e10vq
Table of Contents

 
 
FORM 10-Q
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
     
þ   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2006
or
     
o   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, 2006   Commission File Number: 0-10140
CVB FINANCIAL CORP.
(Exact name of registrant as specified in its charter)
     
California
(State or other jurisdiction of incorporation
or organization)
  95-3629339
(I.R.S. Employer Identification No.)
     
701 North Haven Ave, Suite 350, Ontario, California
(Address of Principal Executive Offices)
  91764
(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 þ No o
     Indicate by check mark whether the registrant is a large accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
     Large accelerated filer þ           Accelerated filer o           Non-accelerated filer o
     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o No þ
Number of shares of common stock of the registrant: 76,495,148 outstanding as of May 4, 2006.
 
 

 


 

CVB FINANCIAL CORP.
2006 QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS
 
 Exhibit 31.1
 Exhibit 31.2
 Exhibit 32.1
 Exhibit 32.2

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PART I — FINANCIAL INFORMATION (UNAUDITED)
ITEM 1. FINANCIAL STATEMENTS
CVB FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(unaudited)
Dollar amounts in thousands
                 
    March 31,     December 31,  
    2006     2005  
ASSETS
               
Investment securities available-for-sale
  $ 2,406,986     $ 2,369,892  
Interest-bearing balances due from depository institutions
    1,784       1,883  
Investment in stock of Federal Home Loan Bank (FHLB)
    72,362       70,770  
Loans and lease finance receivables
    2,717,127       2,663,863  
Allowance for credit losses
    (23,584 )     (23,204 )
 
           
Total earning assets
    5,174,675       5,083,204  
Cash and due from banks
    131,453       130,141  
Premises and equipment, net
    41,258       40,020  
Intangibles
    11,886       12,474  
Goodwill
    31,531       32,357  
Cash value life insurance
    72,633       71,811  
Accrued interest receivable
    25,825       24,147  
Deferred tax asset
    29,428       18,420  
Other assets
    9,225       10,397  
 
           
TOTAL ASSETS
  $ 5,527,914     $ 5,422,971  
 
           
 
               
LIABILITIES AND STOCKHOLDERS’ EQUITY
               
Liabilities:
               
Deposits:
               
Noninterest-bearing
  $ 1,362,022     $ 1,490,613  
Interest-bearing
    2,114,059       1,933,433  
 
           
Total deposits
    3,476,081       3,424,046  
Demand Note to U.S. Treasury
    936       6,433  
Short-term borrowings
    1,245,000       916,000  
Long-term borrowings
    305,000       580,000  
Accrued interest payable
    12,189       15,047  
Deferred compensation
    8,679       7,102  
Junior subordinated debentures
    108,250       82,476  
Other liabilities
    32,214       48,990  
 
           
TOTAL LIABILITIES
    5,188,349       5,080,094  
 
           
 
               
COMMITMENTS AND CONTINGENCIES
               
 
               
Stockholders’ Equity:
               
Preferred stock (authorized, 20,000,000 shares without par; none issued or outstanding)
           
Common stock (authorized, 122,070,312 shares without par; issued and outstanding 76,479,277 (2006) and 76,430,206 (2005))
    253,302       252,717  
Retained earnings
    114,850       103,546  
Accumulated other comprehensive loss, net of tax
    (28,587 )     (13,386 )
 
           
Total stockholders’ equity
    339,565       342,877  
 
           
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
  $ 5,527,914     $ 5,422,971  
 
           
See accompanying notes to the consolidated financial statements.

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CVB FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(unaudited)
Dollar amounts in thousands, except per share
                 
    For the Three Months  
    Ended March 31,  
    2006     2005  
       
Interest income:
               
Loans, including fees
  $ 44,292     $ 32,380  
Investment securities:
               
Taxable
    20,737       18,703  
Tax-preferred
    6,245       4,087  
 
           
Total investment income
    26,982       22,790  
Dividends from FHLB stock
    800       475  
Federal funds sold
    32       4  
Interest bearing deposits with other institutions
    26       34  
 
           
Total interest income
    72,132       55,683  
Interest expense:
               
Deposits
    13,201       5,061  
Short-term borrowings
    10,369       1,964  
Long-term borrowings
    3,169       6,724  
Junior subordinated debentures
    1,568       1,310  
 
           
Total interest expense
    28,307       15,059  
 
           
Net interest income before provision for credit losses
    43,825       40,624  
Provision for credit losses
    250        
 
           
Net interest income after provision for credit losses
    43,575       40,624  
Other operating income:
               
Service charges on deposit accounts
    3,291       3,042  
Financial Advisory services
    1,845       1,678  
Bankcard services
    558       604  
BOLI income
    822       342  
Other
    1,213       1,413  
 
           
Total other operating income
    7,729       7,079  
 
           
Other operating expenses:
               
Salaries and employee benefits
    12,720       12,833  
Occupancy
    2,029       1,998  
Equipment
    1,745       1,744  
Stationary and supplies
    1,586       1,195  
Professional services
    1,273       1,025  
Promotion
    1,507       1,796  
Amortization of intangibles
    588       296  
Other
    2,022       (503 )
 
           
Total other operating expenses
    23,470       20,384  
 
           
Earnings before income taxes
    27,834       27,319  
Income taxes
    9,594       9,618  
 
           
Net earnings
  $ 18,240     $ 17,701  
 
           
 
               
Basic earnings per common share
  $ 0.24     $ 0.23  
 
           
Diluted earnings per common share
  $ 0.24     $ 0.23  
 
           
 
               
Cash dividends per common share
  $ 0.09     $ 0.11  
 
           
See accompanying notes to the consolidated financial statements.

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CVB FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited)
                                         
                            Accumulated        
                            Other        
    Common                     Comprehensive        
    Shares     Common     Retained     Income (Loss),     Comprehensive  
    Outstanding     Stock     Earnings     Net of Tax     Income (Loss)  
    (amounts and shares in thousands)  
Balance December 31, 2004
    60,666     $ 236,277     $ 72,314     $ 8,892          
Issuance of common stock
    460       1,789                          
5-for-4 stock split
    15,284                                  
Repurchase of common stock
    (676 )     (863 )     (11,423 )                
Shares issued for acquisition of Granite State Bank
    696       13,427                          
Tax benefit from exercise of stock options
            2,087                          
Cash dividends ($0.42 per share)
                    (27,963 )                
Comprehensive income:
                                       
Net earnings
                    70,618             $ 70,618  
Other comprehensive loss:
                                       
Unrealized loss on securities available-for-sale, net
                            (22,278 )     (22,278 )
 
                                     
Comprehensive income
                                  $ 48,340  
 
                             
Balance December 31, 2005
    76,430       252,717       103,546       (13,386 )        
Issuance of common stock
    49       367                          
Tax benefit from exercise of stock options
            82                          
Stock-based Compensation Expense
            136                          
Cash dividends ($0.09 per share)
                    (6,936 )                
Comprehensive income:
                                       
Net earnings
                    18,240             $ 18,240  
Other comprehensive loss:
                                       
Unrealized loss on securities available-for-sale, net of taxes $11,008
                            (15,201 )     (15,201 )
 
                                     
Comprehensive income
                                  $ 3,039  
 
                             
Balance March 31, 2006
    76,479     $ 253,302     $ 114,850     $ (28,587 )        
 
                             
                                         
                            Accumulated        
                            Other        
    Common                     Comprehensive        
    Shares     Common     Retained     Income (Loss),     Comprehensive  
    Outstanding     Stock     Earnings     Net of Tax     Income (Loss)  
    (amounts and shares in thousands)  
Balance December 31, 2004
    60,666       236,277       72,314       8,892          
Issuance of common stock
    305       895                          
Shares issued for acquisition of Granite State Bank
    696       13,427                          
Tax benefit from exercise of stock options
            1,401                          
Cash dividends ($0.11 per share)
                    (7,637 )                
Comprehensive income:
                                       
Net earnings
                    17,701             $ 17,701  
Other comprehensive loss:
                                       
Unrealized loss on securities available-for-sale, net of taxes $13,787
                            (19,039 )     (19,039 )
 
                                     
Comprehensive loss
                                  $ (1,338 )
 
                             
Balance March 31, 2005
    61,667     $ 252,000     $ 82,378     $ (10,147 )        
 
                               
                 
    At March 31,  
    2006     2005  
    (amounts and shares in thousands)  
Disclosure of reclassification amount
               
Unrealized losses on securities arising during the period
  $ (26,209 )   $ (32,826 )
Tax benefit
    11,008       13,787  
 
           
Net unrealized loss on securities
  $ (15,201 )   $ (19,039 )
 
           
See accompanying notes to the consolidated financial statements.

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CVB FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
                 
    For the Three Months  
    Ended March 31,  
    2006     2005  
    (Dollar amounts in thousands)  
CASH FLOWS FROM OPERATING ACTIVITIES:
               
Interest received
  $ 71,825     $ 55,483  
Service charges and other fees received
    7,724       7,079  
Interest paid
    (31,165 )     (15,358 )
Cash paid to suppliers and employees
    (24,128 )     (19,935 )
Income taxes paid
    (950 )      
 
           
Net cash provided by operating activities
    23,306       27,269  
 
           
CASH FLOWS FROM INVESTING ACTIVITIES:
               
Proceeds from repayment of MBS
    82,866       96,223  
Proceeds from repayment of investment securities available-for-sale
          67  
Proceeds from maturity of investment securities
    599       297  
Purchases of investment securities available-for-sale
    (98,858 )     (52,716 )
Purchases of MBS
    (70,120 )     (260,941 )
Purchases of FHLB stock
    (1,592 )     (4,527 )
Net (increase) decrease in loans
    (51,208 )     24,443  
Proceeds from sales of premises and equipment
    5        
Purchase of premises and equipment
    (2,738 )     (2,650 )
Cash acquired from purchase of Granite State Bank, net of cash paid
          12,232  
Investment in common stock of CVB Statutory Trust III
    (774 )      
 
           
Net cash used in investing activities
    (141,820 )     (187,572 )
 
           
CASH FLOWS FROM FINANCING ACTIVITIES:
               
Net (decrease) increase in transaction deposits
    (56,165 )     29,078  
Net increase in time deposits
    108,202       9,997  
Advances from Federal Home Loan Bank
          120,000  
Repayment of advances from Federal Home Loan Bank
    (65,000 )      
Net increase in short-term borrowings
    113,502       50,683  
Cash dividends on common stock
    (6,936 )     (7,637 )
Issuance of junior subordinated debentures
    25,774        
Proceeds from exercise of stock options
    367       895  
Tax benefit related to exercise of stock options
    82        
 
           
Net cash provided by financing activities
    119,826       203,016  
 
           
NET INCREASE IN CASH AND CASH EQUIVALENTS
    1,312       42,713  
CASH AND CASH EQUIVALENTS, beginning of period
    130,141       84,400  
 
           
CASH AND CASH EQUIVALENTS, end of period
  $ 131,453     $ 127,113  
 
           
See accompanying notes to the consolidated financial statements.

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CVB FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(unaudited)
                 
    For the Three Months  
    Ended March 31,  
    2006     2005  
    (Dollar amounts in thousands)  
RECONCILIATION OF NET EARNINGS TO NET CASH PROVIDED BY OPERATING ACTIVITIES:
               
Net earnings
  $ 18,240     $ 17,701  
Adjustments to reconcile net earnings to net cash provided by operating activities:
               
Gain on sale of premises and equipment
    45        
Increase in cash value of life insurance
    (822 )     (954 )
Net amortization of premiums on investment securities
    2,549       3,146  
Provisions for credit losses
    250        
Stock-based compensation
    136        
Depreciation and amortization
    2,863       1,812  
Change in accrued interest receivable
    (1,679 )     (2,463 )
Change in accrued interest payable
    (2,857 )     (299 )
Change in other assets and liabilities
    4,581       8,326  
 
           
Total adjustments
    5,066       9,568  
 
           
NET CASH PROVIDED BY OPERATING ACTIVITIES
  $ 23,306     $ 27,269  
 
           
 
               
Supplemental Schedule of Noncash Investing and Financing Activities
               
Purchase of Granite State Bank:
               
Assets acquired
          $ 85,898  
Goodwill
            12,777  
Intangible assets
            8,399  
Liabilities assumed
            (105,879 )
Stock issued
            (13,427 )
 
             
Purchase price of acquisition, net of cash received
          $ (12,232 )
 
             
 
               
Securities purchased and not settled
  $ 6,103     $  
See accompanying notes to the consolidated financial statements.

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CVB FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
For the three months ended March 31, 2006 and 2005
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
     The accompanying condensed consolidated unaudited financial statements and notes thereto have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission for Form 10-Q and conform to practices within the banking industry and include all of the information and disclosures required by accounting principles generally accepted in the United States of America for interim financial reporting. The results of operations for the three months ended March 31, 2006 are not necessarily indicative of the results for the full year. These financial statements should be read in conjunction with the financial statements, accounting policies and financial notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2005 filed with the Securities and Exchange Commission. In the opinion of management, the accompanying condensed consolidated unaudited financial statements reflect all adjustments (consisting only of normal recurring adjustments), which are necessary for a fair representation of financial results for the interim periods presented. A summary of the significant accounting policies consistently applied in the preparation of the accompanying consolidated financial statements follows.
     Principles of Consolidation - The consolidated financial statements include the accounts of CVB Financial Corp. (the “Company”) and its wholly owned subsidiaries: Citizens Business Bank (the “Bank”); CVB Ventures, Inc.; Chino Valley Bancorp; and ONB Bancorp after elimination of all intercompany transactions and balances. The Company is also the common stockholder of CVB Statutory Trust I, CVB Statutory Trust II and CVB Statutory Trust III. CVB Statutory Trusts I and II were created in December 2003 and CVB Statutory Trust III was created in January 2006 to issue trust preferred securities in order to raise capital for the Company. In accordance with Financial Accounting Standards Board Interpretation No. 46R “Consolidation of Variable Interest Entities” (“FIN No. 46R”), these trusts are not included in the consolidated financial statements.
     Nature of Operations - The Company’s primary operations are related to traditional banking activities, including the acceptance of deposits and the lending and investing of money through the operations of the Bank. The Bank also provides automobile and equipment leasing, and brokers mortgage loans to customers through its Golden West Financial Division and trust services to customers through its Financial Advisory Services Division and Business Financial Centers (branch offices). The Bank’s customers consist primarily of small to mid-sized businesses and individuals located in San Bernardino County, Riverside County, Orange County, Madera County, Fresno County, Tulare County, Kern County, and the eastern portion of Los Angeles County in Southern California. The Bank operates 40 Business Financial Centers with its headquarters located in the city of Ontario.
     The Company’s operating business units have been combined into two main segments: Business Financial Centers and Treasury. Business Financial Centers (branches) comprise the loans, deposits, products and services the Bank offers to the majority of it’s customers. The other segment is Treasury Department, which manages the investment portfolio of the Company.
     The internal reporting of the Company considers all business units. Funds are allocated to each business unit based on its need to fund assets (use of funds) or its need to invest funds (source of funds). Net income is determined based on the actual net income of the business unit plus the allocated income or expense based on the sources and uses of funds for each business unit. Non-interest income and non-interest expense are those items directly attributable to a business unit.

