View:
26
FORM 10-Q
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2001
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to _____
For Quarter Ended March 31, 2001 Commission File Number: 1-10394
CVB FINANCIAL CORP.
(Exact name of registrant as specified in its charter)
California 95-3629339
(State or other jurisdiction of incorporation (I.R.S. Employer Identification No.)
or organization)
701 North Haven Ave, Suite 350, Ontario, California 91764
(Address of Principal Executive Offices) (Zip Code)
(Registrant's telephone number, including area code) (909) 980-4030
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90 days.
YES X NO
Number of shares of common stock of the registrant: 27,752,458 outstanding as of
April 30, 2001.
This Form 10-Q contains 24 pages.
PART I - FINANCIAL INFORMATION
CVB FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
dollar amounts in thousands
March 31, December 31,
2001 2000
---------------- --------------------
(unaudited)
ASSETS
Federal funds sold $ 7,000 $ 10,000 $
Investment securities available-for-sale 1,063,784 1,070,074
Loans and lease finance receivables, net 1,016,280 1,032,341
--------------- ------------------
Total earning assets 2,087,064 2,112,415
Cash and due from banks 98,767 130,315
Premises and equipment, net 27,100 27,206
Other real estate owned, net 358 359
Deferred taxes 414 4,148
Goodwill and intangibles 7,128 7,403
Cash value life insurance 7,470 7,434
Accrued interest receivable 14,472 14,625
Other assets 28,906 4,091
--------------- ------------------
TOTAL ASSETS $ 2,271,679 $ 2,307,996 $
=============== ==================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Noninterest-bearing $ 622,603 $ 665,290 $
Interest-bearing 998,149 929,740
--------------- ------------------
Total Deposits 1,620,752 1,595,030
Short-term borrowings 110,559 396,234
Long-term borrowings 300,332 101,341
Accrued interest payable 5,592 6,742
Other liabilities 35,365 20,019
--------------- ------------------
TOTAL LIABILITIES $ 2,072,600 $ 2,119,366 $
=============== ==================
Stockholders' Equity:
Preferred stock (authorized, 20,000,000 shares
without par; none issued or outstanding)
Common stock -authorized, 50,000,000 shares
without par; issued and outstanding
27,752,458 (2001) and 27,659,452 (2000) 145,765 145,648
Retained earnings 41,092 36,179
Accumulated other comprehensive income 12,222 6,803
--------------- ------------------
Total stockholders' equity 199,079 188,630
--------------- ------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 2,271,679 $ 2,307,996 $
=============== ==================
See accompanying notes to the consolidated financial statements.
2
CVB FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(unaudited)
dollar amounts in thousands, except per share
For the Three Months
Ended March 31,
2001 2000
-------------- --------------
Interest Income:
Loans, including fees $ 23,176 $ 21,257
Investment securities:
Taxable 12,941 11,801
Tax-advantaged 3,753 2,264
------------ -----------
Total investment income 16,694 14,065
Federal funds sold 68 2
------------ -----------
Total interest income 39,938 35,324
Interest Expense:
Deposits 9,303 6,864
Borrowings 6,642 5,250
------------ -----------
Total interest expense 15,945 12,114
------------ -----------
Net interest income before provision for credit losses 23,993 23,210
Provision for credit losses 750 900
------------ -----------
Net interest income after
provision for credit losses 23,243 22,310
Other Operating Income:
Service charges on deposit accounts 3,146 2,646
Loss on sale of securities (605) (74)
Gain on sale of other real estate owned 0 223
Trust services 1,109 1,041
Other 2,021 878
------------ -----------
Total other operating income 5,671 4,714
Other operating expenses:
Salaries and employee benefits 7,933 7,514
Occupancy 1,387 1,375
Equipment 1,223 1,270
Professional services 1,255 1,121
Other 3,293 3,065
------------ -----------
Total other operating expenses 15,091 14,345
------------ -----------
Earnings before income taxes 13,823 12,679
Income taxes 5,014 4,823
------------ -----------
Net earnings $ 8,809 $ 7,856
============ ===========
Basic earnings per common share $ 0.32 $ 0.29
============ ===========
Diluted earnings per common share $ 0.31 $ 0.28
============ ===========
Cash dividends per common share $ 0.14 $ 0.12
============ ===========
See accompanying notes to the consolidated financial statements.
3
CVB FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(unaudited)
(Dollars and shares in thousands)
Accumulated
Other
Common Comprehensive
Shares Common Retained Income Comprehensive
Outstanding Stock Earnings Net of Tax Income
------------- ----------- ----------- ----------------- -----------------
Balance January 1, 2000 24,717 $ 105,304 $ 51,857 $ (16,391)
Issuance of common stock 428 2,347
10% stock dividend 2,514 37,997 (37,997)
Tax benefit from exercise of stock options 26
Cash dividends (12,390)
Comprehensive income:
Net earnings 34,683 $ 34,683
Other comprehensive income:
Unrealized gains on securities
available-for-sale, net 23,194 23,194
-----------------
Comprehensive income $ 57,877
------------ ----------- ----------- ----------------- =================
Balance December 31, 2000 27,659 $ 145,648 $ 36,179 $ 6,803
Issuance of common stock 93 117
Cash dividends (3,896)
Comprehensive income:
Net earnings 8,809 $ 8,809
Other comprehensive income:
Unrealized gains on securities
available-for-sale, net 5,419 5,419
-----------------
Comprehensive income $ 14,228
------------ ----------- ----------- ----------------- =================
Balance March 31, 2001 27,752 $ 145,765 $ 41,092 $ 12,222
============ =========== =========== =================
See accompanying notes to the consolidated financial statements.
