Table of Contents

FORM 10-Q 
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549 
 	 	 	
☑	 	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934	
For the quarterly period ended June 30, 2005 
or
 	 	 	
o	 	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934	
For the transition period from                      to                      
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)	
(909) 980-4030
(Registrant’s telephone number, including area code)
     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 ☑ No o 
     Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). 
Yes ☑ No o 
Number of shares of common stock of the registrant: 61,070,276 outstanding as of August 1, 2005. 

  

CVB FINANCIAL CORP.
2005 QUARTERLY REPORT ON FORM 10-Q 
TABLE OF CONTENTS 
FORM 10-Q 
 		
PART I – FINANCIAL INFORMATION (UNAUDITED)		
 		
ITEM 1. FINANCIAL STATEMENTS		
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES		
 		
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS		
GENERAL		
 		
OVERVIEW		
 		
CRITICAL ACCOUNTING POLICIES		
 		
ANALYSIS OF THE RESULTS OF OPERATIONS		
 		
ANALYSIS OF FINANCIAL CONDITION		
 		
RISK MANAGEMENT		
 		
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		
ITEM 4. CONTROLS AND PROCEDURES		
 		
PART II — OTHER INFORMATION		
 		
ITEM 1. LEGAL PROCEEDINGS		
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS		
ITEM 3. DEFAULTS UPON SENIOR SECURITIES		
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS		
ITEM 5. OTHER INFORMATION		
ITEM 6. EXHIBITS		
 		
SIGNATURES		
 Exhibit 31.1	
 Exhibit 31.2	
 Exhibit 32.1	
 Exhibit 32.2	
2 

Table of Contents
PART I — FINANCIAL INFORMATION (UNAUDITED) 
ITEM 1. FINANCIAL STATEMENTS 
CVB FINANCIAL CORP. AND SUBSIDIARIES 
CONSOLIDATED BALANCE SHEETS
(unaudited)
Dollar amounts in thousands 
 	 	 	 	 	 	 	 	 	
 	 	June 30,	 	December 31,	
 	 	2005	 	2004	
ASSETS	 	 	 	 	 	 	 	 	
Investment securities available-for-sale	 	$	2,143,528	 	 	$	2,085,014	 	
Interest-bearing balances due from depository institutions	 	 	11,281	 	 	 	—	 	
Investment in stock of Federal Home Loan Bank (FHLB)	 	 	65,439	 	 	 	53,565	 	
Loans and lease finance receivables	 	 	2,296,135	 	 	 	2,140,074	 	
Allowance for credit losses	 	 	(24,127	)	 	 	(22,494	)	
 	 	 	 	 	 	 	 	 	
Total earning assets	 	 	4,492,256	 	 	 	4,256,159	 	
Cash and due from banks	 	 	128,577	 	 	 	84,400	 	
Premises and equipment, net	 	 	39,596	 	 	 	33,508	 	
Intangibles	 	 	13,651	 	 	 	6,136	 	
Goodwill	 	 	28,735	 	 	 	19,580	 	
Cash value life insurance	 	 	70,598	 	 	 	68,233	 	
Accrued interest receivable	 	 	20,633	 	 	 	18,391	 	
Deferred tax asset	 	 	8,585	 	 	 	4,409	 	
Other assets	 	 	9,223	 	 	 	20,195	 	
 	 	 	 	 	 	 	 	 	
TOTAL ASSETS	 	$	4,811,854	 	 	$	4,511,011	 	

LIABILITIES AND STOCKHOLDERS’ EQUITY	 	 	 	 	 	 	 	 	
Liabilities:	 	 	 	 	 	 	 	 	
Deposits:	 	 	 	 	 	 	 	 	
Noninterest-bearing	 	$	1,394,898	 	 	$	1,322,255	 	
Interest-bearing	 	 	1,597,638	 	 	 	1,552,784	 	
 	 	 	 	 	 	 	 	 	
Total deposits	 	 	2,992,536	 	 	 	2,875,039	 	
Demand Note to U.S. Treasury	 	 	5,079	 	 	 	6,453	 	
Short-term borrowings	 	 	452,000	 	 	 	356,000	 	
Long-term borrowings	 	 	900,000	 	 	 	830,000	 	
Accrued interest payable	 	 	10,663	 	 	 	8,809	 	
Deferred compensation	 	 	7,325	 	 	 	7,685	 	
Junior subordinated debentures	 	 	82,476	 	 	 	82,476	 	
Other liabilities	 	 	24,920	 	 	 	27,066	 	
 	 	 	 	 	 	 	 	 	
