SEC Filing | CVB Financial Corp.

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 September 30, 1999 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, 1999 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: 19,629,984 outstanding as of October 31, 1999. This Form 10-Q contains 28 pages. Exhibit index on page 26.

PART I - FINANCIAL INFORMATION CVB FINANCIAL CORP. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS dollar amounts in thousands September 30, December 31, 1999 1998 (unaudited) ASSETS Investment securities held-to-maturity (market values of $62,980 and $55,912) $ 62,282 $ 53,859 Investment securities available-for-sale 683,670 676,162 Loans and lease finance receivables, net 716,061 675,668 ------------------ ---------------------- Total earning assets 1,462,013 1,405,689 Cash and due from banks 103,902 100,033 Premises and equipment, net 22,198 22,333 Other real estate owned, net 1,881 2,102 Goodwill and intangibles 8,747 9,635 Other assets 27,722 15,415 ------------------ ---------------------- TOTAL $ 1,626,463 $ 1,555,207 ================== ====================== LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Deposits: Noninterest-bearing $ 526,110 $ 538,808 Interest-bearing 719,832 676,497 ------------------ ---------------------- 1,245,942 1,215,305 Demand note issued to U.S. Treasury 11,399 95 Federal Funds Purchased 20,000 5,000 Repurchase Agreement 215,000 195,000 Securities purchased not settled 0 5,000 Long-term capitalized lease 381 402 Other liabilities 18,983 18,698 ------------------ ---------------------- 1,511,705 1,439,500 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 16,611,227 and 16,532,464) 95,068 94,529 Retained earnings 31,750 19,799 Accumulated other comprehensive (loss) income (12,060) 1,379 ------------------ ---------------------- 114,758 115,707 ------------------ ---------------------- TOTAL $ 1,626,463 $ 1,555,207 ================== ====================== 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 For the Nine Months Ended September 30, Ended September 30, 1999 1998 1999 1998 --------------- ---------------- --------------- --------------- Interest income: Loans, including fees $ 16,269 $ 15,109 $ 47,153 $ 45,288 Investment securities: Taxable 9,712 8,354 28,374 22,621 Tax-advantaged 1,365 1,146 3,978 3,166 --------------- ---------------- --------------- --------------- 11,077 9,500 32,352 25,787 Federal funds sold and interest bearing deposits with other financial institutions 74 214 188 462 --------------- ---------------- --------------- --------------- 27,420 24,823 79,693 71,537 Interest expense: Deposits 5,689 6,260 16,172 17,976 Other borrowings 2,927 2,071 8,673 5,015 --------------- ---------------- --------------- --------------- 8,616 8,331 24,845 22,991 --------------- ---------------- --------------- --------------- Net interest income 18,804 16,492 54,848 48,546 Provision for credit losses 800 600 1,900 1,900 --------------- ---------------- --------------- --------------- Net interest income after provision for credit losses 18,004 15,892 52,948 46,646 Other operating income: Service charges on deposit accounts 2,232 1,936 6,736 5,524 (Losses)Gains on sale of securities (77) 199 (77) 224 Gains on sale of other real estate owned 279 59 608 110 Gains on sale of premises and equipment 5 0 5 652 Trust services 907 831 2,831 2,603 Other 825 649 2,174 2,026 --------------- ---------------- --------------- --------------- 4,171 3,674 12,277 11,139 Other operating expenses: Salaries and employee benefits 6,013 5,645 18,107 16,795 Deposit insurance premiums 33 33 98 94 Occupancy 907 883 2,834 2,855 Equipment 1,140 1,063 3,384 2,868 Provision for losses on other real estate owned 0 0 100 500 Other 3,985 3,593 12,252 10,669 --------------- ---------------- --------------- --------------- 12,078 11,217 36,775 33,781 --------------- ---------------- --------------- --------------- Earnings before income taxes 10,097 8,349 28,450 24,004 Provision for income taxes 3,745 3,067 10,528 8,880 --------------- ---------------- --------------- --------------- Net earnings $ 6,352 $ 5,282 $ 17,922 $ 15,124 =============== ================ =============== =============== Basic earnings per common share $ 0.38 $ 0.32 $ 1.08 $ 0.91 =============== ================ =============== =============== Diluted earnings per common share $ 0.37 $ 0.31 $ 1.04 $ 0.87 =============== ================ =============== =============== Cash dividends per common share $ 0.12 $ 0.09 $ 0.36 $ 0.27 =============== ================ =============== =============== See accompanying notes to the consolidated financial statements. 3