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     Investment Securities - The Company classifies as held-to-maturity those debt securities that the Company has the positive intent and ability to hold to maturity. Securities classified as trading are those securities that are bought and held principally for the purpose of selling them in the near term. All other debt and equity securities are classified as available-for-sale. Securities held-to-maturity are accounted for at cost and adjusted for amortization of premiums and accretion of discounts. Trading securities are accounted for at fair value with the unrealized holding gains and losses being included in current earnings. Available-for-sale securities are accounted for at fair value, with the net unrealized gains and losses, net of income tax effects, presented as a separate component of stockholders’ equity. At each reporting date, available-for-sale securities are assessed to determine whether there is an other-than-temporary impairment. Such impairment, if any, is required to be recognized in current earnings rather than as a separate component of stockholders’ equity. Realized gains and losses on sales of securities are recognized in earnings at the time of sale and are determined on a specific-identification basis. Purchase premiums and discounts are recognized in interest income using the interest method over the life of the security. For mortgage-related securities (i.e., securities that are collateralized and payments received from underlying mortgage) the amortization or accretion is based on the estimated average lives of the securities. The Company’s investment in Federal Home Loan Bank (“FHLB”) stock is carried at cost. At March 31, 2006, all of the Company’s investment securities are classified as available-for-sale.
     Loans and Lease Finance Receivables - Loans and lease finance receivables are reported at the principal amount outstanding, less deferred net loan origination fees. Interest on loans and lease finance receivables is credited to income based on the principal amount outstanding. Interest income is not recognized on loans and lease finance receivables when collection of interest is deemed by management to be doubtful. 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, 2006, the Company had entered into commitments with certain customers amounting to $972.5 million compared to $895.8 million at December 31, 2005. Letters of credit at March 31, 2006, and December 31, 2005, were $67.5 million and $68.9 million, respectively.
     The Bank receives collateral to support loans, lease finance receivables, and commitments to extend credit for which collateral is deemed necessary. The most significant categories of collateral are real estate, principally commercial and industrial income-producing properties, real estate mortgages, and assets utilized in agribusiness.
     Nonrefundable fees and direct costs associated with the origination or purchase of loans are deferred and netted against outstanding loan balances. The deferred net loan fees and costs are recognized in interest income over the loan term in a manner that approximates the level-yield method.
     Provision and Allowance for Credit Losses - The determination of the balance in the allowance for credit losses is based on an analysis of the loan and lease finance receivables portfolio using a systematic methodology and reflects an amount that, in management’s judgment, is adequate to provide for probable credit losses inherent in the portfolio, after giving consideration to the character of the loan portfolio, current economic conditions, past credit loss experience, and such other factors as deserve current recognition in estimating inherent credit losses. The estimate is reviewed periodically by management and various regulatory entities and, as adjustments become necessary, they are reported in earnings in the periods in which they become known. The provision for credit losses is charged to expense. During the first quarter of 2006, the Company recorded $250,000 provision for credit losses. The allowance for credit losses was $23.6 million as of March 31, 2006. This represents an increase of $380,000 when compared with an allowance for credit losses of $23.2 million as of December 31, 2005. The increase was primarily due to the provision for credit losses of $250,000 and the loan recoveries of $150,000, offset by the charge-off loans of $20,000 during the first quarter of 2006.
     A loan for which collection of principal and interest according to its original terms is not probable is considered to be impaired. The Company’s policy is to record a specific valuation allowance, which is

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included in the allowance for credit losses, or charge off that portion of an impaired loan that exceeds its fair value. Fair value is usually based on the value of underlying collateral.
     There were no loans classified as impaired at March 31, 2006 and December 31, 2005. A loan is impaired when, based on current information and events, it is probable that a creditor will be unable to collect all amounts (contractual interest and principal) according to the contractual terms of the loan agreement.
     Premises and Equipment - Premises and equipment are stated at cost, less accumulated depreciation, which is provided for in amounts sufficient to relate the cost of depreciable assets to operations over their estimated service lives using the straight-line method. Properties under capital lease and leasehold improvements are amortized over the shorter of estimated economic lives of 15 years or the initial terms of the leases. Estimated lives are 3 to 5 years for computer and equipment, 5 to 7 years for furniture, fixtures and equipment, and 15 to 40 years for buildings and improvements. Long-lived assets are reviewed periodically for impairment when events or changes in circumstances indicate that the carrying amount may not be recoverable. The impairment is calculated as the difference between the expected undiscounted future cash flows of a long-lived asset, if lower, and its carrying value. The impairment loss, if any, would be recorded in noninterest expense.
     Other Real Estate Owned - Other real estate owned represents real estate acquired through foreclosure in satisfaction of commercial and real estate loans and is stated at fair value, minus estimated costs to sell (fair value at time of foreclosure). Loan balances in excess of fair value of the real estate acquired at the date of acquisition are charged against the allowance for credit losses. Any subsequent operating expenses or income, reduction in estimated values, and gains or losses on disposition of such properties are charged to current operations. There is no other real estate owned at March 31, 2006 and December 31, 2005.
     Business Combinations and Intangible Assets – The Company has engaged in the acquisition of financial institutions and the assumption of deposits and purchase of assets from other financial institutions in its market area. The Company has paid premiums on certain transactions, and such premiums are recorded as intangible assets, in the form of goodwill or other intangible assets. In accordance with the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 142, goodwill is not being amortized whereas identifiable intangible assets with finite lives are amortized over their useful lives. On an annual basis, the Company tests goodwill and intangible assets for impairment.
     Additionally, as required by SFAS No. 142, the Company completed its annual impairment test as of June 30, 2005 and did not record any impairment of goodwill. At March 31, 2006 goodwill was $31.5 million (net of amortization of $5.4 million recorded prior to the adoption of SFAS No. 142). As of March 31, 2006, intangible assets that continue to be subject to amortization include core deposits of $11.9 million (net of $7.8 million of accumulated amortization). During the first quarter of 2006, the Company finalized the goodwill analysis for the Granite State Bank acquisition and adjusted goodwill in the amount of $826,000 to record additional purchase price adjustment related to the acquisition. Amortization expense for such intangible assets was $588,000 for the three months ended March 31, 2006. Estimated amortization expense, for the remainder of 2006 is expected to be $1.76 million. Estimated amortization expense, for the succeeding five fiscal years is $2.35 million for year one and year two, $1.75 million for year three, $1.70 million for year four and $1.60 million for year five. The weighted average remaining life of intangible assets is approximately 4.8 years.
     Income Taxes - Deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each year-end, based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income.

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     Earnings per Common Share - Basic earnings per share are computed by dividing income available to common stockholders by the weighted-average number of common shares outstanding during each period. The computation of diluted earnings per common share considers the number of shares issuable upon the assumed exercise of outstanding common stock options. Share and per share amounts have been retroactively restated to give effect to all stock dividends and splits. The actual number of shares outstanding at March 31, 2006 was 76,479,277. The table below presents the reconciliation of earnings per share for the periods indicated.
                                                 
    Earnings Per Share Reconciliation  
    (Dollars and shares in thousands, except per share amounts)  
    For the Three Months  
    Ended March 31,  
    2006     2005  
            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
  $ 18,240       76,460     $ 0.24     $ 17,701       76,393     $ 0.23  
EFFECT OF DILUTIVE SECURITIES
                                               
Incremental shares from assumed exercise of outstanding options
            621       0.00               770       0.00  
         
DILUTED EPS
                                               
Income available to common stockholders
  $ 18,240       77,081     $ 0.24     $ 17,701       77,163     $ 0.23  
         
     Stock-Based Compensation - At March 31, 2006, the Company has three stock-based employee compensation plans, which are described more fully in Note 15 in the Company’s Annual Report on Form 10-K.
     The Company adopted Statement of Financial Accounting Standards No. 123 (revised 2004), Share-Based Payment (“SFAS No. 123R”), using the “modified prospective” method. Under this method, awards that are granted, modified, or settled after December 31, 2005, are measured and accounted for in accordance with SFAS No. 123R. Also under this method, unvested stock awards as of December 31, 2005 are recognized over the remaining service period with no change in historical reported earnings. Prior to the adoption of SFAS No. 123R, the Company accounted for stock compensation under the intrinsic value method permitted by Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (“APB No. 25”) and related interpretations. Accordingly, the Company previously recognized no compensation cost for employee stock options that were granted with an exercise price equal to the market value of the underlying common stock on the date of grant. The Company provided pro forma disclosure amounts in accordance with SFAS No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosure” (SFAS No. 148), as if the fair value method defined by SFAS No. 123 had been applied to its stock-based compensation.
     As a result of adopting SFAS 123R on January 1, 2006, the net income for the three months ended March 31, 2006, was $118,000 lower than if the Company had continued to account for stock-based compensation under APB Opinion No. 25. There was no impact on earnings per share.
     Prior to the adoption of SFAS 123R, the Company presented all tax benefits of deductions resulting from the exercise of stock options as operating cash flows in the Consolidated Statements of Cash Flows. SFAS 123R requires the tax benefits resulting from deductions in excess of the compensation cost recognized for those options (“excess tax benefits”) to be classified as financing cash flows. The Company has $82,000 of excess tax benefit resulting from disqualified position classified as financing activities in the Consolidated Statements of Cash Flows for the three months ended March 31, 2006.

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     The following table illustrates the effect on net income and earnings per share had the Company accounted for stock-based compensation in accordance with SFAS 123R for the three months ended March 31, 2005:
         
    For the three months ended  
    March 31, 2005  
    (dollars in thousands)  
Net income, as reported
  $ 17,701  
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects
    218  
 
     
Pro forma net income
  $ 17,483  
 
     
 
Earnings per share:
       
Basic — as reported
  $ 0.23  
Basic — pro forma
  $ 0.23  
 
Diluted — as reported
  $ 0.23  
Diluted — pro forma
  $ 0.23  
     The estimated fair value of the options granted during 2006 and prior years was calculated using the Black-Scholes option pricing model. There were 32,000 options granted during the first three months of 2006. No options were granted during the same period in 2005. The fair value of each stock option granted in 2006 was estimated on the date of grant using the following weighted-average assumptions:
         
    March 31,  
    2006  
Dividend Yield
    1.7 %
Volatility
    40.1 %
Risk-free interest rate
    4.8 %
Expected life
  6.7 years
     Option activity under the Company’s stock option plan as of March 31, 2006 and changes during the three months ended March 31, 2006 and 2005 were as follows:
                                 
    Number of             Weighted        
    Stock     Weighted     Average     Aggregate  
    Options     Average     Remaining     Intrinsic  
    Outstanding     Exercise     Contractual     Value  
Options   (000)     Price     Term (in Years)     ($000)  
Outstanding at January 1, 2006
    1,869     $ 9.34                  
Granted
    32     $ 17.01                  
Exercised
    49     $ 7.49                  
Forfeited or expired
    83     $ 12.15                  
 
                       
Outstanding at March 31, 2006
    1,769     $ 9.40       5.82     $ 13,621  
 
                       
Unvested shares at March 31, 2006
    635     $ 13.23       8.00     $ 2,457  
 
                       
Exercisable at March 31, 2006
    1,134     $ 7.26       4.60     $ 11,164  
 
                       
                                 
    Number of             Weighted        
    Stock     Weighted     Average     Aggregate  
    Options     Average     Remaining     Intrinsic  
    Outstanding     Exercise     Contractual     Value  
Options   (000)     Price     Term (in Years)     ($000)  
Outstanding at January 1, 2005
    2,416     $ 7.74                  
Granted
        $ 0.00                  
Exercised
    407     $ 3.22                  
Forfeited or expired
    1     $ 8.47                  
 
                       
Outstanding at March 31, 2005
    2,008     $ 8.65       5.73     $ 11,762  
 
                       
Unvested shares at March 31, 2005
    923     $ 11.09       6.87     $ 3,156  
 
                       
Exercisable at March 31, 2005
    1,084     $ 6.57       4.76     $ 8,606  
 
                       
     The weighted-average grant-date fair value of options granted during the three months ended March 31, 2006 was $6.93. There were no options granted during the three months ended March 31, 2005. The total intrinsic value of options exercised during the three months ended March 31, 2006 and 2005 was $442,000 and $4.97 million, respectively. SFAS 123R requires an estimate of forfeitures be used in the calculation. The Company estimates its forfeiture rates based on its historical experience.
     A summary of the status of the Company’s nonvested shares as of March 31, 2006 and 2005, and changes during the three months ended March 31, 2006 and 2005, is presented below:

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    2006     2005  
            Weighted             Weighted  
    Shares     Average Fair     Shares     Average Fair  
Nonvested Shares   (000)     Value     (000)     Value  
Nonvested at January 1, 2006
    764     $ 4.54       1,013     $ 3.81  
Granted
    32     $ 6.93           $ 0.00  
Vested
    (78 )   $ 2.40       (89 )   $ 1.96  
Forfeited
    (83 )   $ 4.25       (1 )   $ 1.96  
 
                       
Nonvested at March 31, 2006
    635     $ 4.71       923     $ 3.76  
 
                       
     As of March 31, 2006, there was $1.64 million of total unrecognized compensation cost related to nonvested shares-based compensation arrangements granted under the Plan. That cost is expected to be recognized over a weighted-average period of approximately 4.5 years. The total fair value of shares vested during the three months ended March 31, 2006 and 2005 was $187,000 and $174,000, respectively.
     As of March 31, 2006 and 2005, the Company has 4,111,767 and 4,160,900, respectively, shares of common stock available for granting of future options under the May 2000 Plan.
     Statement of Cash Flows - Cash and cash equivalents as reported in the statements of cash flows include cash and due from banks and fed funds sold. Cash flows from loans and deposits are reported net.
     Trust Services - The Company maintains funds in trust for customers. The amount of these funds and the related liability have not been recorded in the accompanying consolidated balance sheets because they are not assets or liabilities of the Bank or Company, with the exception of any funds held on deposit with the Bank.
     Use of Estimates in the Preparation of Financial Statements - The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
     Recent Accounting Pronouncements - In March 2006, the Financial Accounting Standards Board (“FASB”) staff issued SFAS No. 156, “Accounting for Servicing of Financial Assets an amendment of FASB Statement No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities” (“SFAS No. 156”). SFAS No. 156 requires all separately recognized servicing assets and liabilities to be initially measured at fair value. In addition, entities are permitted to choose to either subsequently measure servicing rights at fair value and report changes in fair value in earnings, or amortize servicing rights in proportion to and over the estimated net servicing income or loss and assess the rights for impairment. Beginning with the fiscal year in which an entity adopts SFAS No. 156, it may elect to subsequently measure a class of servicing assets and liabilities at fair value. Post adoption, an entity may make this election as of the beginning of any fiscal year. An entity that elects to subsequently measure a class of servicing assets and liabilities at fair value should apply that election to all new and existing recognized servicing assets and liabilities within that class. The effect of remeasuring an existing class of servicing assets and liabilities at fair value is to be reported as a cumulative-effect adjustment to retained earnings as of the beginning of the period of adoption. SFAS No. 156 is effective as of the beginning of an entity’s first fiscal year that begins after September 15, 2006. The statement also requires additional disclosures. The Company does not expect the adoption of SFAS No. 156 to have a material effect on the Company’s consolidated financial position or results of operations.
     Reclassification - Certain amounts in the prior periods’ financial statements and related footnote disclosures have been reclassified to conform to the current presentation.