TOTAL LIABILITIES	 	 	4,474,999	 	 	 	4,193,528	 	

COMMITMENTS AND CONTINGENCIES	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	
Stockholders’ Equity:	 	 	 	 	 	 	 	 	
Preferred stock (authorized, 20,000,000 shares without par; none issued or outstanding)	 	 	—	 	 	 	—	 	
Common stock (authorized, 97,656,250 shares without par; issued and outstanding 61,068,798 (2005) and 60,666,322 (2004))	 	 	251,838	 	 	 	236,277	 	
Retained earnings	 	 	81,714	 	 	 	72,314	 	
Acumulated other comprehensive income, net of tax	 	 	3,303	 	 	 	8,892	 	
 	 	 	 	 	 	 	 	 	
Total stockholders’ equity	 	 	336,855	 	 	 	317,483	 	
 	 	 	 	 	 	 	 	 	
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	 	$	4,811,854	 	 	$	4,511,011	 	
 	 	 	 	 	 	 	 	 	
See accompanying notes to the consolidated financial statements 
3 

Table of Contents
CVB FINANCIAL CORP. AND SUBSIDIARIES 
CONSOLIDATED STATEMENTS OF EARNINGS
(unaudited)
Dollar amounts in thousands, except per share 
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	For the Three Months	 	For the Six Months	
 	 	Ended June 30,	 	Ended June 30,	
 	 	2005	 	2004	 	2005	 	2004	
Interest income:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Loans, including fees	 	$	35,619	 	 	$	27,136	 	 	$	68,312	 	 	$	53,386	 	
Investment securities:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Taxable	 	 	18,896	 	 	 	15,189	 	 	 	37,600	 	 	 	30,427	 	
Tax-preferred	 	 	4,798	 	 	 	3,656	 	 	 	8,885	 	 	 	7,626	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total investment income	 	 	23,694	 	 	 	18,845	 	 	 	46,485	 	 	 	38,053	 	
Dividends from FHLB stock	 	 	663	 	 	 	470	 	 	 	1,138	 	 	 	960	 	
Federal funds sold	 	 	(1	)	 	 	1	 	 	 	2	 	 	 	3	 	
Interest bearing deposits with other institutions	 	 	98	 	 	 	—	 	 	 	133	 	 	 	—	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total interest income	 	 	60,073	 	 	 	46,452	 	 	 	116,070	 	 	 	92,402	 	
Interest expense:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Deposits	 	 	6,247	 	 	 	3,605	 	 	 	11,309	 	 	 	7,288	 	
Short-term borrowings	 	 	3,283	 	 	 	741	 	 	 	5,246	 	 	 	2,145	 	
Long-term borrowings	 	 	6,973	 	 	 	4,869	 	 	 	13,696	 	 	 	8,839	 	
Junior subordinated debentures	 	 	1,333	 	 	 	1,330	 	 	 	2,645	 	 	 	2,660	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total interest expense	 	 	17,836	 	 	 	10,545	 	 	 	32,896	 	 	 	20,932	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net interest income before provision for credit losses	 	 	42,237	 	 	 	35,907	 	 	 	83,174	 	 	 	71,470	 	
Provision for credit losses	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net interest income after provision for credit losses	 	 	42,237	 	 	 	35,907	 	 	 	83,174	 	 	 	71,470	 	
Other operating income:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Service charges on deposit accounts	 	 	3,252	 	 	 	3,512	 	 	 	6,293	 	 	 	7,305	 	
Wealth Management services	 	 	1,039	 	 	 	1,111	 	 	 	2,271	 	 	 	2,274	 	
Investment services	 	 	470	 	 	 	427	 	 	 	916	 	 	 	802	 	
Bankcard services	 	 	633	 	 	 	401	 	 	 	1,236	 	 	 	826	 	
BOLI income	 	 	1,242	 	 	 	250	 	 	 	1,584	 	 	 	461	 	
Other	 	 	703	 	 	 	1,097	 	 	 	2,117	 	 	 	2,212	 	
Gain(loss) on sale of securities, net	 	 	(46	)	 	 	5,212	 	 	 	(46	)	 	 	5,212	 	
Impairment charge on investment securities	 	 	—	 	 	 	—	 	 	 	—	 	 	 	(6,300	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total other operating income	 	 	7,293	 	 	 	12,010	 	 	 	14,371	 	 	 	12,792	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Other operating expenses:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Salaries and employee benefits	 	 	13,142	 	 	 	11,610	 	 	 	26,288	 	 	 	23,352	 	
Occupancy	 	 	1,959	 	 	 	1,907	 	 	 	3,957	 	 	 	3,680	 	
Equipment	 	 	2,112	 	 	 	1,855	 	 	 	3,856	 	 	 	3,711	 	
Stationary and supplies	 	 	1,346	 	 	 	1,185	 	 	 	2,540	 	 	 	2,404	 	
Professional services	 	 	1,195	 	 	 	1,001	 	 	 	2,220	 	 	 	2,122	 	
Promotion	 	 	1,573	 	 	 	1,240	 	 	 	3,368	 	 	 	2,760	 	
Data processing	 	 	467	 	 	 	377	 	 	 	824	 	 	 	730	 	
Amortization of intangibles	 	 	588	 	 	 	296	 	 	 	885	 	 	 	592	 	
Other	 	 	1,033	 	 	 	1,533	 	 	 	174	 	 	 	3,158	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total other operating expenses	 	 	23,415	 	 	 	21,004	 	 	 	44,112	 	 	 	42,509	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Earnings before income taxes	 	 	26,115	 	 	 	26,913	 	 	 	53,433	 	 	 	41,753	 	
Income taxes	 	 	8,637	 	 	 	9,462	 	 	 	18,254	 	 	 	14,230	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net earnings	 	$	17,478	 	 	$	17,451	 	 	$	35,179	 	 	$	27,523	 	