4
CVB FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
dollar amounts in thousands
For the Three Months
Ended March 31,
2001 2000
--------------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Interest received $ 35,947 $ 36,837
Service charges and other fees received 6,276 4,788
Interest paid (17,096) (11,743)
Cash paid to suppliers and employees (15,038) (15,004)
Income taxes paid 0 (2,737)
--------------- ---------------
Net cash provided by operating activities 10,089 12,141
--------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of securities available-for-sale 165,848 15,621
Proceeds from maturities of securities available-for-sale 16,229 27,458
Purchases of securities available-for-sale (174,001) (82,440)
Net decrease in loans 16,209 6,964
Proceeds of premises and equipment 50 1
Purchase of premises and equipment (1,046) (1,078)
Other investing activities (3,196) (293)
--------------- ---------------
Net cash provided by (used in) investing activities 20,093 (33,767)
--------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (decrease) in transaction deposits (14,697) (35,338)
Net increase(decrease) in time deposits 40,421 (5,249)
Net increase(decrease) in borrowings (86,675) 43,584
Cash dividends on common stock (3,896) (3,039)
Proceeds from exercise of stock options 117 2,136
--------------- ---------------
Net cash (used in) provided by financing activities (64,730) 2,094
--------------- ---------------
NET (DECREASE) IN CASH AND CASH EQUIVALENTS (34,548) (19,532)
CASH AND CASH EQUIVALENTS, beginning of period 140,315 118,360
--------------- ---------------
CASH AND CASH EQUIVALENTS, end of period $ 105,767 $ 98,828
=============== ===============
See accompanying notes to the consolidated financial statements.
5
CVB FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
dollar amounts in thousands
For the Three Months
Ended March 31,
2001 2000
--------------- ---------------
RECONCILIATION OF NET EARNINGS TO NET CASH PROVIDED BY
OPERATING ACTIVITIES:
Net earnings $ 8,809 $ 7,856
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Gain on sale of investment securities (570) (10)
Loss on sale of investment securities 1,175 84
Loss (gain) on sale of premises and equipment 51 0
Increase in cash value of life insurance (36) 0
Amortization of premiums on investment securities (3,466) 2,317
Provisions for credit losses 750 900
Depreciation and amortization 1,153 1,126
Change in accrued interest receivable 153 (803)
Change in accrued interest payable (1,150) 371
Change in other assets and liabilities 3,220 300
--------------- ---------------
Total adjustments 1,280 4,285
--------------- ---------------
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 10,089 $ 12,141
=============== ===============
Supplemental Schedule of Noncash Investing and Financing Activities
Securities purchased and not settled $ 12,425 $ 980
Securities sold and not settled $ (22,845) $ 0
6
CVB FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the three months ended March 31, 2001 and 2000
1. Summary of Significant Accounting Policies. See Note 1 of the Notes to Consolidated Financial Statements in CVB Financial
Corp.'s 2000 Annual Report on Form 10-K.
Goodwill resulting from purchase accounting treatment of acquired banks is amortized on a straight-line basis over 15 years.
The Bank accounts for impaired loans in accordance with Statement of Financial Accounting Standards ("SFAS") No. 114,
"Accounting by Creditors for Impairment of a Loan," as amended by SFAS No. 118, "Accounting by Creditors for Impairment of a
Loan -- Income Recognition and Disclosures." Impaired loans totaled $15.0 million at March 31, 2001. These loans were
supported by collateral with a fair market value, net of prior liens, of $14.4 million.
2. Certain reclassifications have been made in the 2000 financial information to conform to the presentation used in 2001.
3. In the ordinary course of business, the Company enters into commitments to extend credit to its customers. These commitments
are not reflected in the accompanying consolidated financial statements. As of March 31, 2001, the Company had entered into
commitments with certain customers amounting to $355.7 million compared to $339.1 million at December 31, 2000. Letters of
credit at March 31, 2001, and December 31, 2000, were $11.2 million and $10.9 million, respectively.
4. The interim consolidated financial statements are unaudited and reflect all adjustments and reclassifications which, in the
opinion of management, are necessary for a fair statement of the results of operations and financial condition for the
interim period. All adjustments and reclassifications are of a normal and recurring nature. Results for the period ending
March 31, 2001 are not necessarily indicative of results which may be expected for any other interim period or for the year
as a whole.
5. The actual number of shares outstanding at March 31, 2001 was 27,752,458. Basic earnings per share are calculated on the
basis of the weighted average number of shares outstanding during the period. Diluted earnings per share are calculated on
the basis of the weighted average number of shares outstanding during the period plus shares issuable upon the assumed
exercise of outstanding common stock options. All 2000 per share information in the financial statements and in Management's
Discussion and Analysis has been restated to give retroactive effect to the 10% stock dividend declared December 20, 2000,
and which was paid on January 26, 2001. The table below presents the reconciliation of earnings per share for the periods
indicated.
7
Earnings Per Share Reconciliation
(Dollars and shares in thousands, except per share amounts)
For the Three Months
Ended March 31,
2001 2000
---------------------------------------------- ---------------------------------------------
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 $ 8,809 27,703 $0.32 $ 7,856 27,189 $0.29
EFFECT OF DILUTIVE
SECURITIES
Incremental shares
from assumed exercise
of outstanding options 504 (0.01) 615 (0.01)
---------------------------------------------- ------------------------------------------
DILUTED EPS
Income available to
common stockholders $ 8,809 28,207 $0.31 $ 7,856 27,804 $0.28
============================================== =============================================
8
CVB FINANCIAL CORP. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
Management's discussion and analysis is written to provide greater insight into the results of operations and the financial
condition of CVB Financial Corp. and its subsidiaries. Throughout this discussion, "Company" refers to CVB Financial Corp. and its
subsidiaries as a consolidated entity. "CVB" refers to CVB Financial Corp. as the unconsolidated parent company and "Bank" refers to
Citizens Business Bank. For a more complete understanding of the Company and its operations, reference should be made to the
financial statements included in this report and in the Company's 2000 Annual Report on Form 10-K. Certain statements in this Report
on Form 10-Q constitute "forward-looking statements" under the Private Securities Litigation Reform Act of 1995 which involve risks
and uncertainties. The Company's actual results may differ significantly from the results discussed in such forward-looking
statements. Factors that might cause such a difference include, but are not limited to, economic conditions, competition in the
geographic and business areas in which the Company conducts operations, fluctuations in interest rates, credit quality, and
government regulations. For additional information concerning these factors, see "Item 1. Business - Factors That May Affect Results"
contained in the Company's Annual Report on Form 10-K for the year ended December 31, 2000.