CVB FINANCIAL CORP. AND SUBSIDIARIES STATEMENT OF CHANGES IN EQUITY (unaudited) dollar amounts in thousands Accumulated Other Comprehensive Retained Comprehensive Common Total Income Earnings Income Stock Beginning balance, January 1, 1998 $102,084 $39,057 $772 $62,255 Comprehensive income Net Income 20,787 $20,787 20,787 Other comprehensive income, net of tax Unrealized gains on securities, net of reclassification adjustment (see disclosure) 607 607 607 ============ Comprehensive income $21,394 ============ Common Stock issued 467 467 Repurchase of Common Stock (1,907) (1,527) (380) 10% stock dividend (32,187) 32,187 Tax benefit from exercise of stock options 172 172 Dividends declared on common stock (6,503) (6,503) -------------- --------- ------------- ---------- Ending balance, December 31, 1998 $115,707 $19,799 $1,379 $94,529 -------------- --------- ------------- ---------- Comprehensive income Net Income 17,922 $17,922 17,922 Other comprehensive income, net of tax Unrealized gains on securities, net of reclassification adjustment (see disclosure) (13,439) (13,439) (13,439) ============ Comprehensive income $4,483 ============ Common Stock issued 539 539 Dividends declared on common stock (5,971) (5,971) -------------- --------- ------------- ---------- Ending balance, September 30, 1999 $114,758 $31,750 ($12,060) $95,068 ============== ========= ============= ========== Disclosure of reclassification amount Unrealized holding gains arising during period, net of tax effects of $596 $ 862 Less: Reclassification adjustment for gains included in net income, net of tax effects of $151 (255) ============ Net unrealized gain on securities, December 31, 1998 $ 607 ============ Unrealized holding losses arising during period, net of tax benefit of $9,901 $ (13,484) Less: Reclassification adjustment for losses included in net income, net of tax benefit of $32 45 ============ Net unrealized losses on securities, September 30, 1999 $ (13,439) ============ 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 Nine Months Ended September 30, 1999 1998 CASH FLOWS FROM OPERATING ACTIVITIES: Interest received $ 83,787 $ 70,392 Service charges and other fees received 12,355 10,915 Interest paid (25,522) (21,339) Cash paid to suppliers and employees (32,558) (29,852) Income taxes paid (10,920) (8,555) --------------- --------------- Net cash provided by operating activities 27,142 21,561 --------------- --------------- CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from sales of securities available for sale 17,927 52,243 Proceeds from maturities of securities available for sale 109,159 94,244 Proceeds from maturities of securities held to maturity 1,030 1,217 Purchases of securities available for sale (167,516) (354,243) Purchases of securities held to maturity (9,652) (186) Net increase in loans (43,993) (20,960) Proceeds from sale of premises and equipment 7 2,181 Purchase of premises and equipment (2,338) (1,815) Other investing activities 594 6,185 --------------- --------------- Net cash used in investing activities (94,782) (221,134) --------------- --------------- CASH FLOWS FROM FINANCING ACTIVITIES: Net increase in transaction deposits 9,797 24,492 Net increase in time deposits 20,839 23,628 Net increase in short-term borrowings 46,305 127,854 Cash dividends on common stock (5,971) (4,519) Stock repurchase 0 (1,884) Proceeds from exercise of stock options 539 423 --------------- --------------- Net cash provided by financing activities 71,509 169,994 --------------- --------------- NET INCREASE(DECREASE) IN CASH AND CASH EQUIVALENTS 3,869 (29,579) CASH AND CASH EQUIVALENTS, beginning of period 100,033 107,725 --------------- --------------- CASH AND CASH EQUIVALENTS, end of period $ 103,902 $ 78,146 =============== =============== See accompanying notes to the consolidated financial statements. 5

CVB FINANCIAL CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) dollar amounts in thousands For the Nine Months Ended September 30, 1999 1998 RECONCILIATION OF NET EARNINGS TO NET CASH PROVIDED BY OPERATING ACTIVITIES: Net earnings $ 17,922 $ 15,124 Adjustments to reconcile net earnings to net cash provided by operating activities: Amortization of premiums(accretion of discount) on investment securities 4,737 (303) Provisions for loan and OREO losses 2,000 2,400 Depreciation and amortization 2,439 2,336 Change in accrued interest receivable (641) (842) Change in accrued interest payable (677) 1,652 Change in other assets and liabilities 1,362 1,194 --------------- --------------- Total adjustments 9,220 6,437 --------------- --------------- NET CASH PROVIDED BY OPERATING ACTIVITIES $ 27,142 $ 21,561 =============== =============== Supplemental Schedule of Noncash Investing and Financing Activities 6

CVB FINANCIAL CORP. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the nine months ended September 30, 1999 and 1998 1. Summary of Significant Accounting Policies. See Note 1 of the Notes to Consolidated Financial Statements in CVB Financial Corp.'s 1998 Annual Report. Goodwill resulting from purchase accounting treatment of acquired banks is amortized on a straight-line basis over 15 years. The Bank accounts for impaired loans in accordance with 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." Impaired loans totaled $2.3 million at September 30, 1999. These loans were supported by collateral with a fair market value, net of prior liens, of $2.8 million. 2. Certain reclassifications have been made in the 1998 financial information to conform to the presentation used in 1999. 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 September 30, 1999, the Company had entered into commitments with certain customers amounting to $258.7 million compared to $209.1 million at December 31, 1998. Letters of credit at September 30, 1999, and December 31, 1998, were $13.4 million and $8.9 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, 1999, 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 September 30, 1999, was 16,611,227. Basic earnings per share are calculated on the basis of the weighted average number of shares outstanding during the period. Diluted earnings per share are calculated on the basis of the weighted average number of shares outstanding during the period plus shares issuable upon the assumed exercise of outstanding common stock options. All 1998 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 December 16, 1998. The table below presents the reconciliation of earnings per share for the periods indicated. 7

Earnings Per Share Reconciliation For the Three Months Ended September 30, 1999 1998 Weighted Weighted Income Average Shares Per Share Income Average Shares Per Share (Numerator) (Denominator) Amount (Numerator) (Denominator) Amount BASIC EPS Income available to common stockholders $ 6,351,727 16,581,896 $0.38 $ 5,282,244 16,548,167 $0.32 EFFECT OF DILUTIVE SECURITIES Incremental shares from assumed exercise of outstanding options 625,860 (0.01) 635,036 (0.01) ----------------------------------------- -------------------------------------- DILUTED EPS Income available to common stockholders $ 6,351,727 17,207,756 $0.37 $ 5,282,244 17,183,203 $0.31 ========================================= ====================================== Earnings Per Share Reconciliation For the Nine Months Ended September 30, 1999 1998 Weighted Weighted Income Average Shares Per Share Income Average Shares Per Share (Numerator) (Denominator) Amount (Numerator) (Denominator) Amount BASIC EPS Income available to common stockholders $17,922,582 16,567,732 $1.08 $15,123,940 16,556,662 $0.91 EFFECT OF DILUTIVE SECURITIES Incremental shares from assumed exercise of outstanding options 597,722 (0.04) 685,126 (0.04) ----------------------------------------- -------------------------------------- DILUTED EPS Income available to common stockholders $17,922,582 17,165,454 $1.04 $15,123,940 17,241,788 $0.87 ========================================= ====================================== 6. Supplemental Cash Flow Information - During the nine-month period ended September 30, 1999, and September 30, 1998, loans amounting to $1.7 million and $2.5 million, respectively, were transferred to Other Real Estate Owned ("OREO") as a result of foreclosure on the real properties held as collateral. 7. In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," amended by SFAS No. 137, effective for fiscal years beginning after June 15, 2000. This Statement establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. The Company does not believe that the adoption of SFAS No. 133 will have a material impact on its operations and financial position. 8