Basic earnings per common share	 	$	0.28	 	 	$	0.29	 	 	$	0.57	 	 	$	0.46	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Diluted earnings per common share	 	$	0.28	 	 	$	0.29	 	 	$	0.57	 	 	$	0.45	 	

Cash dividends per common share	 	$	0.11	 	 	$	0.12	 	 	$	0.22	 	 	$	0.24	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
See accompanying notes to the consolidated financial statements. 
4 

Table of Contents
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 January 1, 2004	 	 	48,289	 	 	$	232,959	 	 	$	36,482	 	 	$	17,280	 	 	 	 	 	
Issuance of common stock	 	 	345	 	 	 	1,281	 	 	 	 	 	 	 	 	 	 	 	 	 	
5-for-4 stock split	 	 	12,132	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Repurchase of common stock	 	 	(100	)	 	 	(159	)	 	 	(1,833	)	 	 	 	 	 	 	 	 	
Tax benefit from exercise of stock options	 	 	 	 	 	 	2,196	 	 	 	 	 	 	 	 	 	 	 	 	 	
Cash dividends	 	 	 	 	 	 	 	 	 	 	(23,821	)	 	 	 	 	 	 	 	 	
Comprehensive income:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net earnings	 	 	 	 	 	 	 	 	 	 	61,486	 	 	 	 	 	 	$	61,486	 	
Other comprehensive income(loss):	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Unrealized loss on securities available-for-sale, net of taxes $6,074	 	 	 	 	 	 	 	 	 	 	 	 	 	 	(8,388	)	 	 	(8,388	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Comprehensive income	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	$	53,098	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Balance December 31, 2004	 	 	60,666	 	 	 	236,277	 	 	 	72,314	 	 	 	8,892	 	 	 	 	 	
Issuance of common stock	 	 	383	 	 	 	1,483	 	 	 	 	 	 	 	 	 	 	 	 	 	
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	 	 	 	 	 	 	1,514	 	 	 	 	 	 	 	 	 	 	 	 	 	
Cash dividends	 	 	 	 	 	 	 	 	 	 	(14,356	)	 	 	 	 	 	 	 	 	
Comprehensive income:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net earnings	 	 	 	 	 	 	 	 	 	 	35,179	 	 	 	 	 	 	$	35,179	 	
Other comprehensive income(loss):	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Unrealized loss on securities available-for-sale, net of taxes $4,047	 	 	 	 	 	 	 	 	 	 	 	 	 	 	(5,589	)	 	 	(5,589	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Comprehensive income	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	$	29,590	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Balance June 30, 2005	 	 	61,069	 	 	$	251,838	 	 	$	81,714	 	 	$	3,303	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
See accompanying notes to the consolidated financial statements. 
     The Company reported net unrealized losses on securities available-for-sale of $20.2 million, net of $14.6 million of tax for the six months ended June 30, 2004. Accumulated other comprehensive loss as of June 30, 2004 was $2.8 million. Comprehensive income for the six months ended June 30, 2004 was $7.4 million. 
5 