RESULTS OF OPERATIONS
The Company reported net earnings of $8.8 million for the three months ended March 31, 2001. This represented an increase
of $953,000, or 12.13%, over net earnings of $7.9 million, for the three months ended March 31, 2000. Basic earnings per share for
the three-month period increased to $0.32 per share for 2001, compared to $0.29 per share for 2000. Diluted earnings per share
increased to $0.31 per share for the first three months of 2001, compared to $0.28 per share for the same three-month period last
year. The annualized return on average assets was 1.58% for the first three months of 2001 compared to a return on average assets of
1.60% for the three months ended March 31, 2000. The annualized return on average equity was 18.37% for the three months ended March
31, 2001, compared to a return of 21.57% for the three months ended March 31, 2000.
Pre-tax operating earnings, which exclude the impact of gains or losses on sale of securities and OREO, and the provisions
for credit and OREO losses, totaled $15.2 million for the three months ended March 31, 2001. This represented an increase of $1.7
million, or 13.02 %, compared to operating earnings of $13.4 million for the first three months of 2000.
Net Interest Income/Net Interest Margin
The principal component of the Company's earnings is net interest income, which is the difference between the interest and
fees earned on loans and investments and the interest paid on deposits and borrowed funds. When net interest income is expressed as a
percentage of average earning assets, the result is the net interest margin. The net interest spread is the yield on average earning
assets minus the average cost of interest-bearing deposits and borrowed funds. The Company's 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 the Company
conducts business.
For the three months ended March 31, 2001, net interest income before the provision for credit losses was $24.0
million. This represented an increase of $783,000, or 3.37%, over net interest income of $23.2 million for the three months ended
March 31, 2000. The increase in net interest income for the first three months of 2001 compared to 2000 was primarily the result of
greater average balances of earning assets, which was partially off set by a decrease in interest rates. Net earning assets averaged
$2.1 billion for the first three months of 2001. This represented an increase of $279.7 million, or 15.42%, compared to net average
earning assets of $1.8 billion for the first three months of 2000.
9
The net interest margin measures net interest income as a percentage of average earning assets. The net interest margin can
be affected by changes in the yield on earning assets and the cost of interest-bearing liabilities, as well as changes in the level
of interest-bearing liabilities in proportion to earning assets. The net interest margin can also be affected by changes in the mix
of earning assets as well as the mix of interest-bearing liabilities. The Company's tax effected (TE) net interest margin was 4.86%
for the first three months ended March 31, 2001, compared to 5.31% for the same period of 2000. A lower yield on average earning
assets, and a higher cost of average funding (deposits and borrowings), contributed to the decrease in the net interest margin. A
change in the mix of earning assets was another contributor to the decrease in the net interest margin. Average loans as a percentage
of net average earning assets for the first three months of 2001 decreased from 52.03% to 49.83% compared to the same period last
year. Loans typically generate higher yields than investments. Also, a change in the mix of average interest-bearing liabilities
toward higher costing funds was another element contributing to the decrease in the net interest margin. Average borrowed funds as a
percent of average funding (total deposits plus borrowing) increased from 20.56% as of December 31, 2000 to 22.42% as of March
31,2001.
The net interest spread is the difference between the yield on average earning assets less the cost of average
interest-bearing liabilities. The Company's net interest spread (TE) decreased to 3.39% for the first three months of 2001 ending
March 31, compared to 3.96% for the same period of 2000. The decrease in the net interest spread for 2001 resulted from decreases in
the yield on earning assets and an increase in the cost of average interest-bearing liabilities. The yield on earning assets
decreased 8 basis points, while the cost of interest-bearing liabilities increased 48 basis points for the first three months of 2001
compared to 2000. The increase in the cost of interest-bearing liabilities reflects the increased use of borrowed funds and
competitive market forces.
The decrease in the yield on average earning assets resulted from decreased yields on average loans. The yield on average
loans decreased to 9.01% for the three months ended March 31, 2001, from a yield of 9.13% for the first three months of 2000. The
decrease in the yields on loans for 2001 was primarily the result of a decreasing interest rate environment. The tax effective (TE)
yield on average investments increased to 6.86% at March 31, 2001 compared to 6.79% at March 31, 2000 and decreased compared to 6.95%
at December 31, 2000.
The cost of average interest-bearing liabilities increased to 4.52% for the three months ended March 31, 2001, compared to a
cost of 4.04% for the first three months of 2000. The increase in the cost of interest-bearing liabilities was primarily the result
of a change in the mix of interest-bearing liabilities and competitive market forces. As stated above, average borrowed funds as a
percent of average funding (total deposits plus borrowing) increased from 20.56% to 22.42% between March 31, 2001 and December 31,
2000. Also, average time deposits as a percentage of interest-bearing deposits inceased to 44.77% from 38.84%. The cost of
average interest-bearing deposits was 3.88% for the first three months of 2001 as compared to 3.27% for the first three months of
2000. The cost of borrowed funds increased to 5.89% for the three months ended March 31, 2001, compared to a cost of 5.84% for the
three months ended March 31, 2000. The cost of time deposits increased to 5.61% for the three months ended March 31, 2001, compared
to a cost of 4.75% for the three months ended March 31, 2000.