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. 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. 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 1998 Annual Report on Form 10-K. Certain statements in this Report on Form 10-Q constitute "forward-looking statements" under the Private Securities Litigation Reform Act of 1995 which involve risks 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, year 2000 data systems compliance, 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, 1998. On October 4, 1999, Orange National Bancorp merged with and into CVB Financial Corp. and Orange National Bank merged with and into Citizens Business Bank. The shareholders of Orange National Bancorp received one and one-half shares of CVB Financial Corp. stock for each share of Orange National Bancorp stock. The merger was accounted for as a pooling of interests. As of October 4, 1999, Orange National Bancorp had total assets of $277.7 million, net loans of $152.0 million, and deposits of $250.4 million that are not included on the balance sheet or results of operations of the Company on this Form 10-Q. For additional information regarding the merger, please see "Item 2. - Acquisition or Disposition of Assets" and "Item 7. - Financial Statements and Exhibits" contained in the Company's Current Report on Form 8-K dated October 4, 1999. RESULTS OF OPERATIONS The Company reported net earnings of $17.9 million for the nine months ended September 30, 1999. This represented an increase of $2.8 million, or 18.50%, over net earnings of $15.1 million, for the nine months ended September 30, 1998. Basic earnings per share for the nine month period increased to $1.08 per share for 1999, compared to $0.91 per share for 1998. Diluted earnings per share increased to $1.04 per share for the first nine months of 1999, compared to $0.87 per share for the same nine month period last year. The annualized return on average assets was 1.53% for the first nine months of 1999 compared to a return on average assets of 1.52% for the nine months ended September 30, 1998. The annualized return on average equity was 19.70% for the nine months ended September 30, 1999, compared to a return of 18.50% for the nine months ended September 30, 1998. For the quarter ended September 30, 1999, the Company generated net earnings of $6.4 million. This represented an increase of $1.1 million, or 20.26%, over net earnings of $5.3 million for the third quarter of 1998. Basic earnings per share increased to $0.38 for the third quarter of 1999 compared to $0.32 per share for the third quarter of 1998. Diluted earnings per share increased to $0.37 per share compared to $0.31 per share for the third quarter of 1999 and 1998, respectively. The annualized return on average assets was 1.59% for the third quarter of 1999 compared to 1.51% for the same period last year. The annualized return on average equity was 20.74% for the third quarter of 1999 and 18.72% for the third quarter of 1998. Pre-tax operating earnings, which exclude the impact of gains or losses on sale of securities and OREO, and the provisions for credit and OREO losses, totaled $29.9 million for the nine months ended September 30, 1999. This represented an increase of $3.8 million, or 14.76%, compared to operating earnings of $26.1 million for the first nine months of 1998. For the third quarter of 1999, pre-tax operating earnings totaled $10.7 million. This represented an increase of $2.0 million or 23.07% from pre-tax operating earnings of $8.7 million for the third quarter of 1998. 9

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 on deposits and other borrowed funds. When net interest income is expressed as a percentage of average earning assets, the result is the net interest margin. The net interest spread is the yield on average earning assets minus the average cost of interest-bearing deposits and borrowed funds. For the nine months ended September 30, 1999, net interest income was $54.8 million. This represented an increase of $6.3 million, or 12.98%, over net interest income of $48.5 million for the nine months ended September 30, 1998. Although net interest income increased, the net interest margin decreased to 5.22% for the nine months ended September 30, 1999, compared to 5.47% for the nine months ended September 30, 1998. In addition, the net interest spread decreased to 3.93% for the nine months ended September 30, 1999, compared to a spread of 3.99% for the nine months ended September 30, 1998. The increase in net interest income for the most recent nine month period was the result of an increased volume of average earning assets. Earning assets averaged $1.4 billion for the first nine months of 1999. This represented an increase of $226.3 million, or 18.62%, compared to average earning assets of $1.2 billion for the first nine months of 1998. The decrease in the net interest margin for the nine months ended September 30, 1999 compared to the first nine months of 1998 was primarily the result of a lower yield on loans. The decrease in the net interest spread resulted as the yield on average earning assets decreased greater than the decrease in the cost of average interest-bearing liabilities. For the third quarter of 1999, net interest income was $18.8 million. This represented an increase of $2.3 million, or 14.02%, compared to $16.5 million for the third quarter of 1998. The net interest margin was 5.25% during the third quarter of 1999 compared to 5.28% for the same period last year. The net interest spread was 3.91% during the third quarter of 1999 compared to 3.78% for the third quarter of 1998. The increase in the net interest spread resulted as the yield on average earning assets decreased less than the decrease in the cost of average interest-bearing liabilities. The increase in net interest income for the third quarter of 1999 was the result of an increase in average earning assets. Earning assets averaged $1.5 billion for the quarter ended September 30, 1999, compared to $1.3 billion for the same period last year. The decrease in net interest margin resulted from a decline in loan yields. Loan yield for the third quarter of 1999 was 8.98% compared to 9.53% for the third quarter of 1998. The Company reported total interest income of $79.7 million for the nine months ended September 30, 1999. This represented an increase of $8.2 million, or 11.40%, over total interest income of $71.5 million for the nine months ended September 30, 1998. The increase reflected the greater volume of earning assets noted above. The yield on average earning assets decreased to 7.52% for the nine months ended September 30, 1999, from a yield of 7.99% for the nine months ended September 30, 1998. The decrease in the yield on average earning assets resulted from lower yields on average loans. The yield on average loans decreased to 8.88% for the nine months ended September 30, 1999, from a yield of 9.64% for the first nine months of 1998. The 76 basis point decrease in average loan yields primarily reflected increased price competition for loans and a lower interest rate environment. Loans typically generate higher yields than investments. Accordingly, the higher the loan portfolio is as a percentage of earning assets, the higher will be the yield on earning assets. For the nine months ended September 30, 1999, average loans represented 49.13% of average earning assets, compared to 51.52% for the nine months ended September 30, 1998. 10