Table of Contents
CVB FINANCIAL CORP. AND SUBSIDIARIES 
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited) 
 	 	 	 	 	 	 	 	 	
 	 	For the Six Months	
 	 	Ended June 30,	
 	 	2005	 	2004	
 	 	(Dollar amounts in thousands)	
CASH FLOWS FROM OPERATING ACTIVITIES:	 	 	 	 	 	 	 	 	
Interest received	 	$	118,732	 	 	$	96,663	 	
Service charges and other fees received	 	 	14,417	 	 	 	13,839	 	
Interest paid	 	 	(31,132	)	 	 	(20,952	)	
Cash paid to suppliers and employees	 	 	(43,024	)	 	 	(38,239	)	
Income taxes paid	 	 	(10,600	)	 	 	(2,196	)	
 	 	 	 	 	 	 	 	 	
Net cash provided by operating activities	 	 	48,393	 	 	 	49,115	 	
 	 	 	 	 	 	 	 	 	
CASH FLOWS FROM INVESTING ACTIVITIES:	 	 	 	 	 	 	 	 	
Proceeds from sales of investment securities available-for-sale	 	 	—	 	 	 	63,756	 	
Proceeds from sales of MBS	 	 	126,598	 	 	 	—	 	
Proceeds from repayment of MBS	 	 	199,965	 	 	 	215,379	 	
Proceeds from repayment of investment securities available-for-sale	 	 	68	 	 	 	—	 	
Proceeds from maturity of investment securities	 	 	7,471	 	 	 	25,235	 	
Purchases of investment securities available-for-sale	 	 	(71,018	)	 	 	(58,428	)	
Purchases of MBS	 	 	(328,058	)	 	 	(493,833	)	
Purchases of FHLB stock	 	 	(11,874	)	 	 	(7,953	)	
Net (increase) in loans	 	 	(85,859	)	 	 	(176,521	)	
Proceeds from sales of premises and equipment	 	 	13	 	 	 	41	 	
Purchase of premises and equipment	 	 	(8,217	)	 	 	(1,619	)	
Purchase of Granite State Bank	 	 	12,232	 	 	 	—	 	
Purchase of Bank Owned Life Insurance	 	 	—	 	 	 	(50,000	)	
Other investing activities	 	 	—	 	 	 	(1,909	)	
 	 	 	 	 	 	 	 	 	
Net cash used in investing activities	 	 	(158,679	)	 	 	(485,852	)	
 	 	 	 	 	 	 	 	 	
CASH FLOWS FROM FINANCING ACTIVITIES:	 	 	 	 	 	 	 	 	
Net increase in transaction deposits	 	 	5,130	 	 	 	221,584	 	
Net increase (decrease) in time deposits	 	 	9,866	 	 	 	(50,429	)	
Advances from Federal Home Loan Bank	 	 	120,000	 	 	 	255,000	 	
Repayment of advances from Federal Home Loan Bank	 	 	(36,000	)	 	 	(67,000	)	
Net increase in short-term borrowings	 	 	80,626	 	 	 	143,797	 	
Cash dividends on common stock	 	 	(14,356	)	 	 	(11,687	)	
Repurchase of common stock	 	 	(12,286	)	 	 	(1,992	)	
Proceeds from exercise of stock options	 	 	1,483	 	 	 	444	 	
 	 	 	 	 	 	 	 	 	
Net cash provided by financing activities	 	 	154,463	 	 	 	489,717	 	
 	 	 	 	 	 	 	 	 	
NET INCREASE IN CASH AND CASH EQUIVALENTS	 	 	44,177	 	 	 	52,980	 	
CASH AND CASH EQUIVALENTS, beginning of period	 	 	84,400	 	 	 	112,008	 	
 	 	 	 	 	 	 	 	 	
