thousands)
March 31, 1997 December 31, 1996
Net Net
Amortized Market Unrealized Amortized Market Unrealized
Cost Value Gain/(Loss) Yield Cost Value Gain/(Loss) Yield
U.S. Treasury securities
Available for Sale $ 58,362 $ 58,215 $ (147) 6.01% $ 55,355 $ 55,621 $ 266 5.99%
FHLMC, FNMA CMO's, REMIC's
and mortgage-backed pass-through securities
Available for Sale 215,580 212,405 (3,175) 6.29% 215,351 214,939 (412) 6.28%
Held to Maturity 5,909 5,974 65 5.74% 6,188 6,384 196 5.74%
Other Government Agency Securities
Available for Sale 63,693 63,405 (288) 6.15% 51,105 51,198 93 5.63%
GNMA mortgage-backed pass-through
securities
Held to Maturity 1,177 1,273 96 9.42% 1,210 1,311 101 9.42%
Tax-exempt Municipal Securities
Held to Maturity 46,741 46,502 (239) 4.86% 42,145 42,662 517 4.89%
Other securities
Available for Sale 10,499 10,499 0 N/A 11,574 11,590 16 6.17%
Held to Maturity 1,192 1,192 0 6.40% 1,191 1,191 0 6.43%
---------------------------------------- -------------------------------------------
$403,153 $ 399,465 $ (3,688) 5.90% $ 384,119 $ 384,896 $ 777 6.00%
======================================== ===========================================
15
At March 31, 1997, the Company's unrealized losses on
securities-available-for sale totaled $3.9 million. The Company recorded an
adjustment decreasing equity capital by $2.2 million, and an adjustment to
deferred tax assets of $1.6 million. At December 31, 1996, the Company reported
a net unrealized loss on investment securities available for sale of $339,000,
with an adjustment to equity capital of $196,000. Note 2 of the Notes to the
Consolidated Financial Statements in CVB's 1996 Annual Report discusses its
current accounting policy as it pertains to recognition of market values for
investment securities held as available for sale.
Loan Composition and Nonperforming Assets
Table 5 sets forth the distribution of the loan portfolio by type as of the
dates indicated:
TABLE 5 - Distribution of Loan Portfolio by Type - (000)s Omitted
March 31, December 31,
1997 1996
Commercial and Industrial (F1) $ 192,919 $ 215,791
Real Estate
Construction 37,184 36,925
Mortgage 261,077 244,601
Consumer 18,060 19,576
Lease finance receivable 20,567 19,825
Agribusiness 48,502 55,486
-----------------------------
Gross Loans 578,309 592,204
-----------------------------
Less:
Allowance for Credit Losses 10,327 12,239
Deferred net loan fees 3,196 3,279
-----------------------------
Net Loans $ 564,786 $ 576,686
=============================
(F1) Includes $50.5 million and $72.0 million of loans for which the
Company holds real property as collateral at March 31, 1997 and December 31,
1996, respectively.
16
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
$26.6 million, or 2.37% of total assets, at March 31, 1997. This compared to
nonperforming assets of $29.8 million, or 2.56% of total assets, at December 31,
1996. Nonperforming assets decreased $3.1 million, or 10.52%, between March 31,
1997 and December 31, 1996.
Although management believes that nonperforming loans are generally well
secured and that potential losses are provided for in the allowance for credit
losses, there can be no assurance that a deterioration in economic conditions,
or collateral values, will not result in future credit losses.
TABLE 6 - Non-Performing Assets - (000)s Omitted
March 31, December 31,
1997 1996
Nonaccrual loans $ 13,355 $ 17,564
Loans past due 90 or more days 52 621
and still accruing interest
Restructured loans 0 5,374
Other real estate owned 13,219 6,196
-------------------------
Total non performing assets $ 26,626 $ 29,755
=========================
Percentage of non performing assets
to total loans outstanding and OREO 4.53% 5.00%
=========================
Percentage of non performing assets
to total assets 2.37% 2.56%
=========================
17
At March 31, 1996, nonaccrual loans were $13.4 million. This represented a
decrease of $4.2 million, or 23.96%, from nonaccrual loans of $17.6 million at
December 31, 1996. To some extent, the decrease in nonaccrual loans contributed
to the increase in other real estate owned, as nonperforming loans were
foreclosed. At March 31, 1997, the majority of nonaccrual loans were
collateralized by real property. 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 6% to 142%. 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 worsen or the full impact such an environment may have on the
Company's loan portfolio.