The interest expense for the quarter and nine months ended September 30, 1999 increased when compared to the same periods for 1998. Interest expense totaled $24.8 million for the nine months ended September 30, 1999. This represented an increase of $1.9 million, or 8.06%, over total interest expense of $23.0 million for the nine months ended September 30, 1998. For the three months ended Septemebr 30, 1999, interest expense totaled $8.6 million. This represented an increase of $285,000, or 3.42% over interest expense of $8.3 million for the same period last year. The increase in interest expense reflected an increase in the average volume of interest-bearing liabilities. Average interest-bearing liabilities were $922.0 million for the first nine months of 1999. This represented an increase of $155.4 million, or 20.27%, from average interest-bearing liabilities of $766.6 million for the first nine months of 1998. For the third quarter of 1999, interest-bearing liabilities averaged $939.7 million, an increase of $125.4 million or 15.40% over the same quarter last year. Average interest-bearing deposits totaled $700.8 million for the nine months ended September 30, 1999. This represented an increase of $55.3 million, or 8.56%, over average interest-bearing deposits of $645.6 million for the nine months ended September 30, 1998. Other borrowed funds averaged $221.2 million for the nine months ended September 30, 1999. This represented an increase of $100.1 million, or 82.71%, over average other borrowed funds of $121.1 million for the nine months ended September 30, 1998. The cost of average interest-bearing liabilities decreased to 3.59% for the nine months ended September 30, 1999, compared to a cost of 4.00% for the first nine months of 1998. The decrease in the cost of interest-bearing liabilities was primarily the result of a decrease in the interest rate environment. The cost of average interest bearing deposits was 3.08% for the first nine months of 1999 as compared to 3.71% for the first nine months of 1998. The cost of other borrowed funds decreased to 5.23% for the nine months ended September 30, 1999, compared to a cost of 5.52% for the nine months ended September 30, 1998. 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, 1999, and 1998. Rates for tax-preferenced investments are shown on a taxable equivalent basis using a 35.0% tax rate. 11

TABLE 1 - Distribution of Average Assets, Liabilities, and Stockholders' Equity; Interest Rates and Interest Differentials (dollars in thousands) Nine-month periods ended September 30, 1999 1998 Average Average ASSETS Balance Interest Rate Balance Interest Rate Investment Securities Taxable $ 611,043 28,374 6.19% $ 483,222 22,621 6.24% Tax-advantaged (1) 117,327 3,978 6.34% 94,580 3,166 6.26% Federal Funds Sold & Interest-bearing deposits with other financial institutions 5,056 188 4.96% 11,370 462 5.42% Loans (2) (3) 708,301 47,153 8.88% 626,225 45,288 9.64% --------------------------------------- ----------------------------------- Total Earning Assets 1,441,727 79,693 7.52% 1,215,397 71,537 7.99% Total Non-earning Assets 120,308 114,719 --------------- -------------- Total Assets $ 1,562,035 $ 1,330,116 =============== ============== LIABILITIES AND STOCKHOLDERS' EQUITY Non-interest bearing deposits $ 495,746 $ 431,994 Savings Deposits (4) 404,817 6,112 2.01% 368,487 7,101 2.57% Time Deposits 295,988 10,060 4.53% 277,066 10,875 5.23% --------------------------------------- ----------------------------------- Total Deposits 1,196,551 16,172 1.80% 1,077,547 17,976 2.22% --------------------------------------- ----------------------------------- Other Borrowings 221,229 8,673 5.23% 121,083 5,015 5.52% --------------------------------------- ----------------------------------- Total Interest-Bearing Liabilities 922,034 24,845 3.59% 766,636 22,991 4.00% --------------- -------------- Other Liabilities 22,959 22,497 Stockholders' Equity 121,296 108,989 --------------- -------------- Total Liabilities and Stockholders' Equity $ 1,562,035 $ 1,330,116 =============== ============== Net interest spread 3.93% 3.99% Net interest margin 5.22% 5.47% - - ------------------------------------------------------- (1) Yields are calculated on a taxable equivalent basis. (2) Loan fees are included in total interest income as follows: 1999, $2,192; 1998, $2,997. (3) Nonperforming loans are included in loans as follows: 1999, $219; 1998, $4,315. (4) Includes interest-bearing demand and money market accounts. 12

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 2 - Rate and Volume Analysis for Changes in Interest Income, Interest Expense and Net Interest Income (amounts in thousands) Comparison of nine-month periods ended September 30, 1999 and 1998 Increase (decrease) in interest income or expense due to changes in Rate/ Volume Rate Volume Total Interest Income: Taxable investment securities $ 5,984 $ (183) $ (48) $ 5,753 Tax-advantaged securities 761 41 10 812 Fed funds sold & interest bearing deposits with other institutions (256) (40) 22 (274) Loans 5,936 (3,599) (472) 1,865 --------------------------------------------------------- Total earning assets 12,425 (3,781) (488) 8,156 --------------------------------------------------------- Interest Expense: Savings deposits 700 (1,537) (152) (989) Time deposits 743 (1,458) (100) (815) Other borrowings 4,148 (268) (222) 3,658 --------------------------------------------------------- Total interest-bearing liabilities 5,591 (3,263) (474) 1,854 --------------------------------------------------------- Net Interest Income $ 6,834 $ (518) $ (14) $ 6,302 ========================================================= 13