CASH AND CASH EQUIVALENTS, end of period	 	$	128,577	 	 	$	164,988	 	
 	 	 	 	 	 	 	 	 	
See accompanying notes to the consolidated financial statements. 
6 

Table of Contents
CVB FINANCIAL CORP. AND SUBSIDIARIES 
CONSOLIDATED STATEMENTS OF CASH FLOWS(Continued)
(unaudited) 
 	 	 	 	 	 	 	 	 	
 	 	For the Six Months	
 	 	Ended June 30,	
 	 	2005	 	2004	
 	 	(Dollar amounts in thousands)	
RECONCILIATION OF NET EARNINGS TO NET CASH PROVIDED BY OPERATING ACTIVITIES:	 	 	 	 	 	 	 	 	
Net earnings	 	$	35,179	 	 	$	27,523	 	
Adjustments to reconcile net earnings to net cash provided by operating activities:	 	 	 	 	 	 	 	 	
Gain/(loss) on sale of investment securities	 	 	46	 	 	 	(5,212	)	
Gain on sale of premises and equipment	 	 	(1	)	 	 	(20	)	
Impairment charge on investment securities	 	 	—	 	 	 	6,300	 	
Increase in cash value of life insurance	 	 	(1,040	)	 	 	(461	)	
Net amortization of premiums on investment securities	 	 	6,976	 	 	 	7,754	 	
Depreciation and amortization	 	 	4,114	 	 	 	3,652	 	
Change in accrued interest receivable	 	 	(1,957	)	 	 	(1,174	)	
Change in accrued interest payable	 	 	1,763	 	 	 	41	 	
Change in other assets and liabilities	 	 	3,313	 	 	 	10,712	 	
 	 	 	 	 	 	 	 	 	
Total adjustments	 	 	13,214	 	 	 	21,592	 	
 	 	 	 	 	 	 	 	 	
NET CASH PROVIDED BY OPERATING ACTIVITIES	 	$	48,393	 	 	$	49,115	 	

Supplemental Schedule of Noncash Investing and Financing Activities Purchase of Granite State Bank:	 	 	 	 	 	 	 	 	
Assets acquired	 	$	85,898	 	 	 	 	 	
Goodwill	 	 	9,155	 	 	 	 	 	
Intangible assets	 	 	8,399	 	 	 	 	 	
Liabilities assumed	 	 	(102,257	)	 	 	 	 	
 	 	 	 	 	 	 	 	 	
Stock issued	 	 	(13,427	)	 	 	 	 	
 	 	 	 	 	 	 	 	 	
Purchase price of acquisition, net of cash received	 	$	(12,232	)	 	 	 	 	

Securities purchased and not settled	 	$	1,393	 	 	$	—	 	
See accompanying notes to the consolidated financial statements. 
7 

Table of Contents
CVB FINANCIAL CORP. AND SUBSIDIARIES 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
For the six months ended June 30, 2005 and 2004 
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, 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 six months ended June 30, 2005 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, 2004 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”) and the Bank’s wholly owned subsidiary, Golden West Enterprises, Inc.; Community Trust Deed Services; 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 and CVB Statutory Trust II, which were created in December 2003 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 has one subsidiary, Golden West Enterprises, Inc., which is located in Costa Mesa, California, which provides automobile and equipment leasing, dealer financing, and brokers mortgage loans. The Bank also provides trust services to customers through its Wealth Management Division and Business Financial Centers (branch offices). The Bank’s customers consist primarily of small to mid-sized businesses and individuals located in the Inland Empire, San Gabriel Valley, Orange County, Fresno County, Tulare County, and Kern County areas of California. The Bank operates 40 Business Financial Centers with its headquarters located in the city of Ontario. Segment reporting is not presented since the Company’s revenue is attributed to a single reportable segment. 
     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 
8 

Table of Contents
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 June 30, 2005, 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 and the allowance for credit losses. 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 June 30, 2005, the Company had entered into commitments with certain customers amounting to $837.0 million compared to $762.9 million at December 31, 2004. In addition, letters of credit at June 30, 2005, and December 31, 2004, were $76.8million and $71.5 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 using 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. The allowance for loan and lease losses was $24.1 million as of June 30, 2005. This represents an increase of $1.6 million when compared with an allowance for loan and lease losses of $22.5 million as of December 31, 2004. The increase was primarily due to the allowance for loan and lease losses acquired from Granite State Bank, in February 2005, of $756,000 and loan recoveries of $1.0 million, offset by $133,000 of charged-off loans as of June 30, 2005. 
     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 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. The Company has no impaired loans as of June 30, 2005. 
     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 their 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 
9 