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     During the first quarter of 2006, we reclassified the consolidated statements of earnings for the three months ended March 31, 2005 by reducing $313,000 from “Loans, including fees” and reducing the same amount from “Salaries and employee benefits”. This reclassification did not have any impact to our net earnings; however, it reduced our net interest income by $313,000 for the three months ended March 31, 2005. As a result, our “net interest margin – tax equivalent” for the first three months ended March 31, 2005 reduced from 3.99% as reported previously to 3.96% as restated in this current report.
     Shareholder Rights Plan - In 2000, the Company adopted a shareholder rights plan designed to maximize long-term value and to protect shareholders from improper takeover tactics and takeover bids which are not fair to all shareholders. In accordance with the plan, preferred share purchase rights were distributed as a dividend at the rate of one right to purchase one one-thousandth of a share of the Company’s Series A Participating Preferred Stock at an initial exercise price of $50.00 (subject to adjustment as described in the terms of the plan) upon the occurrence of certain triggering events. For additional information concerning this plan, see Note 11 to Consolidated Financial Statements, “Commitments and Contingencies” contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2005.
     Other Contingencies - In the ordinary course of business, the Company becomes involved in litigation. Based upon the Company’s internal records and discussions with legal counsel, the Company records reserves for estimates of the probable outcome of all cases brought against them.
     Business Segments - The Company is a community bank with our Business Financial Centers (branches) being the focal points for customer sales and services. As such, these Business Financial Centers comprise the biggest segment of the Company. The next largest business unit is the Treasury Department. This department manages all of the investments for the Company.
     The following table represents the selected financial information for these two business segments. Accounting principles generally accepted in the United States of America do not have an authoritative body of knowledge regarding the management accounting used in presenting these numbers. The accounting policies for each of the business units is the same as those policies identified for the consolidated Company and identified in the footnote on the summary of significant accounting policies. The income numbers represent the actual income and expenses of each business unit. In addition, each segment has allocated income and expenses based on management’s internal reporting system, which allows management to determine the performance of each of its business units. Loan fees are the actual loan fees paid to the Company by its customers and these fees are not deferred as they are for the consolidated financial statements. All income and expense items not directly associated with the two business segments are grouped in the “Other” category. Future changes in the Company’s management structure or reporting methodologies may result in changes in the measurement of operating segment results.
     The following tables present the operating results and other key financial measures for the individual operating segments for the three months ended March 31, 2006 and 2005:

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    Three Month Ended March 31, 2006  
    Business                    
    Financial                    
    Centers     Treasury     Other     Total  
Interest income
  $ 33,552     $ 27,840     $ 10,740     $ 72,132  
Credit for funds provided
    16,532       0       1,146       17,678  
 
                       
Total interest income
    50,084       27,840       11,886       89,810  
 
                       
 
Interest expense
    9,721       16,564       2,022       28,307  
Charge for funds used
    1,590       7,065       9,023       17,678  
 
                       
Total interest expense
    11,311       23,629       11,045       45,985  
 
                       
 
Net interest income
  $ 38,773     $ 4,211     $ 841     $ 43,825  
 
                       
 
Non-interest income
    3,700       12       4,017       7,729  
Non-interest expense
    10,012       244       13,464       23,720  
 
                       
 
Segment pretax profit
  $ 32,461     $ 3,979     -$ 8,606     $ 27,834  
 
                       
 
Segment assets as of March 31, 2006
  $ 3,211,345     $ 1,822,703     $ 493,866     $ 5,527,914  
                                 
    Three Month Ended March 31, 2005  
    Business                    
    Financial                    
    Centers     Treasury     Other     Total  
Interest income
  $ 25,518     $ 23,303     $ 6,862     $ 55,683  
Credit for funds provided
    7,457       0       234       7,691  
 
                       
Total interest income
    32,975       23,303       7,096       63,374  
 
                       
 
Interest expense
    3,823       9,965       1,271       15,059  
Charge for funds used
    685       5,029       1,977       7,691  
 
                       
Total interest expense
    4,508       14,994       3,248       22,750  
 
                       
 
Net interest income
  $ 28,467     $ 8,309     $ 3,848     $ 40,624  
 
                       
 
Non-interest income
    2,685       17       4,377       7,079  
Non-interest expense
    8,889       297       11,198       20,384  
 
                       
 
Segment pretax profit
  $ 22,263     $ 8,029     -$ 2,973     $ 27,319  
 
                       
 
Segment assets as of March 31, 2005
  $ 2,859,149     $ 1,570,302     $ 402,542     $ 4,831,993  

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
     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 the Company and its operations, reference should be made to the financial statements included in this report and in the Company’s 2005 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. Our 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 we conduct operations, natural disasters, fluctuations in interest rates, credit quality, and government regulations. For additional information concerning these factors, see the periodic filings the Company makes with the Securities and Exchange Commission, and in particular “Item 1A. Risk Factors contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2005. The Company does not undertake, and specifically disclaims, any obligation to update any forward looking statements to reflect the occurrence of events or circumstances after the date of such statements. Additionally, our financial results and operations may be affected by competition which has manifested itself with increased pricing pressures for loans and deposits, thus compressing our net interest margin. Because of the pressure on the net interest margin, other operating income has become a more important element in the total revenue of the Company.
OVERVIEW
     We are a bank holding company with one bank subsidiary, Citizens Business Bank. We have three other inactive subsidiaries: CVB Ventures, Inc.; Chino Valley Bancorp and ONB Bancorp. In March 2006, we merged two of our operating subsidiaries, Community Trust Deed Services and Golden West Enterprises, Inc. into the Bank to increase the lending limit of Golden West’s leasing operations and to improve efficiency. We are also the common stockholder of CVB Statutory Trust I, CVB Statutory Trust II and CVB Statutory Trust III. CVB Statutory Trust I and II were created in December 2003 and CVB Statutory Trust III was created in January 2006 to issue $25 million trust preferred securities in order to increase the capital of the Company. We are based in Ontario, California in what is known as the “Inland Empire”. Our geographical market area encompasses Madera (the middle of the Central Valley) in the center of California to Laguna Beach (in Orange County) in the southern portion of California. Our mission is to offer the finest financial products and services to professionals and businesses in our market area.
     Our primary source of income is from the interest earned on our loans and investments and our primary area of expense is the interest paid on deposits, borrowings, salaries and benefits. As such our net income is subject to fluctuations in interest rates and their impact on our income statement. We believe the recent rise in interest rates may relieve some of the pressure on our net interest margin. We are also subject to competition from other financial institutions, which may affect our pricing of products and services, and the fees and interest rates we can charge on them. See the Risk Management section of this Item 2.
     Economic conditions in our California service area impact our business. The economy of this area has not experienced the decline that other areas of the state and country have witnessed during the past few years. The job market continues to strengthen in the Central Valley and Inland Empire. However, we

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are still subject to any changes in the economy in our market area. We benefit from construction growth in Southern California since we provide construction loans to builders. Southern California is experiencing growth in construction on single-family residences and commercial buildings, and our balance sheet at March 31, 2006 reflects that growth from December 31, 2005.
     Our growth in loans and investments compared with the first quarter of 2005 has allowed our interest income to grow. The Bank has always had an excellent base of interest free deposits due primarily to the fact that we specialize in businesses and professionals as customers. This has allowed us to have a low cost of deposits, currently 1.55% for the first quarter of 2006.
CRITICAL ACCOUNTING POLICIES
     Critical accounting policies are defined as those that are reflective of significant judgments and uncertainties, and could potentially result in materially different results under different assumptions and conditions. We believe that our most critical accounting policies upon which our financial condition depends, and which involve the most complex or subjective decisions or assessments are as follows:
     Allowance for Credit Losses: Arriving at an appropriate level of allowance for credit losses involves a high degree of judgment. Our allowance for credit losses provides for probable losses based upon evaluations of known and inherent risks in the loan portfolio. The determination of the balance in the allowance for credit losses is based on an analysis of the loan and lease finance receivables portfolio using a systematic methodology and reflects an amount that, in our judgment, is adequate to provide for probable credit losses inherent in the portfolio, after giving consideration to the character of the loan portfolio, current economic conditions, past credit loss experience, and such other factors as deserve current recognition in estimating inherent credit losses. The provision for credit losses is charged to expense. During the first quarter of 2006, we recorded $250,000 provision for credit losses. For a ful l discussion of our methodology of assessing the adequacy of the allowance for credit losses, see the “Risk Management” section of this Management’s Discussion and Analysis of Financial Condition and Results of Operations.
     Investment Portfolio: The investment portfolio is an integral part of the Company’s financial performance. We invest primarily in fixed income securities. Accounting estimates are used in the presentation of the investment portfolio and these estimates do impact the presentation of our financial condition and results of operations. Many of the securities included in the investment portfolio are purchased at a premium or discount. The premiums or discounts are amortized or accreted over the life of the security. For mortgage-related securities (i.e., securities that are collateralized and payments received from underlying mortgages), the amortization or accretion is based on estimated average lives of the securities. The lives of these securities can fluctuate based on the amount of prepayments received on the underlying collateral of the securities. The amount of prepayments varies from time to time based on the interest rate environment (i.e., lower interest rates increase the likelihood of refinances) and the rate of turnover of the mortgages (i.e., how often the underlying properties are sold and mortgages paid-off). We use estimates for the average lives of these mortgage-related securities based on information received from third parties whose business it is to compile mortgage related data and develop a consensus of that data. We adjust the rate of amortization or accretion regularly to reflect changes in the estimated average lives of these securities.
     We classify securities as held-to-maturity those debt securities that we have the positive intent and ability to hold to maturity. Securities classified as trading are those securities that are bought and held principally for the purpose of selling them in the near term. All other debt and equity securities are classified as available-for-sale. Securities held-to-maturity are accounted for at cost and adjusted for amortization of premiums and accretion of discounts. Trading securities are accounted for at fair value

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with the unrealized holding gains and losses being included in current earnings. Securities available-for-sale are accounted for at fair value, with the net unrealized gains and losses, net of income tax effects, presented as a separate component of stockholders’ equity. At each reporting date, available-for-sale securities are assessed to determine whether there is an other-than-temporary impairment. Such impairment, if any, is required to be recognized in current earnings rather than as a separate component of stockholders’ equity. Realized gains and losses on sales of securities are recognized in earnings at the time of sale and are determined on a specific-identification basis. Purchase premiums and discounts are recognized in interest income using the interest method over the terms of the securities, except for mortgage-related securities as discussed in the previous paragraph. Our investment in Federal Home Loan Bank (“FHLB” ) stock is carried at cost.
      Income Taxes: We account for income taxes by deferring income taxes based on estimated future tax effects of differences between the tax and book basis of assets and liabilities considering the provisions of enacted tax laws. These differences result in deferred tax assets and liabilities, which are included in our balance sheets. We must also assess the likelihood that any deferred tax assets will be recovered from future taxable income and establish a valuation allowance for those assets determined to not likely be recoverable. Our judgment is required in determining the amount and timing of recognition of the resulting deferred tax assets and liabilities, including projections of future taxable income. Although we have determined a valuation allowance is not required for all deferred tax assets, there is no guarantee that these assets are realizable.
      Goodwill and Intangible Assets: We have acquired entire banks and branches of banks. Those acquisitions accounted for under the purchase method of accounting have given rise to goodwill and intangible assets. We record the assets acquired and liabilities assumed at their fair value. These fair values are arrived at by use of internal and external valuation techniques. The purchase price is allocated to the assets and liabilities, resulting in identifiable intangibles. Any excess purchase price after this allocation results in goodwill. Goodwill is tested on an annual basis for impairment.
ANALYSIS OF THE RESULTS OF OPERATIONS
Earnings
      We reported net earnings of $18.2 million for the three months ended March 31, 2006. This represented an increase of $539,000 or 3.05%, over net earnings of $17.7 million, for the three months ended March 31, 2005. Basic and diluted earnings per share for the three-month period increased to $0.24 per share for 2006, compared to $0.23 per share for 2005. The annualized return on average assets was 1.35% for the first three months of 2006 compared to a return on average assets of 1.58% for the three months ended March 31, 2005. The annualized return on average equity was 20.82% for the three months ended March 31, 2006, compared to a return of 21.86% for the three months ended March 31, 2005.
      During the three months ended March 31, 2006 and 2005, the Company had no net gains or losses on sales of securities or sales of other real estate owned.
      During the first quarter of 2005, we recorded income of $2.6 million from the settlement of the robbery loss which occurred in early 2004. See Item 3 “Legal Proceedings” of PART I in our Annual Report on Form 10-K for year ended December 31, 2005 for more information. Net earnings, excluding the settlement of the robbery, totaled $16.0 million for the three months ended March 31, 2005. Net earnings of $18.2 million for the first quarter of 2006 represents an increase of $2.2 million or 13.89% when compared to the $16.0 million the first quarter 2005.