During periods of changing interest rates, the ability to reprice interest earning assets and interest-bearing liabilities can influence net interest income, net interest margin, and consequently, the Company's earnings. Interest rate risk is managed by attempting to control the spread between rates earned on interest-earning assets and the rates paid on interest-bearing liabilities within the constraints imposed by market competition in the Bank's service area. Short term repricing risk is minimized by controlling the level of floating rate loans and maintaining a downward sloping ladder of bond payments and maturities. Basis risk is managed by the timing and magnitude of changes to interest-bearing deposits rates. Yield curve risk is reduced by keeping the duration of the loan and bond portfolios relatively short. Options risk in the bond portfolio is monitored monthly and actions are recommended when appropriate. Both 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. The Company's management utilizes the results of a dynamic simulation model to quantify the estimated exposure of net interest income to sustained changes in interest rates. The sensitivity of the Company's net interest income is measured over a rolling two year horizon. The simulation model estimates the impact of changing interest rates on the net interest income from all interest earning assets and interest expense paid on all interest bearing liabilities reflected on the Company's balance sheet. The sensitivity analysis is compared to policy limits which specify a maximum tolerance level for net interest income exposure over a one year time horizon assuming no balance sheet growth, given both a 200 basis point upward and downward shift in interest rates. A parallel and pro rata shift in interest rates over a 12 month period is assumed. The following reflects the Company's net interest income sensitivity over a one year horizon as of September 30, 1999. Estimated Net Simulated Interest Income Rate Changes Sensitivity +200 basis points (2.43%) -200 basis points (1.87%) The table indicates that net interest income would decrease by approximately 2.43% over a 12 month period if there was a sustained, parallel and pro rata 200 basis point upward shift in interest rates. Net interest income would decrease approximately 1.87% over a 12 month period if there was a sustained, parallel and pro rata 200 basis point downward shift in interest rates. 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. The allowance for credit losses is also increased by recoveries on loans previously charged off and reduced by actual loan losses charged to the allowance. The provision for credit losses was $1.9 million for the nine months ended September 30, 1999, and September 30, 1998. The allowance for credit losses at September 30, 1999 was $14.7 million. This represented an increase of $1.3 million, or 10.03%, from the allowance for credit losses of $13.4 million at September 30, 1998. The allowance for credit losses was 2.08% of average gross loans for the first nine months of 1999 and 2.13% of average gross loans for the first nine months of 1998. For the nine months ended September 30, 1999, net loan charge offs totaled $562,000, compared to net loan charge offs of $60,000 for the first nine months of 1998. Nonperforming assets, which includes nonaccrual loans, loans past due 90 or more days and still accruing, restructured loans, and other real estate owned, decreased to $2.2 million at September 30, 1999. This represented a decrease of $7.2 million, or 76.81%, from nonperforming assets of $9.3 million at December 31, 1998. Nonperforming loans, which include nonaccrual loans, loans past due 90 or more days and still accruing, and restructured loans were $280,000 at September 30, 1999. This represented a decrease of $6.9 million, or 96.12%, from the level of nonperforming loans at December 31, 1998. Table 6 presents nonperforming assets as of September 30, 1999, and December 31, 1998. The Company applies 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 at September 30, 1999, was adequate 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. 14

TABLE 3 - Summary of Credit Loss Experience (amounts in thousands) Nine-months ended September 30, 1999 1998 Amount of Total Loans at End of Period $ 730,763 $ 635,361 ============== ============== Average Total Loans Outstanding $ 708,301 $ 626,225 ============== ============== Allowance for Credit Losses at Beginning of Period $ 13,364 $ 11,522 Loans Charged-Off: Real Estate Loans 477 86 Commercial and Industrial 202 216 Consumer Loans 5 27 -------------- -------------- Total Loans Charged-Off 684 329 -------------- -------------- Recoveries: Real Estate Loans 4 155 Commercial and Industrial 116 101 Consumer Loans 2 13 -------------- -------------- Total Loans Recovered 122 269 -------------- -------------- Net Loans Charged-Off 562 60 -------------- -------------- Provision Charged to Operating Expense 1,900 1,900 -------------- -------------- Allowance for Credit Losses at End of period $ 14,702 $ 13,362 ============== ============== Net Loans Charged-Off to Average Total Loans* 0.11% 0.01% Net Loans Charged-Off to Total Loans at End of Period* 0.10% 0.01% Allowance for Credit Losses to Average Total Loans 2.08% 2.13% Allowance for Credit Losses to Total Loans at End of Period 2.01% 2.10% Net Loans Charged-Off to Allowance for Credit Losses* 5.10% 0.60% Net Loans Charged-Off to Provision for Credit Losses 29.58% 3.16% * Net Loan Charge-Off amounts are annualized. 15

Other Operating Income Other operating income includes revenues earned from sources other than interest income. These sources include: service charges and fees on deposit accounts, fee income from the Asset Management Division, other fee oriented products and services, gain (or loss) on sale of securities or other real estate owned and gross revenue from Community Trust Deed Services (the Company's nonbank subsidiary). Other operating income totaled $12.3 million for the nine months ended September 30, 1999. This represented an increase of $1.1 million, or 10.22%, from other operating income of $11.1 million for the nine months ended September 30, 1998. For the three months ended September 30, 1999, other operating income totaled $4.2 million, an increase of $497,000, or 13.53%, from $3.7 million for the same three month period ended September 30, 1998. The increase was primarily the result of higher service charge income and gains on sale of other real estate owned. Service charge income totaled $6.7 million for the first nine months ended September 30, 1999. This represents an increase of $1.2 million or 21.94% over service charge income of $5.5 million for the nine months ended September 30, 1998. Trust income totaled $2.8 million for the nine months ended September 30, 1999. This represented an increase of $228,000, or 8.76% over trust income of $2.6 million for the nine months ended September 30, 1998. Other Operating Expenses Other operating expenses totaled $36.8 million for the nine months ended September 30, 1999. This represented an increase of $3.0 million, or 8.86%, over other operating expenses of $33.8 million for the nine months ended September 30, 1998. For the three months ended September 30, 1999, other operating expenses totaled $12.1 million. This compares with $11.2 million for the same period last year, an increase of $861,000, or 7.68%. Salaries and employee benefits totaled $18.1 million for the first nine months of 1999. This represented an increase of $1.3 million, or 7.81%, from salaries and employee benefits of $16.8 million for the same period last year. Equipment expense totaled $3.4 million for the nine months ended September 30, 1999. This represents an increase of $516,000, or 17.99%, over equipment expense of $2.9 million for the nine months ended September 30, 1998. The increase was primarily the result of increases in furniture and equipment expense and service and maintenance expense. Other expense, which includes professional, data processing, supplies, and promotional expenses totaled $12.3 million for the first nine months ended September 30, 1999. This represents an increase of $1.6 million, or 14.84%, over other expense of $10.7 million for the nine months ended September 30, 1998. The increase was primarily the result of increases in professional and promotional expenses. The Company maintains an allowance for potential losses on other real estate owned. The allowance is increased by a provision for losses on other real estate owned, and reduced by losses on the sale of other real estate owned charged directly to the allowance. The allowance was established to provide for future losses. For the nine months ended September 30, 1999, the provision for other real estate owned totaled $100,000. For the nine months ended September 30, 1998, the provision for other real estate owned was $500,000. As a percent of average assets, annualized other operating expenses decreased to 3.14% for the nine months ended September 30, 1999, compared to a ratio of 3.39% for the nine months ended September 30, 1998. The decrease in the ratio indicates that the Company is managing a greater level of assets with proportionately lower levels of operating expenses. The Company's efficiency ratio decreased to 54.79% for the nine months ended September 30, 1999, compared to a ratio of 56.60% for the nine months ended September 30, 1998. The decrease in the efficiency ratio indicates that the Company is allocating a lower percentage of net revenue to operating expenses. 16