The Company reported total interest income of $39.9 million for the three months ended March 31, 2001. This represented an
increase of $4.6 million, or 13.06%, over total interest income of $35.3 million for the three months ended March 31, 2000.
10
Interest expense totaled $15.9 million for the three months ended March 31, 2001. This represented an increase of $3.8
million, or 31.63%, over total interest expense of $12.1 million for the three months ended March 31, 2000.
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, 2001, and 2000. Yields for tax-advantaged 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
(dollars in thousands)
Three-month periods ended March 31,
2001 2000
----------------------------------------- --------------------------------------
Average Average
ASSETS Balance Interest Rate Balance Interest Rate
------------ ----------- ----------- ----------- ------------ ---------
Investment Securities:
Taxable $ 785,707 $ 12,941 6.68% $ 717,974 $ 11,801 6.67%
Tax-advantaged (TE) (1) 279,397 3,753 7.35% 169,307 2,264 7.32%
Federal Funds Sold Interest-bearing
deposits with other financial institutions 4,994 68 5.52% 154 2 5.27%
Loans (2) (3) 1,043,452 23,176 9.01% 944,067 21,257 9.13%
------------ ----------- ------------ ---------
----------- ------------
Total Earning Assets 2,113,550 $ 39,938 7.92% 1,831,502 $ 35,324 8.00%
Total Non-earning Assets 146,113 157,860
------------ -----------
Total Assets $ 2,259,663 $ 1,989,362
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Non-interest bearing deposits $ 609,723 $ 596,582
Savings Deposits (4) 537,347 $ 3,282 2.48% 520,640 $ 2,994 2.33%
Time Deposits 435,531 6,021 5.61% 330,648 3,870 4.75%
------------ ----------- ----------- ----------- ------------ ---------
Total Deposits 1,582,601 9,303 2.38% 1,447,870 6,864 1.92%
------------ ----------- ----------- ----------- ------------ ---------
Borrowings 457,488 6,642 5.89% 364,281 5,250 5.84%
------------ ----------- ----------- ---------
----------- ------------
Total Interest-Bearing Liabilities 1,430,366 $ 15,945 4.52% 1,215,569 $ 12,114 4.04%
------------ -----------
Other Liabilities 25,120 29,483
Stockholders' Equity 194,454 147,728
------------ -----------
Total Liabilities and
Stockholders' Equity $ 2,259,663 $ 1,989,362
============ ===========
Net interest spread 3.39% 3.96%
Net interest margin 4.86% 5.31%
- - --------------------------------------------------
(1) Includes tax-exempt municipal securities, pereferred stock, and qualified zone academy bonds.
(2) Loan fees are included in total interest income as follows: 2001, $898; 2000, $917.
(3) Nonperforming loans are included in loans as follows: 2001, $971; 2000, $687.
(4) Includes interest-bearing demand and money market accounts.
90
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).
11
TABLE 2 - Rate and Volume Analysis for Changes in Interest Income, Interest Expense
and Net Interest Income
(amounts in thousands)
Comparison of three-month period
ended March 31, 2001 and 2000
Increase (decrease) in interest income or expense
due to changes in:
Rate/
Volume Rate Volume Total
------------ ------------ ------------ -------------
Interest Income:
Taxable investment securities $ 1,395 $ (227) $ (27) $ 1,141
Tax-advantaged securities 1,243 159 87 1,489
Fed funds sold interest-bearing
deposits with other institutions 72 0 (7) 65
Loans 2,238 (288) (31) 1,919
------------ ------------ ------------ -------------
Total earning assets 4,948 (356) 22 4,614
------------ ------------ ------------ -------------
Interest Expense:
Savings deposits 96 191 6 293
Time deposits 1,231 695 221 2,147
Other borrowings 1,343 39 10 1,392
------------ ------------ ------------ -------------
Total interest-bearing liabilities 2,670 925 237 3,832
------------ ------------ ------------ -------------
Net Interest Income $ 2,278 $ (1,281) $ (215) $ 782
============ ============ ============ =============
During periods of changing interest rates, the ability to reprice interest-earning assets and interest-bearing liabilities
can influence net interest income, net interest margin, and, consequently, the Company's earnings. Interest rate risk is managed by
attempting to control the spread between rates earned on interest-earning assets and the rates paid on interest-bearing liabilities
within the constraints imposed by market competition in the Bank's service area. Short-term repricing risk is minimized by
controlling the level of floating rate loans and maintaining bond payments and maturities which are scheduled in approximately equal
increments over time. Basis risk is managed by the timing and magnitude of changes to interest-bearing deposits rates. Yield curve
risk is reduced by keeping the duration of the loan and bond portfolios relatively short. Options risk in the bond portfolio is
monitored monthly and actions are recommended when appropriate.
Both the net interest spread and the net interest margin are largely affected by interest rate changes in the market place
and the Company's ability to reprice assets and liabilities as these interest rates change. The Company's management utilizes the
results of a dynamic simulation model to quantify the estimated exposure of net interest income to sustained changes in interest
rates. The sensitivity of the Company's net interest income is measured over a rolling two year horizon. The simulation model
estimates the impact of changing interest rates on the net interest income from all interest-earning assets and interest expense paid
on all interest-bearing liabilities reflected on the Company's balance sheet. The sensitivity analysis is compared to policy limits
which specify a maximum tolerance level for net interest income exposure over a one year time horizon assuming no balance sheet
growth, given both a 200 basis point upward and downward shift in interest rates. A parallel and pro rata shift in interest rates
over a 12-month period is assumed. The following reflects the Company's net interest income sensitivity over a one year horizon as of
March 31, 2001.