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     The following table reconciles the differences in net earnings with and without the settlement of robbery loss in conformity with accounting principles generally accepted in the United States of America:
                                                 
    Net Earnings Reconciliation
    For the Three Months
    Ended March 31,
    2006   2005
    Before Income   Income           Before Income        
    Taxes   Taxes   Net Earnings   Taxes   Income Taxes   Net Earnings
    ( amounts in thousands )
Net earnings without the settlement of robbery loss
  $ 27,834     $ 9,594     $ 18,240     $ 24,719     $ 8,703     $ 16,016  
Settlement of robbery loss
                      2,600       915       1,685  
         
Net Earnings as reported
  $ 27,834     $ 9,594     $ 18,240     $ 27,319     $ 9,618     $ 17,701  
         
     We have presented net earnings without the settlement of robbery loss to show shareholders that the earnings from operations are unaffected by the impact of this item. We believe this presentation allows the reader to more easily assess the results of the Company’s core operations and business.
Net Interest Income
     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 (earning assets) and the interest paid on deposits and borrowed funds (interest-bearing liabilities). 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 cost of average interest-bearing liabilities. Our net interest income, interest spread, and net interest margin are sensitive to general business and economic conditions. These conditions include short-term and long-term interest rates, inflation, monetary supply, and the strength of the economy, in general, and the local economies in which we conduct business. Our ability to manage the net interest income during changing interest rate environments will have a significant impact on our overall performance. We manage net interest income through affecting changes in the mix of earning assets as well as the mix of interest-bearing liabilities, changes in the level of interest-bearing liabilities in proportion to earning assets, and in the growth of earning assets.
     The Company’s net interest income after provision for credit losses totaled $43.6 million for the three months ended March 31, 2006. This represented an increase of $3.0 million, or 7.26%, over net interest income of $40.6 million for the same period in 2005. The increase in net interest income of $3.0 million resulted from a $16.4 million increase in interest income, offset by a $13.2 million increase in interest expense and $250,000 provision of credit losses recorded in the first quarter of 2006. The $16.4 million increase in interest income resulted from the $831.5 million increase in average earning assets and an increase in average yield on earning assets to 5.86% for the first three months of 2006 from 5.37% for the same period in 2005. The $13.2 million increase in interest expense resulted from an $800.7 million increase in average interest-bearing liabilities and an increase in the average rate paid on interest-bearing liabilities to 3.10% for the first three months of 2006 from 2.11% for the same period in 2005.
     Interest income totaled $72.1 million for the first three months of 2006. This represented an increase of $16.4 million, or 29.54%, compared to total interest income of $55.7 million for the same period last year. The increase in interest income was primarily the result of the increase in average earning assets from $4.29 billion in the first three months of 2005 to $5.12 billion in the same period in 2006. This represents a 19.40% increase for the first three months of 2006 over the same period last year and an increase in the average yield on earning assets by 49 basis points.

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     Interest expense totaled $28.3 million for the first three months of 2006. This represented an increase of $13.2 million, or 87.98%, over total interest expense of $15.1 million for the same period last year. The increase in interest expense was primarily the result of an increase in average interest-bearing liabilities and an increase in the cost of these liabilities by 99 basis points.
     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, 2006, and 2005. Yields for tax-preferenced investments are shown on a taxable equivalent basis using a 35% tax rate.
TABLE 1 — Distribution of Average Assets, Liabilities, and Stockholders’ Equity; Interest Rates and Interest Differentials
                                                 
    Three Months Ended March 31,  
    2006     2005  
    Average             Average     Average             Average  
    Balance     Interest     Rate (5)     Balance     Interest     Rate (5)  
    (amounts in thousands)  
ASSETS
                                               
 
                                               
Investment Securities
                                               
Taxable
  $ 1,822,602     $ 20,737       4.56 %   $ 1,743,110     $ 18,703       4.29 %
Tax preferenced (1)
    567,438       6,245       5.95 %     383,741       4,087       5.75 %
Investment in FHLB stock
    71,299       800       4.49 %     55,245       475       3.44 %
Federal Funds Sold & Interest Bearing
                                               
Deposits with other institutions
    4,667       58       4.97 %     5,614       38       2.71 %
Loans (2) (3)
    2,652,493       44,292       6.77 %     2,099,313       32,380       6.26 %
 
                                       
Total Earning Assets
    5,118,499       72,132       5.86 %     4,287,023       55,683       5.37 %
Total Non Earning Assets
    348,613                       262,681                  
 
                                           
Total Assets
  $ 5,467,112                     $ 4,549,704                  
 
                                           
 
                                               
LIABILITIES AND STOCKHOLDERS’ EQUITY
                                               
 
                                               
Savings Deposits (4)
  $ 1,231,002     $ 5,376       1.77 %   $ 1,094,458     $ 2,554       0.95 %
Time Deposits
    829,970       7,825       3.82 %     496,630       2,507       2.05 %
 
                                       
Total Deposits
    2,060,972       13,201       2.60 %     1,591,088       5,061       1.29 %
Other Borrowings
    1,610,620       15,106       3.75 %     1,279,765       9,998       3.12 %
 
                                       
Interest Bearing Liabilities
    3,671,592       28,307       3.10 %     2,870,853       15,059       2.11 %
 
                                       
Non-interest bearing deposits
    1,386,972                       1,336,937                  
Other Liabilities
    53,177                       13,495                  
Stockholders’ Equity
    355,371                       328,419                  
 
                                           
Total Liabilities and Stockholders’ Equity
  $ 5,467,112                     $ 4,549,704                  
 
                                           
 
                                               
Net interest income
          $ 43,825                     $ 40,624          
 
                                           
 
                                               
Net interest spread — tax equivalent
                    2.76 %                     3.26 %
Net interest margin
                    3.58 %                     3.93 %
Net interest margin — tax equivalent
                    3.62 %                     3.96 %
Net interest margin excluding loan fees
                    3.46 %                     3.76 %
Net interest margin excluding loan fees — tax equivalent
                    3.50 %                     3.79 %
 
(1)   Non tax equivalent rate for 2006 was 4.49% and 2005 was 4.26%.
 
(2)   Loan fees are included in total interest income as follows, (000)s omitted: 2006, $1,517 2005, $ 1,761
 
(3)   Non performing loans are included in net loans as follows, (000)s omitted: 2006, $0 and 2005, $9.
 
(4)   Includes interest bearing demand and money market accounts
 
(5)   Annualized interest rates
     As stated above, the net interest margin measures net interest income as a percentage of average earning assets. The net interest margin is an indication of how effectively the Company generates its source of funds and employs its earning assets. The Company’s tax effected (TE) net interest margin declined from 3.96% for the first three months of 2005 to 3.62% for the first three months of 2006. The decrease in the net interest margin compared to the same period last year was a result of the increasing interest rate environment, which impacted interest earned and interest paid as a percent of earning assets. Although the yield on earning assets increased by 49 basis points for the first quarter of 2006 compared to the same period in 2005, the yield on interest-bearing liabilities increased by 99 basis points for the first quarter of 2006 compared to the same period in 2005. The higher increase in cost of interest-bearing liabilities is due to the short-term liability sensitivity of the Company. In addition, our net interest margin is affected by the strategies we employ in regards to competition in our market areas.

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     It is difficult to attribute the net interest margin changes to any one factor. However, the banking and financial service businesses in our market areas are highly competitive. This competition has an influence on the strategies we employ.
     The net interest spread is the difference between the yield on average earning assets less the cost of average interest-bearing liabilities. The net interest spread is an indication of our ability to manage interest rates received on loans and investments and paid on deposits and borrowings in a competitive and changing interest rate environment. Our net interest spread (TE) was 2.76% for the first three months of 2006 and 3.26% for the same period last year. The decrease in the net interest spread for the three months ended March 31, 2006 resulted from a 49 basis point increase in the yield on earning assets offset by a 99 basis point increase in the cost of interest-bearing liabilities, thus generating a 50 basis point decrease in the net interest spread over the same period last year.
     The yield (TE) on earning assets increased to 5.86% for the first three months of 2006, from 5.37% for the same period last year, and reflects an increasing interest rate environment and a change in the mix of earning assets. Average loans as a percent of earning assets increased to 51.82% in the first three months of 2006 from 48.97% for the same period in 2005. Average investments as a percent of earning assets decreased to 46.69% in the first three months of 2006 from 49.61% for the same period in 2005. Average federal funds sold as a percent of earning assets was 0.06% for the first three months in 2006. There were no federal funds invested in 2005. As a result of the Granite State Bank acquisition, which was completed in February 2005, we inherited the investment in interest-bearing deposits with other financial institutions. The average interest-bearing deposits with other financial institutions as a percent of earning assets decreased to 0.03% for the first three months in 2006 from 0.13% for the same period in 2005. Investments and federal funds sold typically have a lower yield than loans. The yield on loans for the first three months of 2006 increased to 6.77% as compared to 6.26% for the same period in 2005 as a result of the growth in average loans, the increasing interest rate environment and competition for quality loans. The yield (TE) on investments for the first three months of 2006 increased to 4.89% compared to 4.55% for the same period in 2005 as a result of an increase in average investment balances and an increase in interest rates. The increase in the yield on earning assets for the first three months of 2006 was the result of higher yields on loans and investments.
     The cost of average interest-bearing liabilities increased to 3.10% for the first three months of 2006 as compared to 2.11% for the same period in 2005, reflecting the continued increase in interest rates and a change in the mix of interest-bearing liabilities. Average borrowings as a percent of average interest-bearing liabilities decreased slightly to 43.87% during the first three months of 2006 as compared to 44.58% for the same period in 2005. The cost of borrowings for the first three months of 2006 increased to 3.75% as compared to 3.12% for the same period in 2005, reflecting the continued increase in interest rates. Borrowings typically have a higher cost than interest-bearing deposits. The cost of interest-bearing deposits for the first three months of 2006 increased to 2.60% as compared to 1.29% for the same period in 2005, also reflecting the continued increase in interest rates and the competition for interest-bearing deposits. The FDIC has approved the payment of interest on certain demand deposit accounts. This could have a negative impact on our net interest margin, net interest spread, and net earnings, should this be implemented fully. Currently, we pay interest on NOW and Money Market Accounts.
     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 interest-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).

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TABLE 2 — Rate and Volume Analysis for Changes in Interest Income, Interest Expense and Net Interest Income
                                 
    Comparison of three months ended March 31,  
    2006 Compared to 2005  
    Increase (Decrease) Due to  
                    Rate/        
    Volume     Rate     Volume     Total  
    ( amounts in thousands )  
Interest Income:
                               
Taxable investment securities
  $ 1,018     $ 1,166     $ (150 )   $ 2,034  
Tax-advantaged securities
    2,804       192       (838 )     2,158  
Fed funds sold & interest-bearing deposits with other institutions
    (6 )     32       (6 )     20  
Investment in FHLB stock
    138       145       42       325  
Loans
    8,539       2,640       733       11,912  
 
                       
Total interest on earning assets
    12,493       4,175       (219 )     16,449  
 
                       
 
                               
Interest Expense:
                               
Savings deposits
    320       2,213       300       2,833  
Time deposits
    1,685       2,167       1,455       5,307  
Other borrowings
    2,581       2,016       511       5,108  
 
                       
Total interest on interest-bearing liabilities
    4,586       6,396       2,266       13,248  
 
                       
 
                               
Net Interest Income
  $ 7,907     $ (2,221 )   $ (2,485 )   $ 3,201  
 
                       
     Interest and Fees on Loans
     Our major source of revenue and primary component of interest income is interest and fees on loans. Interest and fees on loans totaled $44.3 million for the first three months of 2006. This represented an increase of $11.9 million, or 36.79%, over interest and fees on loans of $32.4 million for the same period in 2005. The increase in interest and fees on loans for the first three months of 2006 reflects increases in the average balance of loans and the increase in interest rates. The yield on loans increased to 6.77 % for the first three months of 2006, compared to 6.26% for the same period in 2005. Average loans increased 26.35% from $2.10 billion for the first three months of 2005 to $2.65 billion for the first three months of 2006. Deferred loan origination fees, net of costs, totaled $10.9 million at March 31, 2006. This represented an increase of $1.1 million, or 11.75%, over deferred loan origination fees, net of costs, of $9.8 million at March 31, 2005.
     In general, we stop accruing interest on a loan after its principal or interest becomes 90 days or more past due. When a loan is placed on nonaccrual, all interest previously accrued but not collected is charged against earnings. There was no interest income that was accrued and not reversed on non-performing loans at March 31, 2006 and 2005.
     Fees collected on loans are an integral part of the loan pricing decision. Loan fees and the direct costs associated with the origination of loans are deferred and deducted from the loan balance. Deferred net loan fees are recognized in interest income over the term of the loan in a manner that approximates the level-yield method. We recognized loan fee income of $1.5 million for the first three months of 2006, as compared to $1.8 million for the same period in 2005, a decrease of $244,000, or 13.86%.
Interest on Investments
     The second most important component of interest income is interest on investments, which totaled $27.0 million for the first three months of 2006. This represented an increase of $4.2 million, or 18.39%, over interest on investments of $22.8 million for the same period in 2005. The increase in interest on