BALANCE SHEET ANALYSIS The Company reported total assets of $1.63 billion at September 30, 1999. This represented an increase of $71.3 million, or 4.58%, over total assets of $1.55 billion at December 31, 1998. Gross loans, net of deferred loan fees, totaled $730.8 million at September 30, 1999. This represented an increase of $41.7 million, or 6.06%, over gross loans of $689.0 million at December 31, 1998. Total deposits increased $30.6 million, or 2.52%, to $1.25 billion at September 30, 1999, from $1.22 billion at December 31, 1998. Investment Securities and Debt Securities Available-for-Sale The Company reported total investment securities of $746.0 million at September 30, 1999. This represented an increase of $15.9 million, or 2.18%, over total investment securities of $730.0 million at December 31, 1998. At September 30, 1999, the Company's net unrealized loss on securities available-for-sale totaled $20.9 million. Accumulated other comprehensive loss totaled $12.1 million, and deferred tax assets totaled $8.8 million. At December 31, 1998, the Company reported a net unrealized gain on investment securities available for sale of $2.4 million, with an adjustment to equity capital of $1.4 million and deferred taxes of $1.0 million. Note 2 of the Notes to the Consolidated Financial Statements in the Company's 1998 Annual Report on Form 10-K discusses its current accounting policy as it pertains to recognition of market values for investment securities held as available-for-sale. Table 4 sets forth investment securities held-to-maturity and available-for-sale, at September 30, 1999 and December 31, 1998. 17

Table 4 - Composition of Securities Portfolio (dollars in thousands) September 30, 1999 December 31, 1998 Net Net Amortized Market Unrealized Yield Amortized Market Unrealized Yield Cost Value Gain/(Loss) Cost Value Gain/(Loss) U.S. Treasury securities Available for Sale $ 1,000 $ 1,001 $ 1 6.01% $ 3,005 $ 3,023 $ 18 6.02% FHLMC, FNMA CMO's, REMIC's and mortgage-backed pass-through securities Available for Sale 559,748 543,027 (16,721) 6.39% 528,701 530,035 1,334 6.37% Held to Maturity 2,875 2,872 (3) 5.74% 3,699 3,773 74 5.74% Other Government Agency Securities Available for Sale 7,342 7,272 (70) 6.40% 19,161 19,230 69 6.63% GNMA mortgage-backed pass-through securities Available for Sale 45,105 43,783 (1,322) 6.75% 42,771 42,950 179 6.68% Held to Maturity 564 608 44 9.53% 710 772 62 9.44% Tax-exempt Municipal Securities Available for Sale 67,186 64,407 (2,779) 4.59% 58,483 59,340 857 4.43% Held to Maturity 47,732 48,320 588 4.88% 47,962 49,879 1,917 4.88% Corporate Bond Held to Maturity 9,535 9,604 69 7.05% 0 0 0 0.00% Other securities Available for Sale 24,180 24,180 0 0.00% 21,584 21,584 0 0.00% Held to Maturity 1,576 1,576 0 8.25% 1,488 1,488 0 7.13% ----------------------------------------- ------------------------------------------ $766,843 $746,650 $ (20,193) 6.16% $727,564 $732,074 $ 4,510 6.13% ========================================== ========================================== 18

Loan Composition and Nonperforming Assets Table 5 sets forth the distribution of the loan portfolio by type as of the dates indicated (dollar amounts in thousands): Table 5 - Distribution of Loan Portfolio by Type September 30, December 31, 1999 1998 -------- -------- Commercial and Industrial $274,700 $247,060 Real Estate: Construction 45,125 29,415 Mortgage 318,606 297,856 Consumer 17,344 17,816 Municipal lease finance receivables 22,432 22,923 Agribusiness 55,069 76,283 -------- -------- Gross Loans $733,276 $691,353 Less: Allowance for credit losses 14,702 13,364 Deferred net loan fees 2,513 2,321 -------- -------- Net loans $716,061 $675,668 ======== ======== As set forth in Table 6, nonperforming assets (nonaccrual loans, loans 90 days or more past due and still accruing interest, restructured loans, and other real estate owned) totaled $2.2 million at September 30, 1999. This represented a decrease of $7.2 million, or 76.81%, from nonperforming assets of $9.3 million at December 31, 1998. As a percent of total assets, nonperforming assets decreased to 0.13% at September 30, 1999, from 0.60% at December 31, 1998. Although management believes that nonperforming assets are generally well secured and that potential losses are reflected in the allowance for credit losses, there can be no assurance that a general deterioration of economic conditions or collateral values would not result in future credit losses. 19