Deposits and Other Borrowings
At March 31, 1997, deposits totaled $953.0 million. This represented an
decrease of $37.6 million, or 3.79%, over total deposits of $990.6 million at
December 31, 1996. Seasonal fluctuations from agricultural deposits normally
result in large short term balances at the end of December, contributing to a
decrease in deposits between December and March of each year.
Non interest bearing demand deposits totaled $381.5 million at March 31,
1997. This represented a decrease of $49.7 million, or 11.53%, from non interest
bearing demand deposits of $431.2 million at December 31, 1996. Again, seasonal
fluctuations in agricultural deposits normally result in a decrease in the
Bank's non interest bearing demand deposits between December and March of each
year.
Liquidity
The 1996 annual report describes the Company's principal sources of
liquidity, management's liquidity objectives, and the methods used to measure
performance to these objectives.
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 March 31, 1997, the Company's
loan-to-deposit ratio was 60.35%, compared to a ratio of 59.45% at December 31,
1996.
Another method used to measure liquidity is the liquidity ratio. This ratio
is calculated by dividing the difference between short-term liquid assets and
marketable securities by deposits and borrowed funds. As of March 31, 1997, the
liquidity ratio was 44.20%. Conceptually, this shows that the Company had liquid
assets or marketable securities equal to 44.20% of its total deposits and
borrowed funds at March 31, 1997.
18
The Company generated cash flows from operating activities of $6.5 million
for the first quarter of 1997, compared to $6.7 million for the first quarter of
1996. Net cash used for investing activities totaled $14.6 million for the first
quarter of 1997, and $3.6 million for the first quarter of 1996. For the most
part, the increased use of funds for investment activities resulted from an
increase in the purchase of investment securities for the first quarter of 1997.
Cash used for financing activities totaled $40.0 million for the first quarter
of 1997 compared to $18.2 million for the first quarter of 1996. The increase in
funds used for financing activities for the first quarter of 1997, reflects the
decrease in noninterest bearing demand deposits during the three month period.
Capital Resources
The Company's equity capital was $89.7 million at March 31, 1997. The
primary source of capital for the Company continues to be the retention of net
after tax earnings. The Company's 1996 annual report (management's discussion
and analysis and note 14 of such accompanying financial statements) describes
the regulatory capital requirements of the Company and the Bank.
The Bank and the Company are required to meet 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 authorities require the highest rated institutions to maintain a
minimum leverage ratio of 3.0%. At March 31, 1997, the Bank and the Company
exceeded the minimum risk-based capital ratio and leverage ratio required to be
considered "Well Capitalized".
Table 7 below presents the Company's and the Bank's risk-based and leverage
capital ratios as of March 31, 1997, and December 31, 1996:
Table 7 - Regulatory Capital Ratios
Required
Minimum March 31, 1997 December 31, 1997
Captial Ratios Ratios Company Bank Company Bank
Risk-based capital ratios
Tier 1 4.00% 11.60% 11.30% 11.00% 10.70%
Tier 2 8.00% 12.90% 12.60% 12.30% 11.90%
Leverage ratio 3.00% 7.40% 7.20% 7.20% 7.00%
On April 16, 1997, the board of directors of the Company authorized the
repurchase of shares of its common stock, from time to time, at the discretion
of the Company, through open market purchases or in private transactions in an
aggregate amount of up to $9.0 million, or 500,000 shares. As of April 30, 1997,
the Company had purchased 19,500 shares for an average price of $18.92 per
share, resulting in a $368,875 reduction in the shareholders' equity for the
Company.
19
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
(a) Exhibits
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
Not Applicable
20
Exhibit Index
Exhibit No. Description Page
27 Financial Data Schedule 23
21
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: May 15, 1997 /s/ Robert J. Schurheck
Robert J. Schurheck
Chief Financial Officer
22
9 3-MOS DEC-31-1997 MAR-31-1997 94,364 0 0 0 344,524 55,019 54,941 575,113 10,327 1,123,940 953,035 56,000 24,792 447 0 0 62,225 27,441 1,123,940 14,000 5,585 72 19,657 4,867 5,580 14,077 780 (4) 10,969 5,607 3,350 0 0 3,350 0.32 0.32 5.96 13,355 52 0 0 12,239 2,696 4 10,327 7,301 0 3,026