12
Estimated Net
Simulated Interest Income
Rate Changes Sensitivity
------------ -----------
+200 basis points 0.18%
-200 basis points (0.82%)
The table indicates that net interest income would increase by approximately 0.18% over a 12-month period if there were a
sustained, parallel and pro rata 200 basis point upward shift in interest rates. Net interest income would decrease approximately
0.82% over a 12-month period if there were a sustained, parallel and pro rata 200 basis point downward shift in interest rates.
Credit Loss Experience
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 the Company determines 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. The
Company's methodology includes two major elements, which are intended to reduce the differences between estimated and actual losses.
The Company's methodology for assessing the appropriateness of the allowance consists of two key elements. The first element
is the allocated portion of the allowance, which includes specific allowances for identified problem loans, and a loan portfolio
formula allowance. The second element is the unallocated allowance, which supplements the allocated portion. The unallocated
allowance includes management's judgmental determination of the amounts necessary for concentrations, economic uncertainties and
other subjective factors; correspondingly, the relationship of the unallocated allowance to the total allowance may fluctuate from
period to period.
In the case of the portfolio formula allowance, homogeneous portfolios, such as small business lending, consumer 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.
Central to the Company's credit risk management is its loan risk rating system. The originating credit officer assigns
borrowers an initial risk rating, 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 administration personnel. Credits are monitored by line
and credit administration 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.
Based on the risk rating system specific allowances are established in cases where management has identified significant
conditions or circumstances related to a credit that management believes indicates the probability that a loss has been incurred in
excess of the amount determined by the application of the portfolio formula allowance. Management performs a detailed analysis of
these loans, including, but not limited to, appraisals of the collateral, conditions of the marketplace for liquidating the
collateral and assessment of the guarantors. Management then determines the inherent loss potential and allocates a portion of the
allowance for losses as a specific allowance for each of these credits.
13
The unallocated allowance is based upon management's 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 unallocated allowance include 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,
- 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.
Management reviews these conditions in discussion with the Company's 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, management's
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, management's evaluation of the inherent loss related to such condition is reflected in the unallocated allowance.
Management may add certain adjustments to ensure that a prudent amount of conservatism is present. Although management has allocated
a portion of the allowance to specific loan categories, the adequacy of the allowance must be considered in its entirety.
The Company has adopted 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." The statements prescribe that a loan is
impaired when principal and interest are deemed uncollectable according to 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). The amount of impairment
is included as a part of the Company's allowance for credit losses.
14
The Company maintains 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 provision for credit losses was $750,000 for the three months ended
March 31, 2001, as compared to $900,000 for the same period of 2000, a decrease of $150,000, or 16.67%.
The allowance for credit losses at March 31, 2001 was $20.0 million. This represented an increase of $868,700 or 4.54%, from
the allowance for credit losses of $19.2 million at December 31, 2000. The allowance for credit losses was 1.92% of average gross
loans for the first three months of 2001 and 1.86% of average gross loans for the first three months of 2000.
Non-performing loans, which include non-accrual loans, loans past due 90 or more days and still accruing, and restructured
loans were $971,000 at March 31, 2001. This represented an increase of $5,000, or 0.52%, from the level of non-performing loans at
December 31, 2000. Non-performing assets, which include non-performing loans plus other real estate owned (foreclosed property)
remained constant at $1.3 million at March 31, 2001. Table 6 presents non-performing assets as of March 31, 2001, and December 31,
2000. At March 31, 2001, the Company had loans classified as impaired totaling $15.0 million. This represents an decrease of
$182,000, or 1.20% compared to loans classified as impaired of $15.2 million at December 31, 2000. The Company applies the
methods prescribed by Statement of Financial Accounting Standards No. 114 for determining the fair value of specific loans for
which the eventual collection of all principal and interest is considered impaired.
While management believes that the allowance at March 31, 2001, was adequate to absorb losses from any known or inherent
risks in the portfolio, no assurance can be given that economic conditions which adversely affect the Company's service areas or
other circumstances will not be reflected in increased provisions or credit losses in the future. Table 3 shows comparative
information on net credit losses, provisions for credit losses, and the allowance for credit losses for the periods indicated.
15
TABLE 3 - Summary of Credit Loss Experience
(amounts in thousands)
Three-months ended March 31,
2001 2000
------------ ------------
Amount of Total Loans at End of Period (1) $ 1,036,301 $ 945,451
============ ============
Average Total Loans Outstanding (1) $ 1,043,452 $ 944,067
============ ============
Allowance for Credit Losses at Beginning of Period $ 19,152 $ 16,761
Loans Charged-Off:
Real Estate Loans 0 187
Commercial and Industrial 0 0
Consumer Loans 1 1
------------ ------------
Total Loans Charged-Off 1 188
------------ ------------
Recoveries:
Real Estate Loans 15 6
Commercial and Industrial 97 44
Consumer Loans 8 1
------------ ------------
Total Loans Recovered 120 51
Net Loans Charged-Off (119) 137
------------ ------------
Provision Charged to Operating Expense 750 900
------------ ------------
Allowance for Credit Losses at End of period $ 20,021 $ 17,524
============ ============
- - --------
(1) Net of deferred loan fees
Net Loans Charged-Off to Average Total Loans* -0.05% 0.06%
Net Loans Charged-Off to Total Loans at End of Period* -0.05% 0.06%
Allowance for Credit Losses to Average Total Loans 1.92% 1.86%
Allowance for Credit Losses to Total Loans at End of Period 1.93% 1.85%
Net Loans Charged-Off to Allowance for Credit Losses* -2.38% 3.13%
Net Loans Charged-Off to Provision for Credit Losses -15.87% 15.22%
* Net Loan Charge-Off amounts are annualized.