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investments for the first three months of 2006 over the same period last year reflected increases in the average balance of investments and the increase in interest rates. The interest rate environment and the investment strategies we employ directly affect the yield on the investment portfolio. We continually adjust our investment strategies in response to the changing interest rate environment in order to maximize the rate of total return consistent within prudent risk parameters, and to minimize the overall interest rate risk of the Company. The weighted-average yield (TE) on investments increased to 4.89% for the first three months of 2006, compared to 4.55% for the same period in 2005 as a result of the increase in interest rates.
Provision for Credit Losses
     The Company maintains an allowance for inherent credit losses that is increased by a provision for credit losses charged against operating results. We made a provision for credit losses of $250,000 during the first three months of 2006. No provision was made during the same period in 2005. We believe the allowance is appropriate. 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 for credit losses in the future. The nature of this process requires considerable judgment. See “Risk Management — Credit Risk” herein.
Other Operating Income
     Other operating income for the Company includes income derived from special services offered by the Bank, such as Financial Advisory Services, merchant card, international banking, and other business services. Also included in other operating income are service charges and fees, primarily from deposit accounts; gains (net of losses) from the sale of investment securities, other real estate owned, and fixed assets; and other revenues not included as interest on earning assets.
     Other operating income totaled $7.7 million for the first three months of 2006. This represents an increase of $650,000, or 9.19%, over other operating income of $7.1 million for the same period in 2005. Other operating income as a percent of net revenues (net interest income before loan loss provision plus other operating income) was 15.06% for the first three months of 2006, as compared to 14.84% for the same period in 2005.
     There were no sales of investment securities generated during the first quarter of 2006 and 2005. Therefore, no gains or losses on sales of securities were recorded for the first three months ended 2006 and 2005.
     Service charges on deposit accounts totaled $3.3 million in the first three months of 2006. This represented an increase of $250,000 or 8.21% over service charges on deposit accounts of $3.0 million for the same period in 2005. Service charges for demand deposits (checking) accounts for business customers are generally charged based on an analysis of their activity and include an earnings allowance based on their average balances. Contributing to the increase in service charges on deposit accounts in 2006 was the lower average demand deposit balances that resulted in a lower account earnings allowance, which offsets services charges and the implementation of a revised service charge schedule. Service charges on deposit accounts represented 42.59% of other operating income in the first three months of 2006, as compared to 42.97% in the same period in 2005.
     Financial Advisory Services consists of Trust Services and Investment Services. Trust Services provides a variety of services, which include asset management services (both full management services and custodial services), estate planning, retirement planning, private and corporate trustee services, and probate services. Investment Services provides mutual funds, certificates of deposit, and other non-insured investment products. Financial Advisory Services generated fees of $1.8 million in the first three months of 2006. This represents an increase of $167,000, or 9.95% over fees generated of $1.7 million in

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the first three months of 2005. The increase is primarily due to an increase in assets under administration of $805.3 million. Fees generated by Financial Advisory Services represented 23.87% of other operating income in the first three months of 2006, as compared to 23.70% for the same period in 2005.
     Bankcard, which provides merchant bankcard services (credit card processing, merchant terminals, and customer support), generated fees totaling $558,000 in the first three months of 2006. This represented a decrease of $46,000, or 7.57%, from fees generated of $604,000 for the same period in 2005. Fees generated by Bankcard represented 7.22% of other operating income in the first three months of 2006, as compared to 8.53% for the same period in 2005.
     Bank Owned Life Insurance (“BOLI”) income totaled $822,000 in the first three months of 2006. This represented an increase of $481,000, or 140.63%, over the BOLI income generated of $342,000 for the same period in 2005.
     Other fees and income, which includes wire fees, other business services, international banking fees, check sales, ATM fees, miscellaneous income, etc., generated fees totaling $1.2 million in the first three months of 2006. This represented a decrease of $201,000, or 14.25%, from other fees and income generated of $1.4 million for the same period in 2005.
Other Operating Expenses
     Other operating expenses for the Company include expenses for salaries and benefits, occupancy, equipment, stationary and supplies, professional services, promotion, amortization of intangibles, and other expenses. Other operating expenses totaled $23.5 million for the first three months of 2006. This represents an increase of $3.1 million, or 15.14% over other operating expenses of $20.4 million for the same period in 2005. The increase is partially due to the reversal of $2.6 million in estimated robbery loss in the first three months of 2005.
     For the most part, other operating expenses reflect the direct expenses and related administrative expenses associated with staffing, maintaining, promoting, and operating branch facilities. Our ability to control other operating expenses in relation to asset growth can be measured in terms of other operating expenses as a percentage of average assets. Operating expenses measured as a percentage of average assets decreased to 1.74% for the first three months of 2006, compared to a ratio of 1.82% for the same period in 2005. The decrease in percentage was primarily due to the increase in total average assets for the three months ended March 31, 2006 as compared to the same period in 2005.
     Our ability to control other operating expenses in relation to the level of net revenue (net interest income plus other operating income) is measured by the efficiency ratio and indicates the percentage of net revenue that is used to cover expenses. For the first three months of 2006, the efficiency ratio was 45.75%, compared to a ratio of 42.73% for the same period in 2005. The increase was primarily due to the reversal of $2.6 million estimated robbery loss as a result of the settlement in the first three months of 2005. Without the settlement of robbery loss, the efficiency ratio would have been 48.18% in 2005.
     The following table reconciles the differences in operating efficiency ratio with and without the settlement of robbery loss:

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    Operating Efficiency Ratio Reconciliation  
    For the Three Months  
    Ended March 31,  
    2006     2005  
    Reported     Without settlement     Settlement of     Reported  
    amount     of robbery loss     robbery loss     amount  
    ( amounts in thousands )  
Other Operating Expense
  $ 23,470     $ 22,984     $ (2,600 )   $ 20,384  
 
                       
 
Net Revenues
  $ 51,304     $ 47,703     $     $ 47,703  
 
                       
 
                               
Operating Efficiency Ratio
    45.75 %     48.18 %             42.73 %
     We have presented the operating efficiency ratio without the settlement of robbery loss to show shareholders the earnings from operations were unaffected by the impact of these items. We believe this presentation allows the reader to determine our profitability before the impact of items that may not be considered as normal operating items. We believe that the reader will be able to more easily assess the results of the Company’s operations and business.
     Salaries and related expenses comprise the greatest portion of other operating expenses. Salaries and related expenses totaled $12.7 million for the first three months of 2006. This represented a decrease of $112,000, or 1.0%, from salaries and related expenses of $12.8 million for the same period in 2005. At March 31, 2006, we employed 682 full time equivalent employees, compared to 652 full time equivalent employees at March 31, 2005. Salaries and related expenses as a percent of average assets increased to 0.94% for the first three months of 2006, compared to 1.14% for the same period in 2005.
     Occupancy and equipment expenses represent the cost of operating and maintaining branch and administrative facilities, including the purchase and maintenance of furniture, fixtures, office equipment and data processing equipment. Occupancy expense totaled $2.0 million for the first three months of 2006. This represented an increase of $32,000, or 1.58%, over occupancy expense of $2.0 million for the same period in 2005. Equipment expense totaled $1.7 million for the first three months of 2006 and 2005.
     Stationary and supplies expense totaled $1.6 million for the first three months of 2006. This represented an increase of $391,000, or 32.75%, over the expense of $1.2 million for the same period in 2005. Professional services totaled $1.3 million for the first three months of 2006. This represented an increase of $248,000 or 24.18%, over an expense of $1.0 million for the same period in 2005. Promotion expense totaled $1.5 million for the first three months of 2006. This represented a decrease of $289,000, or 16.07%, from an expense of $1.8 million for the same period in 2005.
     The amortization expense of intangibles totaled $588,000 for the first three months of 2006. This represents an increase of $262,000, or 98.58% over an expense of $296,000 for the same period in 2005. The increase is primarily due to the additional intangible asset as a result of the Granite State Bank acquisition.
     Other operating expense totaled $2.0 million for the first three months of 2006. This represented an increase of $2.5 million, or 503.0%, over expense of a negative $503,000 for the same period in 2005. The increase is primarily due to the reversal of $2.6 million of estimated robbery loss as a result of the settlement with the insurance company in 2005.

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Income Taxes
     The Company’s effective tax rate for the first three months of 2006 was 34.47%, compared to 35.21% for the same period in 2005. The effective tax rates are below the nominal combined Federal and State tax rates as a result of tax preferenced income from certain investments for each period. The majority of tax preferenced income is derived from municipal securities.
ANALYSIS OF FINANCIAL CONDITION
     The Company reported total assets of $5.53 billion at March 31, 2006. This represented an increase of $104.9 million, or 1.94%, over total assets of $5.42 billion at December 31, 2005. Earning assets totaled $5.17 billion at March 31, 2006, increasing $91.5 million, or 1.80%, over earning assets of $5.08 billion at December 31, 2005. Total liabilities were $5.19 billion at March 31, 2006, up $108.3 million, or 2.13%, over total liabilities of $5.08 billion at December 31, 2005. Total equity decreased $3.3 million, or 0.97%, to $339.6 million at March 31, 2006, compared with total equity of $342.9 million at December 31, 2005.
Investment Securities
     The Company reported total investment securities of $2.41 billion at March 31, 2006. This represented an increase of $37.1 million, or 1.57%, over total investment securities of $2.37 billion at December 31, 2005. Investment securities comprise 46.51% of the Company’s total earning assets at March 31, 2006.
     In accordance with SFAS No. 115, “Accounting for Certain Investments in Debt and Equity Securities”, securities held as “available-for-sale” are reported at current market value for financial reporting purposes. The related unrealized gains or losses, net of income taxes, are recorded in stockholders’ equity. At March 31, 2006, securities held as available-for-sale had a fair market value of $2.41 billion, representing 100% of total investment securities, with an amortized cost of $2.46 billion. At March 31, 2006, the net unrealized holding loss on securities available-for-sale was $49.3 million and that resulted in accumulated other comprehensive loss of $28.6 million (net of $20.7 million in deferred taxes). At December 31, 2005, the Company reported net unrealized loss on investment securities available-for-sale of $23.1 million and accumulated other comprehensive income of $13.4 million (net of deferred taxes of $9.7 million).
     Table 3 sets forth investment securities at March 31, 2006 and December 31, 2005.
                                         
    March 31, 2006  
            Gross     Gross                
            Unrealized     Unrealized                
    Amortized     Holding     Holding             Total  
    Cost     Gain     Loss     Market Value     Percent  
    (Amounts in thousands)  
Investment Securities Available-for-Sale:
                                       
U.S. Treasury securities
  $ 499     $     $     $ 499       0.02 %
Mortgage-backed securities
  $ 1,185,077       1,134       (44,174 )     1,142,037       47.44 %
CMO’s / REMIC’s
  $ 628,634       86       (11,585 )     617,135       25.64 %
Government agency & government-sponsored enterprises
  $ 54,616       2       (980 )     53,638       2.23 %
Municipal bonds
  $ 524,500       13,000       (8,440 )     529,060       21.98 %
FHLMC preferred stock
  $ 56,070       1,630             57,700       2.40 %
Other securities
  $ 6,917                   6,917       0.29 %
 
                             
Total Investment Securities
  $ 2,456,313     $ 15,852     $ (65,179 )   $ 2,406,986       100.00 %
 
                             

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    December 31, 2005  
            Gross     Gross                
            Unrealized     Unrealized                
    Amortized     Holding     Loss             Total  
    Cost     Gain     Holding     Market Value     Percent  
    (Amounts in thousands)  
Investment Securities Available-for-Sale:
                                       
U.S. Treasury securities
  $ 498     $     $ (1 )   $ 497       0.02 %
Mortgage-backed securities
    1,211,869       1,974       (29,235 )     1,184,608       49.99 %
CMO’s / REMIC’s
    617,031       237       (7,356 )     609,912       25.74 %
Government agency & government-sponsored enterprises
    54,608       69       (588 )     54,089       2.28 %
Municipal bonds
    452,080       15,818       (3,998 )     463,900       19.57 %
FHLMC preferred stock
    56,070                   56,070       2.37 %
Other securities
    816                   816       0.03 %
 
                             
Total Investment Securities
  $ 2,392,972     $ 18,098     $ (41,178 )   $ 2,369,892       100.00 %
 
                             
     The weighted-average yield (TE) on the investment portfolio at March 31, 2006 was 4.98% with a weighted-average life of 4.4 years. This compares to a yield of 4.64% at December 31, 2005 with a weighted-average life of 4.0 years and a yield of 4.38% at March 31, 2005 with a weighted-average life of 3.8 years. The weighted average life is the average number of years that each dollar of unpaid principal due remains outstanding. Average life is computed as the weighted-average time to the receipt of all future cash flows, using as the weights the dollar amounts of the principal paydowns.
     Approximately 96.41% of the portfolio represents securities issued by the U.S government or U.S. government-sponsored enterprises, which guarantee payment of principal and interest.
     The remaining CMO/REMICs are backed by agency-pooled collateral or whole loan collateral. All non-agency CMO/REMIC issues held are rated “A” or better by either Standard & Poor’s or Moody’s, as of March 31, 2006 and December 31, 2005.
                                                 
    March 31, 2006  
    Less than 12 months     12 months or longer     Total  
            Gross             Gross             Gross  
            Unrealized             Unrealized             Unrealized  
            Holding             Holding             Holding  
    Fair Value     Losses     Fair Value     Losses     Fair Value     Losses  
Description of Securities   (amounts in thousands)  
U.S. Treasury Obligation
  $ 499     $     $     $     $ 499     $  
Government agency & government- sponsored enterprises
    32,233       352       20,903       628       53,136       980  
Mortgage-backed securities
    423,974       12,039       684,095       32,135       1,108,069       44,174  
CMO/REMICs
    338,032       5,709       259,913       5,876       597,945       11,585  
Municipal bonds
    260,606       7,174       31,900       1,266       292,506       8,440  
 
                                   
 
  $ 1,055,344     $ 25,274     $ 996,811     $ 39,905     $ 2,052,155     $ 65,179  
 
                                   
                                                 
    December 31, 2005  
    Less than 12 months     12 months or longer     Total  
            Gross             Gross             Gross  
            Unrealized             Unrealized             Unrealized  
            Holding             Holding             Holding  
    Fair Value     Losses     Fair Value     Losses     Fair Value     Losses  
Description of Securities   (amounts in thousands)  
U.S. Treasury & Government Securities
  $ 497     $ 1     $     $     $ 497     $ 1  
Government agency & government- sponsored enterprises
    2,972       28       18,463       560       21,435       588  
Mortgage-backed securities
    459,242       8,385       634,731       20,850       1,093,973       29,235  
CMO/REMICs
    444,431       5,198       119,603       2,158       564,034       7,356  
Municipal bonds
    162,193       3,624       8,737       374       170,930       3,998  
 
                                   
 
  $ 1,069,335     $ 17,236     $ 781,534     $ 23,942     $ 1,850,869     $ 41,178  
 
                                   