Table 6 - Nonperforming Assets (dollar amounts in thousands) September 30, 1999 December 31, 1998 Nonaccrual loans $ 219 $7,218 Loans past due 90 days or more and still accruing interest 61 0 Restructured loans 0 0 Other real estate owned (OREO), net 1,881 2,102 ------ ------ Total nonperforming assets $2,161 $9,320 ====== ====== Percentage of nonperforming assets to total loans outstanding and OREO 0.29% 1.35% Percentage of nonperforming assets to total assets 0.13% 0.60% The decrease in nonperforming assets was primarily the result of a decrease in nonaccrual loans. Nonaccrual loans totaled $219,000 at September 30, 1999. This represented a decrease of $7.0 million, or 96.97%, from total nonaccrual loans of $7.2 million at December 31, 1998. At September 30, 1999, the majority of nonaccrual loans were collateralized by real property. The estimated loan balances to the fair value of related collateral (loan-to-value ratio) for nonaccrual loans ranged from approximately 3% to 118%. The Bank has allocated specific reserves to provide for any potential loss on non-performing 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 At September 30, 1999, total deposits were $1.25 billion. This represented an increase of $30.6 million, or 2.52%, from total deposits of $1.22 billion at December 31, 1998. Demand deposits totaled $526.1 million at September 30, 1999, representing a decrease of $12.7 million, or 2.36%, from total demand deposits of $538.8 million at December 31, 1998. The decrease in demand deposits from the year end total reflects normal seasonal fluctuations relating to agricultural and other depositors. Average demand deposits for the first nine months of 1999 were $495.7 million. This represented an increase of $63.8 million, or 14.76%, from average demand deposits of $432.0 million for the first nine months of 1998. The comparison of average balances for the first nine months of 1999 and 1998 is more representative of the Company's growth in deposits as it excludes the seasonal peak in deposits at year end. Time deposits totaled $311.0 million at September 30, 1999. This represented a increase of $20.8 million, or 7.18%, over total time deposits of $290.2 million at December 31, 1998. Time deposits are not affected by the Company's seasonal fluctuation in demand deposits. Other borrowed funds totaled $235.0 million at September 30, 1999. This represented an increase of $35.0 million, or 17.50% over other borrowed funds of $200.0 million at December 31, 1998. The increase in other borrowed funds during the first nine months of 1999 was primarily the result of an increase Federal Home Loan Bank borrowing. 20

Liquidity Liquidity risk is the risk to earnings or capital resulting from the Bank's inability to meet its obligations when they come due without incurring unacceptable losses. It includes the ability to manage unplanned changes in funding sources and to recognize or address changes in market conditions that affect the Bank's ability to liquidate assets quickly and with minimum loss of value. Factors considered in liquidity risk management are stability of the deposit base; marketability, maturity, and pledging of investments; and the demand for credit. In general, liquidity risk is managed daily by controlling the level of Fed funds and the use of funds provided by the cash flow from the investment portfolio. To meet unexpected demands, lines of credit are maintained with correspondent banks, the Federal Home Loan Bank and the Federal Reserve Bank. The sale of bonds maturing in the near future can also serve as a contingent source of funds. Increases in deposit rates are considered a last resort as a means of raising funds to increase liquidity. For the Bank, sources of funds normally include principal payments on loans and investments, other borrowed funds, and growth in deposits. Uses of funds include withdrawal of deposits, interest paid on deposits, increased loan balances, purchases, and other operating expenses. Net cash provided by operating activities totaled $27.1 million for the first nine months of 1999, compared to net cash provided by operating activities of $21.6 million for the same period last year. The increase was primarily the result of an increase in interest received. Net cash used by investing activities totaled $94.8 million for the first nine months of 1999, compared to net cash used for investing activities of $221.1 million for the same period last year. The decrease in net cash used by investing activities was primarily the result of a reduction in purchases of investment securities. Financing activities provided net cash flows of $71.5 million for the nine months ended September 30, 1999. This compares to $170.0 million in net cash provided for the nine months ended September 30, 1998. An increase in net short-term borrowings of $46.3 million for the nine months ended September 30, 1999, compared to a net increase of $127.9 million for the same period last year contributed to the change. At September 30, 1999, cash and cash equivalents totaled $103.9 million compared to $78.1 million at September 30, 1998. Since the primary sources and uses of funds for the Bank are loans and deposits, the relationship between gross loans and total deposits provides a useful measure of the Bank's liquidity. Typically, the closer the ratio of loans to deposits is to 100%, the more reliant the Bank is on its loan portfolio to provide for short term liquidity needs. Since repayment of loans tends to be less predictable than the maturity of investments and other liquid resources, the higher the loan to deposit ratio the less liquid are the Bank's assets. For the first nine months of 1999, the Bank's loan to deposit ratio averaged 59.34%, compared to an average ratio of 58.31% for the first nine months of 1998. CVB is a company separate and apart from the Bank that must provide for its own liquidity. Substantially all of CVB's revenues are obtained from dividends declared and paid by the Bank. There are statutory and regulatory provisions that could limit the ability of the Bank to pay dividends to CVB. At September 30, 1999, approximately $41.6 million of the Bank's equity was unrestricted and available to be paid as dividends to CVB. Management of CVB believes that such restrictions will not have an impact on the ability of CVB to meet its ongoing cash obligations. As of September 30, 1999, neither the Bank nor CVB had any material commitments for capital expenditures. 21

Capital Resources The Company's equity capital was $114.8 million at September 30, 1999. The primary source of capital for the Company continues to be the retention of net after tax earnings. The Company's 1998 annual report (management's discussion and analysis and Note 15 of the 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 4.0%. At September 30, 1999, 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 September 30, 1999, and December 31, 1998. Table 7 - Regulatory Capital Ratios Required Minimum September 30, 1999 December 31, 1998 Capital Ratios Ratios Company Bank Company Bank - - ------------------------------------------------------------------------------------ Risk-based capital ratios Tier I 4.00% 12.86% 12.70% 12.20% 11.99% Total 8.00% 14.13% 13.96% 13.46% 13.26% Leverage ratio 4.00% 7.42% 7.32% 7.18% 7.05% Risk Management The Company's management has adopted a Risk Management Policy to ensure the proper control and management of all risk factors inherent in the operation of the Company and the Bank. The policy is designed to address specific risk factors defined by federal bank regulators. These risk factors are not mutually exclusive. It is recognized that any product or service offered may expose the Bank to one or more of these risks. The Risk Management Policy identifies the significant risks as: credit risk, interest rate risk, liquidity risk, transaction risk, compliance risk, strategic risk, reputation risk, price risk, and foreign exchange risk. Year 2000 The financial institutions industry, as with other industries, is faced with year 2000 issues. These issues center around computer programs that do not recognize a year which begins with "20" instead of "19", or uses only 2 digits for the year. Certain statements in this section on the Year 2000 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 these forward-looking statements. Such factors include but are not limited to the estimated costs of remediation, the preparedness of third party vendors, timetables for implementation of future remediation and testing, contingency plans, and estimated future costs due to business disruption caused by affected third parties. 22