Other Operating Income
Other operating income includes revenues earned from sources other than interest income. These sources include: service
charges and fees on deposit accounts, fee income from trust services, other fee oriented products and services, gain or loss on sale
of securities or other real estate owned and gross revenue from Community Trust Deed Services and CVB Ventures (the Company's nonbank
subsidiaries).
Other operating income totaled $5.7 million for the three months ended March 31, 2001. This represented an increase of
$957,000, or 20.29%, from other operating income of $4.7 million for the three months ended March 31, 2000. The increase was
primarily the result of higher service charge income, other income, and rental income, which was offset by a loss of $605,000 on the
sale of securities.
16
Service charge income totaled $3.1 million for the first three months ended March 31, 2001. This represents an increase of
$500,000, or 18.89%, over service charge income of $2.6 million for the three months ended March 31, 2000.
Trust income totaled $1.1 million for the three months ended March 31, 2001. This represented an increase of $68,000, or
6.52%, over trust income of $1.0 million for the three months ended March 31, 2000.
Other fee-oriented products (which include investment services fees, business services fees, bankcard fees, international
fees, and other fees) generated fees totaling $774,000 for the three months ended March 31, 2001. This represented an increase of
$89,000, or 13.03%, over fees of $685,000 for the three months ended March 31, 2000.
Other Operating Expenses
Other operating expenses for the Company includes expenses for salaries and benefits, occupancy, equipment, professional
services, promotion and other expenses (data processing, stationary and supplies, deposit insurance, promotional, other real estate
owned, and misc. expenses). Other operating expenses totaled $15.1 million for the three months ended March 31, 2001. This
represented an increase of $746,000, or 5.20%, over other operating expenses of $14.3 million for the three months ended March 31,
2000.
For the most part, other operating expenses reflect the direct expenses and related administrative expenses associated with
staffing, maintaining, promoting, and operating branch facilities. Management's 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 2.71% for the first three months of 2001, compared to a ratio of 2.92% for
the same period last year. The decrease in the ratio indicates that management is controlling greater levels of assets with
proportionately smaller operating expenses, an indication of operating efficiency.
Management's ability to control other operating expenses in relation to the level of net revenue (net interest income plus
other operating income) can be measured in terms of other operating expenses as a percentage of net revenue. This is known as the
efficiency ratio and indicates the percentage of revenue that is used to cover expenses. For the first three months of 2001, the
efficiency ratio was 50.87%, compared to a ratio of 51.37% for the same period last year. The decrease in the ratio indicates that a
proportionately smaller amount of net revenue was being allocated to operating expenses, an additional indication of operating
efficiency.
Salaries and employee benefits totaled $7.9 million for the first three months of 2001. This represented an increase of
$419,000, or 5.58%, from salaries and employee benefits of $7.5 million for the same period last year. Equipment expense totaled
$1.2 million for the three months ended March 31, 2001. This represents a decrease of $47,000, or 3.70%, over equipment expense of
$1.3 million for the three months ended March 31, 2000. Occupancy expense totaled $1.4 million for the three months ended March 31,
2001. This represents an increase of $13,000, or 0.91%, over occupancy expense of $1.4 million for the same period last year.
Professional expense, which includes legal and accounting expenses totaled $1.3 million for the first three months, ended March 31,
2001. This represents an increase of $134,000, or 11.94%, over professional expense of $1.1 million for the three months ended March
31, 2000. Other expense, which includes data processing, supplies, promotional, and other expenses, totaled $3.3 million for the
first three months ended March 31, 2001. This represents an increase of $228,000, or 7.42%, over other expense of $3.1 million for
the first three months of 2000.
17
The Company maintains an allowance for inherent losses on other real estate owned. The allowance is increased by a provision
for losses on other real estate owned, and reduced by losses on the sale of other real estate owned charged directly to the
allowance. The allowance was established to provide for inherent losses. For the three months ended March 31, 2001, there was no
additional provision made for other real estate owned. At March 31, 2001 the allowance for inherent losses on other real estate
owned was $52,000, or 12.64%, of the $410,000 in other real estate owned.
Other expenses include the amortization of goodwill and intangibles. The amortization expense of goodwill and intangibles
totaled $274,000 for the first three months of 2001 and $296,000 for the same period last year.
BALANCE SHEET ANALYSIS
The Company reported total assets of $2.27 billion at March 31, 2001. This represented a decrease of $36.3 million, or
1.57%, over total assets of $2.31 billion at December 31, 2000. Gross loans, net of deferred loan fees, totaled $1.04 billion at
March 31, 2001. This represented a decrease of $15.2 million, or 1.44%, over gross loans of $1.05 billion at December 31, 2000. The
decrease in loans in the first quarter represents normal cyclical activity primarily in agribusiness loans. Total deposits increased
$25.7 million, or 1.61%, to $1.62 billion at March 31, 2001, from $1.60 billion at December 31, 2000. Borrowings decreased $86.7
million, or 17.42%, to $410.9 million at March 31, 2001, from $497.6 million at December 31, 2000.
Investment Securities and Debt Securities Available-for-Sale
The Company reported total investment securities of $1.06 billion at March 31, 2001. This represented a decrease of $6.3
million, or 0.59%, over total investment securities of $1.07 billion at December 31, 2000.
At March 31, 2001, the Company's net unrealized gain on securities available-for-sale totaled $21.1 million. Accumulated
other comprehensive income totaled $12.2 million (net of deferred taxes of $8.9 million). At December 31, 2000, the Company reported
a net unrealized gain on investment securities available-for-sale of $11.7 million. Accumulated other comprehensive income totaled
$6.8 million (net of deferred taxes of $4.9 million). Note 2 of the Notes to the Consolidated Financial Statements in the Company's
2000 Annual Report on Form 10-K discusses its current accounting policy as it pertains to recognition of market values for investment
securities held as available-for-sale.