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     The tables above show the Company’s investment securities’ gross unrealized losses and fair value by investment category and length of time that individual securities have been in a continuous unrealized loss position, at March 31, 2006 and December 31, 2005. The Company has reviewed individual securities classified as available-for-sale to determine whether a decline in fair value below the amortized cost basis is other-than-temporary. If it is probable that the Company will be unable to collect all amounts due according to the contractual terms of a debt security not impaired at acquisition, an other-than-temporary impairment shall be considered to have occurred. If an other-than-temporary impairment occurs, the cost basis of the security would be written down to its fair value as a new cost basis and the write down accounted for as a realized loss.
     The following summarizes our analysis of these securities and the unrealized losses. This assessment was based on the following factors: i) the length of the time and the extent to which the market value has been less than cost; ii) the financial condition and near-term prospects of the issuer; iii) the intent and ability of the Company to retain its investment in a security for a period of time sufficient to allow for any anticipated recovery in market value; and iv) general market conditions which reflect prospects for the economy as a whole, including interest rates and sector credit spreads.
     U.S. Treasury Obligations and Government Agency & Government Sponsored Enterprises – The U.S. Treasury Obligations and government agency and government sponsored enterprises are backed by the full faith and credit of the U.S. Treasury and Agencies of the U.S. Government. These securities are bullet securities, that is, they have a defined maturity date on which the principal is paid. The contractual term of these investments provides that the Bank will receive the face value of the bond at maturity which will equal the amortized cost of the bond. Interest is received throughout the life of the security. The unrealized loss greater than 12 months of $628,000 is comprised of primarily two issues: one Fannie Mae and one Freddie Mac. These securities mature within 2 years. The agencies are rated in the A’s and, although they have had some accounting difficulties in the past few years, this has not impacted their credit worthiness. Because the decline in market value is attributable to the changes in interest rates and not credit quality, and the Bank has the ability and intent to hold these investments until recovery of fair value, which may be at maturity, the Bank does not consider these investments to be other than temporarily impaired at March 31, 2006.
     Mortgaged-Backed Securities and CMO/REMICs – The mortgage-backed and CMO/REMICs securities are issued and guaranteed by the government sponsored enterprises such as Ginnie Mae, Fannie Mac and Freddie Mac. These securities are collateralized or backed by the underlying mortgages. All mortgage-backed securities are rated AAA with average life of approximately 3.3 years. The contractual cash flows of these investments are guaranteed by agencies of the U.S. government or private insurance companies. Accordingly, it is expected the securities would not be settled at a price less than the amortized cost of the bond. The unrealized loss greater than 12 months on these securities at March 31, 2006 is $38.0 million. This loss is comprised of three main blocks of securities: FNMA’s with a loss of $19.8 million, Freddie Mac with a loss of $16.7 million and non government sponsored enterprises such as financial institutions with a loss of $1.5 million. This loss is caused by the increase in interest rates over the last 1½ years. Because the decline in market value is attributable to the changes in interest rates and not credit quality, and the Company has the ability and intent to hold these securities until recovery of fair value, which may be at maturity, management does not consider these investments to be other than temporarily impaired at March 31, 2006.
     Municipal Bonds – The municipal bonds in the Bank’s portfolio are all rated AAA and they are insured by the largest bond insurance companies with maturities of approximately 8.3 years. The unrealized loss greater than 12 months on these securities at March 31, 2006 is $1.3 million. As with the other securities in the portfolio, this loss is due to the rising rate environment not the credit risk of these securities. The Bank diversifies its holdings by owning selections of securities from different issuers and by holding securities from geographically diversified municipal issuers, thus reducing the Bank’s exposure to any single adverse event. Because the decline in market value is attributable to the changes

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in interest rates and not credit quality, and the Bank has the ability and intent to hold these securities until recovery of fair value, which may be at maturity, the Bank does not consider these investments to be other than temporarily impaired at March 31, 2006.
     At March 31, 2006 and December 31, 2005, investment securities having an amortized cost of approximately $2.29 billion and $2.04 billion respectively, were pledged to secure public deposits, short and long-term borrowings, and for other purposes as required or permitted by law.
Loans
     At March 31, 2006, we reported total loans, net of deferred loan fees, of $2.72 billion. This represents an increase of $53.3 million, or 2.0%, over total loans, net of deferred loan fees, of $2.66 billion at December 31, 2005. Total loans, net of deferred loan fees, comprise 52.51% of our total earning assets.
Table 4 — Distribution of Loan Portfolio by Type (dollar amount in thousands)
                                 
    March 31, 2006             December 31, 2005          
Commercial and Industrial
  $ 990,533       36.3 %   $ 980,602       36.7 %
Real Estate:
                               
Construction
    298,107       10.9 %     270,436       10.1 %
Mortgage
    964,548       35.4 %     877,481       32.8 %
Consumer, net of unearned discount
    58,176       2.1 %     59,801       2.2 %
Municipal lease finance receivables
    120,834       4.4 %     108,832       4.1 %
Auto and equipment leases
    45,203       1.7 %     39,442       1.5 %
Agribusiness
    250,642       9.2 %     338,035       12.6 %
 
                       
Gross Loans
    2,728,043       100.0 %     2,674,629       100.0 %
Less:
                               
Allowance for credit losses
    (23,584 )             (23,204 )        
Deferred net loan fees
    (10,916 )             (10,766 )        
 
                           
Net Loans
  $ 2,693,543             $ 2,640,659          
 
                           
     Commercial and industrial loans are loans and leases to commercial entities to finance capital purchases or improvements, or to provide cash flow for operations. Real estate loans are loans secured by conforming first trust deeds on real property, including property under construction, commercial property and single family and multifamily residences. Consumer loans include installment loans to consumers as well as home equity loans and other loans secured by junior liens on real property. Municipal lease finance receivables are leases to municipalities. Agribusiness loans are loans to finance the operating needs of wholesale dairy farm operations, cattle feeders, livestock raisers, and farmers.
Non-performing Assets
     As set forth in Table 5, we had no non-performing assets at March 31, 2006 and December 31, 2005. Non-performing assets, include non-performing loans plus other real estate owned (foreclosed property), non-performing loans, include non-accrual loans, loans past due 90 or more days and still accruing, and restructured loans. In addition, we had no loans classified as impaired at March 31, 2006 and December 31, 2005.
     Although we believe that non-performing assets are generally secured and that potential losses are provided for in the allowance for credit losses, there can be no assurance that future deterioration in economic conditions or collateral values would not result in future credit losses.

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TABLE 5 — Non-Performing Assets (dollar amount in thousands)
                 
    March 31,     December 31,  
    2006     2005  
    (amounts in thousands)  
Nonaccrual loans
  $     $  
Loans past due 90 days or more
           
Restructured loans
           
Other real estate owned (OREO)
           
 
           
 
Total nonperforming assets
  $     $  
 
           
 
               
Percentage of nonperforming assets to total loans outstanding & OREO
    0.00 %     0.00 %
 
           
 
               
Percentage of nonperforming assets to total assets
    0.00 %     0.00 %
 
           
     Except for non-performing loans as set forth in Table 5 and loans disclosed as impaired, (see “Risk Management – Credit Risk” herein) we are not aware of any loans as of March 31, 2006 for which known credit problems of the borrower would cause serious doubts as to the ability of such borrowers to comply with their present loan repayment terms, or any known events that would result in the loan being designated as non-performing at some future date. We cannot, however, predict the extent to which the deterioration in general economic conditions, real estate values, increase in general rates of interest, change in the financial conditions or business of a borrower may adversely affect a borrower’s ability to pay.
     At March 31, 2006 and December 31, 2005, the Company held no properties as other real estate owned.
Deposits
     The primary source of funds to support earning assets (loans and investments) is the generation of deposits from our customer base. The ability to grow the customer base and subsequently deposits is a crucial element in the performance of the Company.
     At March 31, 2006, total deposits were $3.48 billion, representing an increase of $52.0 million, or 1.52%, over total deposits of $3.42 billion at December 31, 2005. Average total deposits for the first three months of 2006 were $3.45 billion. The comparison of average balances for the first three months of 2006 has historically been more representative of our Company’s growth in deposits as it excludes the historical seasonal peak in deposits at year-end. The composition of deposits is as follows:
                                 
    March 31, 2006     December 31, 2005  
    (Amounts in thousands)  
Non-interest bearing deposits
                               
Demand deposits
  $ 1,362,022       39.2 %   $ 1,490,613       43.5 %
Interest bearing deposits
                               
Savings Deposits
    1,222,681       35.2 %     1,150,256       33.6 %
Time deposits
    891,378       25.6 %     783,177       22.9 %
 
                       
Total deposits
  $ 3,476,081       100.0 %   $ 3,424,046       100.0 %
 
                       

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     The amount of non-interest-bearing demand deposits in relation to total deposits is an integral element in achieving a low cost of funds. Demand deposits totaled $1.36 billion at March 31, 2006, representing a decrease of $128.6 million, or 8.63%, from total demand deposits of $1.49 billion at
     December 31, 2005. Non-interest-bearing demand deposits represented 39.18% of total deposits as of March 31, 2006 and 43.53% of total deposits as of December 31, 2005.
     Savings deposits, which include savings, interest-bearing demand, and money market accounts, totaled $1.22 billion at March 31, 2006, representing an increase of $72.4 million, or 6.30%, over savings deposits of $1.15 billion at December 31, 2005.
     Time deposits totaled $891.4 million at March 31, 2006 of which $95.5 million were brokered. This represented an increase of $108.2 million, or 13.82%, over total time deposits of $783.2 million at December 31, 2005.
Other Borrowed Funds
     To achieve the desired growth in earning assets and to fully utilize our capital, we fund this growth through generating sources of funds other than deposits. The first source of funds we pursue is non-interest-bearing deposits (the lowest cost of funds to the Company). Next we pursue the growth in interest-bearing deposits and finally we supplement the growth in deposits with borrowed funds. Average borrowed funds, as a percent of average total funding (total deposits plus demand notes plus borrowed funds) was 30.47% as of March 31, 2006, as compared to 30.55% as of December 31, 2005.
     During 2006 and 2005, we entered into short-term borrowing agreements (borrowings with maturities of less than one year) with the Federal Home Loan Bank (FHLB) and other institutions. The Bank had outstanding balances of $1.17 billion and $830.0 million under these agreements at March 31, 2006 and December 31, 2005, respectively. The weighted average annual interest rate was 3.60% and 3.35% at March 31, 2006 and December 31, 2005, respectively. The FHLB holds certain investment securities of the Bank as collateral for these borrowings.
     We also entered into long-term borrowing agreements (borrowings with maturities of one year or longer) with the FHLB. We had outstanding balances of $305.0 million and $580.0 million under these agreements at March 31, 2006 and December 31, 2005, respectively. The weighted average annual interest rate was 4.16% and 3.62% at March 31, 2006 and December 31, 2005, respectively. The FHLB holds certain investment securities of the Bank as collateral for these borrowings.
     The Bank has an agreement, known as the Treasury Tax & Loan (“TT&L”) Note Option Program with the Federal Reserve Bank and the U.S. Department of Treasury in which federal tax deposits made by depositors can be held by the bank until called (withdrawn) by the U.S. Department of Treasury. The maximum amount of accumulated federal tax deposits allowable to be held by the Bank, as set forth in the agreement, is $15.0 million. On March 31, 2006 and December 31, 2005 the amounts held by the Bank in the TT&L Note Option Program were $1.0 million and $6.4 million, collateralized by securities, respectively. Amounts are payable on demand. The Bank borrows at a variable rate of 24 and 43 basis points less than the average weekly federal funds rate, which was 4.41% and 3.21% at March 31, 2006 and December 31, 2005, respectively.
     At March 31, 2006, borrowed funds totaled $1.55 billion, representing an increase of $48.5 million, or 3.22%, over total borrowed funds of $1.50 billion at December 31, 2005.
Aggregate Contractual Obligations
     The following table summarizes the Company’s aggregate contractual obligations as of March 31, 2006:

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            Maturity by Period  
            Less Than     One Year     Four Year     After  
            One     to Three     to Five     Five  
    Total     Year     Years     Years     Years  
    (amounts in thousands)  
Deposits
  $ 3,476,081     $ 3,437,786     $ 26,036     $ 9,610     $ 2,649  
FHLB and Other Borrowings
    1,550,000       1,245,000       205,000       100,000        
Junior Subordinated Debentures
    108,250                         108,250  
Deferred Compensation
    8,679       751       2,253       1,424       4,251  
Operating Leases
    17,182       4,384       9,546       1,886       1,366  
 
                             
Total
  $ 5,160,192     $ 4,687,921     $ 242,835     $ 112,920     $ 116,516  
 
                             
     Deposits represent non-interest bearing, money market, savings, NOW, certificates of deposits, brokered and all other deposits.
     FHLB borrowings represent the amounts that are due to the Federal Home Loan Bank. These borrowings have fixed maturity dates. Other borrowings represent the amounts that are due to overnight Federal funds purchases and TT&L.
     Junior subordinated debentures represent the amounts that are due from the Company to CVB Statutory Trust I, CVB Statutory Trust II & CVB Statutory Trust III. The debentures have the same maturity as the Trust Preferred Securities. CVB Statutory Trust I and II, which mature in 2033 and become callable in whole or in part in 2008. CVB Statutory Trust III which matures in 2036 and become callable in whole or in part in 2011.
     Deferred compensation represents the amounts that are due to former employees’ salary continuation agreements as a result of acquisitions.
     Operating leases represent the total minimum lease payments under noncancelable operating leases.
Off-Balance Sheet Arrangements
     At March 31, 2006, we had commitments to extend credit of approximately $972.5 million and obligations under letters of credit of $67.5 million and available lines of credit totaling $1.0 billion from certain institutions. Commitments to extend credit are agreements to lend to customers, provided there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Commitments are generally variable rate, and many of these commitments are expected to expire without being drawn upon. As such, the total commitment amounts do not necessarily represent future cash requirements. The Bank uses the same credit underwriting policies in granting or accepting such commitments or contingent obligations as it does for on-balance-sheet instruments, which consist of evaluating customers’ creditworthiness individually.
     Standby letters of credit written are conditional commitments issued by the Bank to guarantee the financial performance of a customer to a first party. Those guarantees are primarily issued to support private borrowing arrangements. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. When deemed necessary, the Bank holds appropriate collateral supporting those commitments. We do not anticipate any material losses as a result of these transactions.
     The following table summarizes the off-balance sheet arrangements at March 31, 2006:

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            Maturity by Period  
            Less Than     One Year     Four Year     After  
            One     to Three     to Five     Five  
    Total     Year     Years     Years     Years  
2006   ( Amounts in thousands )  
Commitment to extend credit
    972,487       361,700       43,488       83,322       483,977  
Obligations under letters of credit
    67,543       49,942       11,762       5,839        
 