These statements are designated as Year 2000 Readiness Disclosures under the Year 2000 Information and Readiness Disclosures Act of 1998. The Company has been working on these issues for the last 30 months. A committee, known as Team 2000, was established to analyze the issues and determine compliance with the requirements for Year 2000. To facilitate a thorough and complete Year 2000 assessment and response to identified issues, a phased management procedural approach has been adopted as follows: Awareness Phase - Team 2000 coordinators and supporting staff are appointed and empowered to receive external training as necessary, and immediately review all pertinent regulatory and industry issuance's regarding Year 2000 issues. The team 2000 coordinators developed a process and overall strategy to cover in-house systems, service bureaus for systems that are outsourced, vendors, customers, and suppliers. Assessment Phase - Team 2000 coordinators will prepare a report regarding the size of the problem and complexity of Year 2000 issues, as well as the level of work and resources necessary to address them. The report will includes issues relating to hardware, software, networks, ATM's, processing platforms, and other equipment (copier, fax, phone exchange, etc.) customer systems, vendors, and environmental systems (security systems, elevators, vaults, etc.) Renovation Phase - Team 2000 coordinators supervise the project including enhancements, hardware and software upgrades, systems replacements and vendor certification as "Year 2000 Compliant". Work is prioritized depending on the applications impact. Insights may also be provided from "critical assessments" performed as part of the disaster recovery business resumption assessment. Validation Phase - After programming codes by outside vendors have been modified or systems upgraded, they are tested, when possible, in incremental states to assess full correction of the Year 2000 issues. Team 2000 coordinators establish time control check-off points to ensure timely completion of modifications or replacement activities. Implementation Phase - Once modifications are completed, replacements or upgrades are in place, and/or other changes have occurred to address Year 2000 problematic areas, the Year 2000 plan will be in full compliance. To date the Awareness Phase and the Assessment Phase have been completed. All in-house bank critical applications have been tested Year 2000 complaint. The Renovation Phase as it relates to "bank critical" systems/processes is 100% complete. The Validation Phase as it relates to "bank critical" system/processes is 100% complete. As of September 30, 1999, for approximately 3% of the external systems/processes deemed as "bank critical", the Bank has not been able to identify specific timelines to validate Year 2000 compliance due to dependencies on external parties (e.g., vendors, agencies, etc.,) who are not required by regulation to be Year 2000 compliant until a later date. Contingency and follow-up plans have been developed. The Bank has notified its customers by means of statement stuffers of Year 2000 issues. The Bank has contacted each of its major borrowing and depository customers to make them aware of the issues and to seek information regarding its customers' preparedness for the Year 2000. Failure of any major customer to be Year 2000 compliant could have a material adverse effect on the Company. 23

The Board of Directors of CVB and the Bank have approved a Year 2000 Policy and budget. The Board has approved a budget of $1.8 million for the anticipated costs of Year 2000 issues. The Board has allocated $1.0 million of the Bank's allowance for loan and lease losses to cover potential losses from customers due to their Year 2000 problems. In addition, the replacement of the Bank's teller system cost $600,000. The remaining $200,000 is budgeted for miscellaneous and contingency items. To date, the Company has expended approximately $75,000 for the testing of software and hardware. Of the $1.8 million budget to cover anticipated costs of year 2000 issues, the $1.0 million allocation from the allowance for loan and lease losses has already been provided through the income statement. The cost of $600,000 to replace the teller system was capitalized as these costs relate to the purchase of new equipment. Therefore, these costs will only impact the earnings of the Company as it is depreciated. The Company anticipates that the remaining $125,000 will be reflected in the income statement over the next quarter. Funds to address Year 2000 issues will come from operating cash funds. In addition, the Board of Directors of CVB and the Bank have engaged an outside CPA consulting firm to perform an internal audit related to the Bank's efforts associated with the Year 2000. The Bank received a "Satisfactory" rating for its Year 2000 plan and efforts in achieving the plan to date. The Company has an existing Disaster Recovery Plan or Contingency Plan in the event a disaster should occur and affect the Company. This Plan encompasses the restoration of all or part of the Company's systems should that be necessary. This Plan has been augmented to cover contingencies arising from the Year 2000. The Plan has been tested in the past and the augmented Plan was most recently tested in the third quarter of 1998. In addition, the Company used a full day system outage simulation at its off-site recovery location in the first quarter of 1999 as an opportunity to test its Year 2000 Contingency Plan. The Company replicated the testing performed at the off-site recovery location as well as other scenarios in the second quarter of 1999. The Year 2000 Contingency Plan involves the following four phases: 1. Organizational Planning 2. Business Impact Analysis 3. Business resumption contingency plan 4. Validating the business resumption contingency plan Phases one, two, and three are completed. Phase four is ongoing throughout 1999. 24

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 Special Meeting of Shareholders was held August 25, 1999. The number of shares cast for and against a resolution approving the merger with Orange National Bancorp was as follows: Broker For Against Abstained Non-Votes 15,823,399 162,733 581,989 -0- 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 None 25

Exhibit Index Exhibit No. Description Page 27 Financial Data Schedule 28 26

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 8, 1999 /s/ Edward J. Biebrich Jr. -------------------------- Edward J. Biebrich Jr. Chief Financial Officer 27

9 THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE SEPTEMBER 30, 1999, CONSOLIDATED BALANCE SHEET, AND THE SEPTEMBER 30, 1999, CONSOLIDATED STATEMENT OF EARNINGS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.

9-MOS DEC-31-1999 SEP-30-1999 103,902 0 0 0 683,670 62,282 62,980 730,763 14,702 1,626,463 1,245,942 235,000 30,382 381 0 0 95,068 19,690 1,626,463 47,153 32,352 188 79,693 16,172 24,845 54,848 1,900 (77) 36,775 28,450 17,922 0 0 17,922 1.08 1.04 5.22 219 61 0 2,117 13,364 684 122 14,702 12,749 0 1,953