Table 4 sets forth investment securities held-to-maturity and available-for-sale, at March 31, 2001 and December 31, 2000.
18
Table 4 - Composition of Investment Securities
(dollars in thousands)
March 31, 2001 December 31, 2000
------------------------------------------------------------ -------------------------------------------------------------
Amortized Market Net Unrealized Year-to-Date Amortized Market Net Unrealized Year-to-Date
Cost Value Gain/(Loss) Yield (TE) Cost Value Gain/(Loss) Yield (TE)
------------- ------------- ---------------- --------------- ------------- ------------- ---------------- ----------------
Investment Securities Available-for-Sale:
U.S. Treasury securities $ 999 $ 1,023 $ 24 6.02% $ 999 $ 1,010 $ 11 5.95%
Mortgage-backed securities 386,374 389,231 2,857 6.74% 336,978 337,533 555 6.82%
CMO's / REMIC's 307,634 312,147 4,513 6.62% 391,634 391,045 (589) 6.78%
Other Government Agency Securities 5,915 5,929 14 6.18% 18,765 18,711 (54) 6.12%
Tax-advantaged Securities 295,727 308,581 12,854 7.35% 266,327 277,750 11,423 7.47%
Corporate Bond 23,360 24,172 812 7.18% 21,299 21,683 384 7.23%
Other securities 22,702 22,701 (1) 6.46% 22,342 22,342 0 7.11%
------------- ------------ -------------- ------------ ------------- ------------ -------------- ------------
Total Investment Securities $ 1,042,711 $ 1,063,784 $ 21,073 6.86% $ 1,058,344 $ 1,070,074 $ 11,730 6.95%
============= ============ ============== ============ ============== ============ =============== ============
Loan Composition and Non-performing Assets
Table 5 sets forth the distribution of the loan portfolio by type as of the dates indicated (dollar amounts in thousands):
Table 5 - Distribution of Loan Portfolio by Type
March 31, 2001 December 31, 2000
-------------- -----------------
Commercial and Industrial $ 419,552 $ 425,130
Real Estate:
Construction 60,854 58,373
Mortgage 403,703 401,408
Consumer 23,438 22,642
Municipal lease finance receivables 23,999 23,633
Agribusiness 108,072 123,614
------------------- -------------------
Gross Loans 1,039,618 1,054,800
Less:
Allowance for credit losses 20,021 19,152
Deferred net loan fees 3,317 3,307
------------------- -------------------
Net Loans $ 1,016,280 $ 1,032,341
=================== ===================
As set forth in Table 6, non-performing assets, which include non-performing loans plus other real estate owned (foreclosed
property) remained constant at $1.3 million at March 31, 2001. Non-performing loans, which include non-accrual loans, loans past due
90 or more days and still accruing, and restructured loans were $971,000 at March 31, 2001. This represented an increase of $5,000,
or 0.52%, from the level of non-performing loans at December 31, 2000. In addition, the Company had loans classified as impaired at
March 31, 2001 totaling $15.0 million. This represents an increase of $12.3 million, or 454.89% compared to loans classified as
impaired of $2.7 million at March 31, 2000; and represents a decrease of $182,000, or 1.20% compared to loans classified as
impaired of $15.2 million at December 31, 2000.
Although management believes that non-performing assets are generally well secured and that potential losses are reflected
in the allowance for credit losses, there can be no assurance that a general deterioration of economic conditions or collateral
values would not result in future credit losses.
19
TABLE 6 - Non-performing Assets (dollar amount in thousands)
March 31, 2001 December 31, 2000
-------------- -----------------
Non-accrual loans $885 $966
Loans past due 90 days or more
and still accruing interest 86 0
Restructured loans 0 0
Other real estate owned (OREO), net 358 359
--------------- -------------------
Total non-performing assets $1,329 $1,325
=============== ===================
Percentage of non-performing assets
to total loans outstanding and OREO 0.13% 0.13%
Percentage of non-performing
assets to total assets 0.06% 0.06%
The Bank has allocated specific reserves to provide for any inherent loss on non-performing loans. Management cannot,
however, predict the extent to which the current economic environment may persist or worsen or the full impact such environment may
have on the Company's loan portfolio.
Deposits and Borrowings
At March 31, 2001, total deposits were $1.62 billion. This represented an increase of $25.7 million, or 1.61%, from total
deposits of $1.60 billion at December 31, 2000. Average total deposits for the first three months of 2001 were $1.58 billion. This
represented an increase of $134.7 million, or 9.31%, from average total deposits of $1.45 billion for the three months ended March
31, 2000. The comparison of average balances for the first three months of 2001 is more representative of the Company's growth in
deposits as it excludes the seasonal peak in deposits at year-end.
Demand deposits totaled $622.6 million at March 31, 2001, representing a decrease of $42.7 million, or 6.42%, from total
demand deposits of $665.3 million at December 31, 2000. The decrease in demand deposits from the year-end total reflects normal
seasonal fluctuations relating to agricultural and other depositors. Average demand deposits for the first three months of 2001 were
$609.7 million. This represented a decrease of $1.1 million, or 0.18%, from average demand deposits of $610.8 million for the three
months ended December 31, 2000. At March 31, 2001, demand deposits represented 38.41% of total deposits, compared to 41.71% at
December 31, 2000.
Time deposits totaled $450.2 million at March 31, 2001. This represented an increase of $40.4 million, or 9.86%, over total
time deposits of $409.7 million at December 31, 2000. Time deposits are not affected by the Company's seasonal fluctuation in demand
deposits.