                             
Total
  $ 1,040,030     $ 411,642     $ 55,250     $ 89,161     $ 483,977  
 
                             
Liquidity and Cash Flow
     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 loans to deposit ratio the less liquid are the Bank’s assets. For the first three months of 2006, the Bank’s loan to deposit ratio averaged 76.93%, compared to an average ratio of 71.70% for the same period in 2005.
     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. The remaining cashflow is from rents paid by third parties on office space in the Company’s corporate headquarters. There are statutory and regulatory provisions that could limit the ability of the Bank to pay dividends to CVB. At March 31, 2006, approximately $91.4 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.
     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 $23.4 million for the first three months of 2006, compared to $27.3 million for the same period last year. The decrease was primarily the result of the increases in interest paid and cash paid to suppliers and employees.
     Net cash used in investing activities totaled $141.8 million for the first three months of 2006, compared to $187.6 million used by investing activities for the same period in 2005. The decrease was primarily the result of a decrease in the purchase of investment securities, offset by an increase in loans.
     Funds provided by financing activities totaled $119.7 million for the first three months of 2006, compared to funds provided by financing activities of $203.0 million for the same period last year. The decrease in net cash provided by financing activities was primarily the result of a decrease in transaction deposits and repayment of FHLB advances, offset by increases in time deposits, short-term borrowings and the issuance of junior subordinated debentures during the period.
     At March 31, 2006, cash and cash equivalents totaled $131.5 million. This represented an increase of $4.3 million, or 3.41%, over a total of $127.1 million at March 31, 2005 and an increase of $1.3 million, or 1.01%, over a total of $130.1 million at December 31, 2005.
Capital Resources
     CVB Statutory Trust III – CVB Statutory Trust III was created on January 31, 2006 for the exclusive purpose of issuing and selling Trust Preferred Securities at 3-month LIBOR set at 4.53%. The Company

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invested $774,000 to establish the Trust. The $774,000 was recorded as “investment in CVB Statutory Trust III” and is presented as part of the “other assets” on the Consolidated Balance Sheet. On January 31, 2006, CVB Statutory Trust III completed a $25,000,000 offering of Trust Preferred Securities and used the gross proceeds from the offering and other cash totaling $25,774,000 to purchase a like amount of a junior subordinated debenture of the Company.
     The junior subordinated debenture was issued concurrent with the issuance of the Trust Preferred Securities. The interest on the junior subordinated debenture, paid by the Company to CVB Statutory Trust III, represents the sole revenues of CVB Statutory Trust III and the sole source of dividend distribution to the holders of the Trust Preferred Securities. The Company has fully and conditionally guaranteed all of CVB Statutory Trust III’s obligations under the Trust Preferred Securities. The junior subordinated debenture is presented on a separate line on the Consolidated Balance Sheets. For financial reporting purposes, the Company records the interest paid to the Trust as “Interest expense – junior subordinated debentures” on its Consolidated Statements of Income.
     We have the right, assuming no default has occurred, to defer payments of interest on the junior subordinated debenture at any time for a period not to exceed 20 consecutive quarters. The Trust Preferred Securities will mature on March 15, 2036, but become callable in part or in total on March 15, 2011 by CVB Statutory Trust III. The Trust Preferred Securities have a 3-month LIBOR rate plus 1.38% that reset quarterly.
     Historically, our primary source of capital has been the retention of operating earnings. In order to ensure adequate levels of capital, we conduct an ongoing assessment of projected sources and uses of capital in conjunction with projected increases in assets and the level of risk.
     The Bank and the Company are required to meet risk-based capital standards set by their 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 March 31, 2006, the Bank and the Company exceeded the minimum risk-based capital ratio and leverage ratio required to be considered “Well Capitalized”.
     On July 2, 2003, the Federal Reserve Bank issued Supervisory Letter SR 03-13 clarifying that bank holding companies should continue to report trust preferred securities in accordance with current Federal Reserve Bank instructions which allows trust preferred securities to be counted in Tier I capital subject to certain limitations. The Federal Reserve has indicated it will review the implications of any accounting treatment changes and, if necessary or warranted, will provide appropriate guidance. On May 6, 2005, the Federal Reserve Bank released a proposed rule that would retain trust preferred securities in Tier I capital of bank holding companies, but with stricter quantitative limits and clearer qualitative standards.
     The Company’s equity capital was $339.6 million at March 31, 2006. This represented a decrease of $3.3 million, or 0.97% from equity capital of $342.9 million at December 31, 2005. The decrease was due primarily to the net unrealized loss on securities available-for-sale in the amount of $15.2 million and the payment of dividends in the amount of $6.9 million. This decrease was partially offset by the net earnings for the first three months of 2006 in the amount of $18.2 million. The Company’s 2005 Annual Report on Form 10-K (Management’s Discussion and Analysis and Note 16 of the accompanying financial statements) describes the regulatory capital requirements of the Company and the Bank.
     Table 6 below presents the Company’s and the Bank’s risk-based and leverage capital ratios as of March 31, 2006, and December 31, 2005.

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Table 6 — Regulatory Capital Ratios
                                         
    Required        
    Minimum   March 31, 2006   December 31, 2005
Capital Ratios   Ratios   Company   Bank   Company   Bank
Risk-based capital ratios:
                                       
Tier I
    4.00 %     12.19 %     11.02 %     11.29 %     10.82 %
Total
    8.00 %     12.92 %     11.75 %     12.00 %     11.53 %
Leverage ratio
    4.00 %     7.96 %     7.19 %     7.66 %     7.34 %
RISK MANAGEMENT
     We have adopted a Risk Management Plan to ensure the proper control and management of all risk factors inherent in the operation of the Company and the Bank. Specifically, credit risk, interest rate risk, liquidity risk, transaction risk, compliance risk, strategic risk, reputation risk, price risk and foreign exchange risk, can all affect the market risk exposure of the Company. These specific risk factors are not mutually exclusive. It is recognized that any product or service offered by us may expose the Bank to one or more of these risks.
Credit Risk
     Credit risk is defined as the risk to earnings or capital arising from an obligor’s failure to meet the terms of any contract or otherwise fail to perform as agreed. Credit risk is found in all activities where success depends on counter party, issuer, or borrower performance. Credit risk arises through the extension of loans and leases, certain securities, and letters of credit.
     Credit risk in the investment portfolio and correspondent bank accounts is addressed through defined limits in the Bank’s policy statements. In addition, certain securities carry insurance to enhance credit quality of the bond. Limitations on industry concentration, aggregate customer borrowings, geographic boundaries and standards on loan quality also are designed to reduce loan credit risk. Senior Management, Directors’ Committees, and the Board of Directors are provided with information to appropriately identify, measure, control and monitor the credit risk of the Bank.
     Implicit in lending activities is the risk that losses will occur and that the amount of such losses will vary over time. Consequently, we maintain an allowance for credit losses by charging a provision for credit losses to earnings. Loans determined to be losses are charged against the allowance for credit losses. Our allowance for credit losses is maintained at a level considered by us to be adequate to provide for estimated probable losses inherent in the existing portfolio, and unused commitments to provide financing, including commitments under commercial and standby letters of credit.
     The allowance for credit losses is based upon estimates of probable losses inherent in the loan and lease portfolio. The nature of the process by which we determine the appropriate allowance for credit losses requires the exercise of considerable judgment. The amount actually observed in respect of these losses can vary significantly from the estimated amounts. We employ a systematic methodology that is intended to reduce the differences between estimated and actual losses.
     Our methodology for assessing the appropriateness of the allowance is conducted on a regular basis and considers all loans. The systematic methodology consists of two major elements.
     The first major element includes a detailed analysis of the loan portfolio in two phases. The first phase is conducted in accordance with SFAS No. 114, “Accounting by Creditors for the Impairment of a Loan”, as amended by SFAS No. 118, “Accounting by Creditors for Impairment of a Loan – Income Recognition and Disclosures.” Individual loans are reviewed to identify loans for impairment. A loan is

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impaired when principal and interest are deemed uncollectable in accordance with the original contractual terms of the loan. Impairment is measured as either the expected future cash flows discounted at each loan’s effective interest rate, the fair value of the loan’s collateral if the loan is collateral dependent, or an observable market price of the loan (if one exists). Upon measuring the impairment, we will insure an appropriate level of allowance is present or established.
     Central to the first phase and our credit risk management is its loan risk rating system. The originating credit officer assigns borrowers an initial risk rating, which is reviewed and possibly changed by Credit Management, which is based primarily on a thorough analysis of each borrower’s financial capacity in conjunction with industry and economic trends. Approvals are made based upon the amount of inherent credit risk specific to the transaction and are reviewed for appropriateness by senior line and credit management personnel. Credits are monitored by line and credit management personnel for deterioration in a borrower’s financial condition, which would impact the ability of the borrower to perform under the contract. Risk ratings are adjusted as necessary.
     Loans are risk rated into the following categories: Impaired, Doubtful, Substandard, Special Mention and Pass. Each of these groups is assessed for the proper amount to be used in determining the adequacy of our allowance for losses. While each loan is looked at annually to determine its proper classification, the Impaired and Doubtful loans are analyzed on an individual basis for allowance amounts. The other categories have formulae used to determine the needed allowance amount.
     Based on the risk rating system, specific allowances are established in cases where we have identified significant conditions or circumstances related to a credit that we believe indicates the probability that a loss has been incurred. We perform a detailed analysis of these loans, including, but not limited to, cash flows, appraisals of the collateral, conditions of the marketplace for liquidating the collateral and assessment of the guarantors. We then determine the inherent loss potential and allocate a portion of the allowance for losses as a specific allowance for each of these credits.
     The second phase is conducted by evaluating or segmenting the remainder of the loan portfolio into groups or pools of loans with similar characteristics in accordance with SFAS No. 5, “Accounting for Contingencies.” In this second phase, groups or pools of homogeneous loans are reviewed to determine a portfolio formula allowance. In the case of the portfolio formula allowance, homogeneous portfolios, such as small business loans, consumer loans, agricultural loans, and real estate loans, are aggregated or pooled in determining the appropriate allowance. The risk assessment process in this case emphasizes trends in the different portfolios for delinquency, loss, and other-behavioral characteristics of the subject portfolios.
     The second major element in our methodology for assessing the appropriateness of the allowance consists of our considerations of all known relevant internal and external factors that may affect a loan’s collectibility. This includes our estimates of the amounts necessary for concentrations, economic uncertainties, the volatility of the market value of collateral, and other relevant factors. The relationship of the two major elements of the allowance to the total allowance may fluctuate from period to period.
     In the second major element of the analysis which considers all known relevant internal and external factors that may affect a loan’s collectibility, we perform an evaluation of various conditions, the effects of which are not directly measured in the determination of the formula and specific allowances. The evaluation of the inherent loss with respect to these conditions is subject to a higher degree of uncertainty because they are not identified with specific problem credits or portfolio segments. The conditions evaluated in connection with the second element of the analysis of the allowance include, but are not limitted to the following conditions that existed as of the balance sheet date:
    then-existing general economic and business conditions affecting the key lending areas of the Company,

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    then-existing economic and business conditions of areas outside the lending areas, such as other sections of the United States, Asia and Latin America,
 
    credit quality trends (including trends in non-performing loans expected to result from existing conditions),
 
    collateral values,
 
    loan volumes and concentrations,
 
    seasoning of the loan portfolio,
 
    specific industry conditions within portfolio segments,
 
    recent loss experience in particular segments of the portfolio,
 
    duration of the current business cycle,
 
    bank regulatory examination results and
 
    findings of the Company’s internal credit examiners.
     We review these conditions in discussion with our senior credit officers. To the extent that any of these conditions is evidenced by a specifically identifiable problem credit or portfolio segment as of the evaluation date, our estimate of the effect of such condition may be reflected as a specific allowance applicable to such credit or portfolio segment. Where any of these conditions is not evidenced by a specifically identifiable problem credit or portfolio segment as of the evaluation date, our evaluation of the inherent loss related to such condition is reflected in the second major element of the allowance. Although we have allocated a portion of the allowance to specific loan categories, the adequacy of the allowance must be considered in its entirety.
     We maintain an allowance for inherent 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 Company recorded $250,000 provision for credit looses during the first three months of 2006. There was no provision for credit losses during the first three months of 2005.
     At March 31, 2006, we reported an allowance for credit losses of $23.6 million. This represented an increase of $380,000, or 1.64%, over the allowance for credit losses of $23.2 million at December 31, 2005. The increase is primarily due to the provision for credit losses of $250,000, offset by recoveries exceeding charge-offs for the first quarter of 2006.
     At March 31, 2006 and December 31, 2005, we had no loans classified as impaired.
     Non-performing loans include non-accrual loans, loans past due 90 or more days and still accruing, and restructured loans. There were no non-accrual loans at March 31, 2006 and December 31, 2005.