Borrowed funds include both short and long-term funds. Short-term borrowed funds include demand notes to the U.S. Treasury,
federal funds purchased from other financial institutions, and borrowings from the Federal Reserve Bank and the Federal Home Loan
Bank. Long-term funds include a capital lease and borrowings from the Federal Home Loan Bank. For the three months ended March 31,
2001 borrowed funds averaged $457.5 million. Short-term borrowed funds totaled $110.6 million at March 31, 2001. This represented a
decrease of $285.7 million, or 72.10% over short-term borrowed funds of $396.2 million at December 31, 2000. Long-term borrowed
funds totaled $300.3 million at March 31, 2001. This represented an increase of $199.0 million, or 196.36% over long-term borrowed
funds of $101.3 million at December 31, 2000. Total borrowed funds at March 31, 2001 total $410.9 million. This represented a
decrease of $86.7 million, or 17.42% over total borrowed funds of $497.6 million at December 31, 2000. The decrease in borrowed
funds during the first three months of 2001 was primarily the result of a decrease in Federal Home Loan Bank borrowing. While
total borrowing decreased, there was a shift out of short-term borrowing into long-term borrowing in order to capture a lower
interest rate environment.
20
Liquidity
Liquidity risk is the risk to earnings or capital resulting from the Bank's inability to meet its obligations when they come
due without incurring unacceptable losses. It includes the ability to manage unplanned changes in funding sources and to recognize
or address changes in market conditions that affect the Bank's ability to liquidate assets quickly and with minimum loss of value.
Factors considered in liquidity risk management are stability of the deposit base; marketability, maturity, and pledging of
investments; and the demand for credit.
In general, liquidity risk is managed daily by controlling the level of Fed funds and the use of funds provided by the cash
flow from the investment portfolio. To meet unexpected demands, lines of credit are maintained with correspondent banks, the Federal
Home Loan Bank and the Federal Reserve Bank. The sale of bonds maturing in the near future can also serve as a contingent source of
funds. Increases in deposit rates are considered a last resort as a means of raising funds to increase liquidity.
For the Bank, sources of funds normally include principal payments on loans and investments, 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 $10.1 million for the first three months of 2001, compared to net cash
provided by operating activities of $12.1 million for the same period last year. The decrease was primarily the result of an
increase in interest paid, which was partially offset by a decrease in income tax paid and an increase in service charges and other
fees received.
Net cash provided by investing activities totaled $20.1 million for the first three months of 2001, compared to net cash
used by investing activities of $33.8 million for the same period last year. The increase in net cash provided by investing
activities was primarily the result of a decrease in loans. Financing activities used net cash flows of $64.7 million for the three
months ended March 31, 2001. This compares to $2.1 million in net cash provided for the three months ended March 31, 2000. The
increase in net cash used by financing activities was primarily the result of a decrease in borrowings. Cash and cash equivalents
totaled $105.8 million for the period ending March 31, 2001 compared to $98.8 million for the same period ending March 31, 2000.
Since the primary sources and uses of funds for the Bank are loans and deposits, the relationship between gross loans and
total deposits provides a useful measure of the Bank's liquidity. Typically, the closer the ratio of loans to deposits is to 100%,
the more reliant the Bank is on its loan portfolio to provide for short-term liquidity needs. Since repayment of loans tends to be
less predictable than the maturity of investments and other liquid resources, the higher the loan to deposit ratio the less liquid
are the Bank's assets. For the first three months of 2001, the Bank's net loan to deposit ratio averaged 65.93%, compared to an
average ratio of 63.54% for the first three months of 2000.
CVB is a company separate and apart from the Bank that must provide for its own liquidity. Substantially all of CVB's
revenues are obtained from dividends declared and paid by the Bank. There are statutory and regulatory provisions that could limit
the ability of the Bank to pay dividends to CVB. At March 31, 2001, approximately $63.1 million of the Bank's equity was
unrestricted and available to be paid as dividends to CVB. Management of CVB believes that such restrictions will not have an impact
on the ability of CVB to meet its ongoing cash obligations. As of March 31, 2001, neither the Bank nor CVB had any material
commitments for capital expenditures.
21
Capital Resources
The Company's equity capital was $199.1 million at March 31, 2001. The primary source of capital for the Company continues
to be the retention of net after tax earnings. The Company's 2000 Annual Report on Form 10-K (Management's Discussion and Analysis
and Note 15 of the accompanying financial statements) describes the regulatory capital requirements of the Company and the Bank.
The Bank and the Company are required to meet risk-based capital standards set by 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, 2001, the Bank and the Company exceeded the minimum risk-based capital ratio
and leverage ratio required to be considered "Well Capitalized".
Table 7 below presents the Company's and the Bank's risk-based and leverage capital ratios as of March 31, 2001, and
December 31, 2000.
Table 7 - Regulatory Capital Ratios
Required
Minimum March 31, December
2001 31, 2000
------------------------------ ------------------------------
Capital Ratios Ratios Company Bank Company Bank
- - -------------- ------ ------- ---- ------- ----
Risk-based capital ratios
Tier I 4.00% 13.66% 13.69% 12.60% 12.33%
Total 8.00% 14.92% 14.95% 13.86% 13.59%
Leverage ratio 4.00% 7.98% 7.99% 7.73% 7.56%
Risk Management
The Company's management has 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 the
Company may expose the Bank to one or more of these risks.
22
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
Not Applicable
Item 2 - Changes in Securities
Not Applicable
Item 3 - Defaults upon Senior Securities
Not Applicable
Item 4 - Submission of Matters to a Vote of Security Holders
Not Applicable
Item 5 - Other Information
Not Applicable
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
None
23
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 14 , 2001 /s/ Edward J. Biebrich Jr.
---------------------------
Edward J. Biebrich Jr.
Chief Financial Officer
24