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TABLE 7 — Summary of Credit Loss Experience
                 
    Three months ended March 31,  
    2006     2005  
    (amounts in thousands)  
Amount of Total Loans at End of Period (1)
  $ 2,717,127     $ 2,184,021  
 
           
Average Total Loans Outstanding (1)
  $ 2,652,493     $ 2,099,313  
 
           
Allowance for Credit Losses:
               
Beginning of Period
  $ 23,204     $ 22,494  
Acquisition of Granite State Bank
          756  
Loans Charged-Off:
               
Real Estate Loans
           
Commercial and Industrial
    13       88  
Lease Financing Receivables
           
Consumer Loans
    7       1  
 
           
Total Loans Charged-Off
    20       89  
 
           
 
               
Recoveries:
               
Real Estate Loans
    24       465  
Commercial and Industrial
    107       262  
Lease Financing Receivables
    5        
Consumer Loans
    14       44  
 
           
Total Loans Recovered
    150       771  
 
Net Loans (Recovered)
    (130 )     (682 )
 
           
Provision Charged to Operating Expense
    250        
 
           
Allowance for Credit Losses at End of period
  $ 23,584     $ 23,932  
 
           
 
(1)   Net of deferred loan fees
                 
Net Loans Charged-Off (Recovered) to Average Total Loans
    -0.00 %     -0.03 %
Net Loans Charged-Off (Recovered) to Total Loans at End of Period
    -0.00 %     -0.03 %
Allowance for Credit Losses to Average Total Loans
    0.89 %     1.14 %
Allowance for Credit Losses to Total Loans at End of Period
    0.87 %     1.10 %
Net Loans Charged-Off (Recovered) to Allowance for Credit Losses
    -0.55 %     -2.85 %
Net Loans Charged-Off (Recovered) to Provision for Credit Losses
    -52.00 %      
     While we believe that the allowance at March 31, 2006, was adequate to absorb losses from any known or inherent risks in the portfolio, no assurance can be given that economic conditions or natural disasters which adversely affect the Company’s service areas or other circumstances will not be reflected in increased provisions or credit losses in the future.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market Risk
     In the normal course of its business activities, we are exposed to market risks, including price and liquidity risk. Market risk is the potential of loss from adverse changes in market rates and prices, such as interest rates (interest rate risk). Liquidity risk arises from the possibility that we may not be able to satisfy current or future commitments or that we may be more reliant on alternative funding sources such as long-term debt. Financial products that expose us to market risk include securities, loans, deposits, debts and derivative financial instruments.
Interest Rate Risk
     During periods of changing interest rates, the ability to reprice interest-earning assets and interest-bearing liabilities can influence net interest income, the net interest margin, and consequently, our 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

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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 deposit rates. Yield curve risk is reduced by keeping the duration of the loan and bond portfolios balanced to attempt to minimize the risks of rising or falling yields. Options risk in the bond portfolio is monitored monthly and actions are recommended when appropriate.
     We monitor the interest rate “sensitivity” risk to earnings from potential changes in interest rates using various methods, including a maturity/repricing gap analysis. This analysis measures, at specific time intervals, the differences between earning assets and interest-bearing liabilities for which repricing opportunities will occur. A positive difference, or gap, indicates that earning assets will reprice faster than interest-bearing liabilities. This will generally produce a greater net interest margin during periods of rising interest rates, and a lower net interest margin during periods of declining interest rates. Conversely, a negative gap will generally produce a lower net interest margin during periods of rising interest rates and a greater net interest margin during periods of decreasing interest rates.
     The interest rates paid on deposit accounts do not always move in unison with the rates charged on loans. In addition, the magnitude of changes in the rates charged on loans is not always proportionate to the magnitude of changes in the rate paid for deposits. Consequently, changes in interest rates do not necessarily result in an increase or decrease in the net interest margin solely as a result of the differences between repricing opportunities of earning assets or interest-bearing liabilities. In general, when we report a positive gap in the short-term period and negative gap in the long-term period does not necessarily indicate that, if interest rates decreased, net interest income would increase, or if interest rates increased, net interest income would decrease.
     Approximately $1.84 billion, or 80.44%, of the total investment portfolio at March 31, 2006 consisted of securities backed by mortgages. The final maturity of these securities can be affected by the speed at which the underlying mortgages repay. Mortgages tend to repay faster as interest rates fall, and slower as interest rates rise. As a result, we may be subject to a “prepayment risk” resulting from greater funds available for reinvestment at a time when available yields are lower. Conversely, we may be subject to “extension risk” resulting from lesser amounts available for reinvestment at a time when available yields are higher. Prepayment risk includes the risk associated with the payment of an investment’s principal faster than originally intended. Extension risk is the risk associated with the payment of an investment’s principal over a longer time period than originally anticipated. In addition, there can be greater risk of price volatility for mortgage-backed securities as a result of anticipated prepayment or extension risk.
     We also utilize the results of a dynamic simulation model to quantify the estimated exposure of net interest income to sustained interest rate changes. The sensitivity of our net interest income is measured over a rolling two-year horizon.
     The simulation model estimates the impact of changing interest rates on the interest income from all interest-earning assets and the interest expense paid on all interest-bearing liabilities reflected on the Company’s balance sheet. This sensitivity analysis is compared to policy limits, which specify a maximum tolerance level for net interest income exposure over a one-year 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 rates over a 12-month period is assumed.

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     The following depicts the Company’s net interest income sensitivity analysis as of March 31, 2006:
     
    Estimated Net
Simulated   Interest Income
Rate Changes   Sensitivity
+ 200 basis points
  ( 6.12% )
– 200 basis points   6.34%
     The estimated sensitivity does not necessarily represent our forecast and the results may not be indicative of actual changes to our net interest income. These estimates are based upon a number of assumptions including: the nature and timing of interest rate levels including yield curve shape, prepayments on loans and securities, pricing strategies on loans and deposits, and replacement of asset and liability cash flows. While the assumptions used are based on current economic and local market conditions, there is no assurance as to the predictive nature of these conditions including how customer preferences or competitor influences might change.
Liquidity Risk
     Liquidity risk is the risk to earnings or capital resulting from our inability to meet its obligations when they come due without incurring unacceptable losses. It includes the ability to manage unplanned decreases or changes in funding sources and to recognize or address changes in market conditions that affect our 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.
Transaction Risk
     Transaction risk is the risk to earnings or capital arising from problems in service or product delivery. This risk is significant within any bank and is interconnected with other risk categories in most activities throughout the Bank. Transaction risk is a function of internal controls, information systems, associate integrity, and operating processes. It arises daily throughout the Bank as transactions are processed. It pervades all divisions, departments and branches and is inherent in all products and services we offer.
     In general, transaction risk is defined as high, medium or low by the internal auditors during the audit process. The audit plan ensures that high-risk areas are reviewed at least annually.
     The key to monitoring transaction risk is in the design, documentation and implementation of well-defined procedures. All transaction related procedures include steps to report events that might increase transaction risk. Dual controls are also a form of monitoring.
Compliance Risk
     Compliance risk is the risk to earnings or capital arising from violations of, or non-conformance with, laws, rules, regulations, prescribed practices, or ethical standards. Compliance risk also arises in situations where the laws or rules governing certain Bank products or activities of the Bank’s customers

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may be ambiguous or untested. Compliance risk exposes us to fines, civil money penalties, payment of damages, and the voiding of contracts. Compliance risk can also lead to a diminished reputation, reduced business value, limited business opportunities, lessened expansion potential, and lack of contract enforceability.
     There is no single or primary source of compliance risk. It is inherent in every Bank activity. Frequently, it blends into operational risk and transaction processing. A portion of this risk is sometimes referred to as legal risk. This is not limited solely to risk from failure to comply with consumer protection laws; it encompasses all laws, as well as prudent ethical standards and contractual obligations. It also includes the exposure to litigation from all aspects of banking, traditional and non-traditional.
     Our Compliance Management Policy and Program and the Code of Ethical Conduct are the cornerstone for controlling compliance risk. An integral part of controlling this risk is the proper training of associates. The Compliance Officer is responsible for developing and executing a comprehensive compliance training program. The Compliance Officer will ensure that each associate receives adequate training with regard to their position to ensure that laws and regulations are not violated. All associates who deal in compliance high risk areas are trained to be knowledgeable about the level and severity of exposure in those areas and the policies and procedures in place to control such exposure.
     Our Compliance Management Policy and Program includes an audit program aimed at identifying problems and ensuring that problems are corrected. The audit program includes two levels of review. One is in-depth audits performed by an external firm and the other is periodic monitoring performed by the Compliance Officer.
     We utilize an external firm to conduct compliance audits as a means of identifying weaknesses in the compliance program itself. The external firm’s audit plan includes a periodic review of each branch and department of the Bank.
     The branch or department that is the subject of an audit is required to respond to the audit and correct any violations noted. The Compliance Officer will review audit findings and the response provided by the branch or department to identify areas which pose a significant compliance risk.
     The Compliance Officer conducts periodic monitoring of our compliance efforts with a special focus on those areas that expose us to compliance risk. The purpose of the periodic monitoring is to ensure that our associates are adhering to established policies and procedures adopted by the Bank. The Compliance Officer will notify the appropriate department head and the Compliance Committee of any violations noted. The branch or department that is the subject of the review will be required to respond to the findings and correct any noted violations.
     We recognize that customer complaints can often identify weaknesses in our compliance program which could expose the Bank to risk. Therefore, all complaints are given prompt attention. Our Compliance Management Policy and Program includes provisions on how customer complaints are to be addressed. The Compliance Officer reviews all complaints to determine if a significant compliance risk exists and communicates those findings to Senior Management.
Strategic Risk
     Strategic risk is the risk to earnings or capital arising from adverse decisions or improper implementation of strategic decisions. This risk is a function of the compatibility between an organization’s goals, the resources deployed against those goals and the quality of implementation.

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     Strategic risks are identified as part of the strategic planning process. Offsite strategic planning sessions are held annually. The strategic review consists of an economic assessment, competitive analysis, industry outlook and legislative and regulatory review.
     A primary measurement of strategic risk is peer group analysis. Key performance ratios are compared to three separate peer groups to identify any sign of weakness and potential opportunities. The peer group consists of:
  1.   All banks of comparable size
 
  2.   High performing banks
 
  3.   A list of specific banks
     Another measure is the comparison of the actual results of previous strategic initiatives against the expected results established prior to implementation of each strategy.
     The corporate strategic plan is formally presented to all branch managers and department managers at an annual leadership conference.
Reputation Risk
     Reputation risk is the risk to capital and earnings arising from negative public opinion. This affects our ability to establish new relationships or services, or continue servicing existing relationships. It can expose us to litigation and, in some instances, financial loss.
Price and Foreign Exchange Risk
     Price risk arises from changes in market factors that affect the value of traded instruments. Foreign exchange risk is the risk to earnings or capital arising from movements in foreign exchange rates.
     Our current exposure to price risk is nominal. We do not have trading accounts. Consequently, the level of price risk within the investment portfolio is limited to the need to sell securities for reasons other than trading. The section of this policy pertaining to liquidity risk addresses this risk.
     We maintain deposit accounts with various foreign banks. Our Interbank Liability Policy limits the balance in any of these accounts to an amount that does not present a significant risk to our earnings from changes in the value of foreign currencies.
     Our asset liability model calculates the market value of the Bank’s equity. In addition, management prepares on a monthly basis a Capital Volatility report that compares changes in the market value of the investment portfolio. We have as our target to always be well-capitalized by regulatory standards.
     The Balance Sheet Management Policy requires the submission of a Fair Value Matrix Report to the Balance Sheet Management Committee on a quarterly basis. The report calculates the economic value of equity under different interest rate scenarios, revealing the level or price risk of the Bank’s interest sensitive asset and liability portfolios.
ITEM 4. CONTROLS AND PROCEDURES
     We maintain controls and procedures designed to ensure that information is recorded and reported in all filings of financial reports with the Securities and Exchange Commission. Such information is reported to the Company’s management, including its Chief Executive Officer and its Chief Financial Officer to allow timely and accurate disclosure based on the definition of “disclosure controls and procedures” in SEC Rule 13a-15(e). In designing these controls and procedures, management recognizes

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that they can only provide reasonable assurance of achieving the desired control objectives. We also evaluate the cost-benefit relationship of controls and procedures.
     As of the end of the period covered by this report, we carried out an evaluation of the effectiveness of the Company’s disclosure controls and procedures under the supervision and with the participation of the Chief Executive Officer, the Chief Financial Officer and other senior management of the Company. Based on the foregoing, the Company’s Chief Executive Officer and the Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective.
     During our most recent fiscal quarter, there have been no changes in our internal control over financial reporting that has materially affected or is reasonably likely to materially affect our internal control over financial reporting.

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PART II — OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
     Not Applicable
ITEM 1A. RISK FACTORS
     Except as describe below, there were no material changes from the risk factors set forth in Part I, Item 1A, “Risk Factors,” of the Company’s FORM 10-K for the year ended December 31, 2005, during the three months ended March 31, 2006. Please refer to that section of the Company’s FORM 10-K for disclosure regarding the risks and uncertainties related to the Company’s business.
     We are dependent on key personnel and the loss of one or more of those key personnel may materially and adversely affect our prospects – Competition for qualified employees and personnel in the banking industry is intense and there are a limited number of qualified persons with knowledge of, and experience in, the California community banking industry. The process of recruiting personnel with the combination of skills and attributes required to carry out our strategies is often lengthy. Our success depends to a significant degree upon our ability to attract and retain qualified management, credit quality, loan origination, finance, administrative, marketing and technical personnel and upon the continued contributions of our management and personnel. In particular, our success has been and continues to be highly dependent upon the abilities of our executive officers. In May, 2006, we announced that our President and Chief Executive Officer, D. Linn Wiley intends to retire on December 31, 2006 as President and Chief Executive Officer of the Company and the Bank assuming a suitable replacement has been identified by such time. The loss of the services of any one of our key executives or other executives or our inability to find suitable replacements, could have a material adverse effect on our business, financial condition, results of operations and prospects.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
     In October 2001, the Company’s board of directors authorized the repurchase of up to 2.0 million shares (all share amounts will not be adjusted to reflect stock dividends and splits) of the Company’s common stock. This program does not have an expiration date. There were no repurchase transactions during the three months ended March 31, 2006. As of March 31, 2006, 775,163 shares are available to be repurchased in the future under this repurchase plan.
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
     Exhibit 31.1 Certification of D. Linn Wiley pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

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Exhibit 31.2 Certification of Edward J. Biebrich, Jr. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Exhibit 32.1 Certification of D. Linn Wiley pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Exhibit 32.2 Certification of Edward J. Biebrich, Jr. pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

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Table of Contents

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 8, 2006
  /s/ Edward J. Biebrich Jr.    
 
       
 
  Edward J. Biebrich Jr.
Chief Financial Officer
   

46

exv31w1
 

Exhibit 31.1
CERTIFICATION
     I, D. Linn Wiley, certify that:
1. I have reviewed this quarterly report on Form 10-Q of CVB Financial Corp.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s Board of Directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
         
     
Date: May 8, 2006  /s/ D. Linn Wiley    
  D. Linn Wiley   
  Chief Executive Officer   

 

exv31w2
 

         
Exhibit 31.2
CERTIFICATION
     I, Edward J. Biebrich, Jr, certify that:
1. I have reviewed this quarterly report on Form 10-Q of CVB Financial Corp.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s Board of Directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
         
     
Date: May 8, 2006  /s/ Edward J. Biebrich, Jr.    
  Edward J. Biebrich, Jr.   
  Chief Financial Officer   
 

 

exv32w1
 

Exhibit 32.1
CERTIFICATION
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
     In connection with the Quarterly Report of CVB Financial Corp. (the “Company”) on Form 10-Q for the period ended March 31, 2006, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, D. Linn Wiley, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, to the best of my knowledge that:
  (1)   The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
  (2)   The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.
         
     
Date: May 8, 2006  /s/ D. Linn Wiley    
  D. Linn Wiley   
  Chief Executive Officer   

 

exv32w2
 

         
Exhibit 32.2
CERTIFICATION
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
     In connection with the Quarterly Report of CVB Financial Corp. (the “Company”) on Form 10-Q for the period ended March 31, 2006, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Edward J. Biebrich, Jr., Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, to the best of my knowledge that:
  (1)   The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
  (2)   The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.
         
     
Date: May 8, 2006  /s/ Edward J. Biebrich Jr.    
  Edward J. Biebrich Jr.   
  Chief Financial Officer