Table of Contents
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 June 30, 2005 and December 31, 2004. 
     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. 
     At June 30, 2005 goodwill was $28.7 million (net of amortization of $5.4 million recorded prior to the adoption of SFAS No. 142). As of June 30, 2005, intangible assets that continue to be subject to amortization include core deposits of $13.7 million (net of $6.0 million of accumulated amortization). Amortization expense for such intangible assets was $885,000 for the six months ended June 30, 2005. Estimated amortization expense, for the remainder of 2005 is expected to be $1.2 million. Estimated amortization expense, for the succeeding five fiscal years is $2.5 million for years one to three, $1.8 million for year four, and $1.7 million for the year five. The weighted average remaining life of intangible assets is approximately 5.2 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. 
     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 splits and dividends. The actual number of shares outstanding at June 30, 2005 was 61,068,798. The tables below present the reconciliation of earnings per share for the periods indicated. 
10 

Table of Contents
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Earnings Per Share Reconciliation
(Dollars and shares in thousands, except per share amounts)
For the Six Months
Ended June 30,	
 	 	2005	 	2004	
 	 	 	 	 	 	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	 	$	35,179	 	 	 	61,243	 	 	$	0.57	 	 	$	27,523	 	 	 	60,475	 	 	$	0.46	 	
EFFECT OF DILUTIVE SECURITIES	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Incremental shares from assumed exercise of outstanding options	 	 	 	 	 	 	720	 	 	 	(0.00	)	 	 	 	 	 	 	744	 	 	 	(0.01	)	
 	 	 	 	 	 	 	 	 	
DILUTED EPS	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Income available to common stockholders	 	$	35,179	 	 	 	61,963	 	 	$	0.57	 	 	$	27,523	 	 	 	61,219	 	 	$	0.45	 	

 	 	Earnings Per Share Reconciliation
(Dollars and shares in thousands, except per share amounts)
For the Three Months
Ended June 30, 	
 	 	2005	 	2004	
 	 	 	 	 	 	Weighted	 	 	 	 	 	 	 	 	 	Weighted	 	 	
 	 	Income	 	Average Shares	 	Per Share	 	Income	 	Average Shares	 	Per Share	
 	 	(Numerator)	 	(Denominator)	 	Amount	 	(Numerator)	 	(Denominator)	 	Amount	
BASIC EPS	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Income available to common stockholders	 	$	17,478	 	 	 	62,045	 	 	$	0.28	 	 	$	17,451	 	 	 	60,478	 	 	$	0.29	 	
EFFECT OF DILUTIVE SECURITIES	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Incremental shares from assumed exercise of outstanding options	 	 	 	 	 	 	641	 	 	 	0.00	 	 	 	 	 	 	 	725	 	 	 	0.00	 	
 	 	 	 	 	 	 	 	 	
DILUTED EPS	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Income available to common stockholders	 	$	17,478	 	 	 	62,686	 	 	$	0.28	 	 	$	17,451	 	 	 	61,203	 	 	$	0.29	 	
 	 	 	 	 	 	 	 	 	
     Stock-Based Compensation — At June 30, 2005, 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 applies the intrinsic value method as described in Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations in accounting for its plans. Accordingly, compensation cost is not recognized when the exercise price of an employee stock option equals or exceeds the fair market value of the stock on the date the option is granted. The following table presents the pro forma effects on net income and related earnings per share if compensation costs related to the stock option plans were measured using the fair value method as prescribed under SFAS No. 123, “Accounting for Stock-Based Compensation”: 
11 

Table of Contents
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	For the Three Months	 	For the Six Months	
 	 	Ended June 30,	 	Ended June 30,	
 	 	2005	 	2004	 	2005	 	2004	
 	 	(Dollars in thousands)	 	(Dollars in thousands)	
Net income, as reported	 	$	17,478	 	 	$	17,451	 	 	$	35,179	 	 	$	27,523	 	
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects	 	 	254	 	 	 	324	 	 	 	589	 	 	 	474	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Pro forma net income	 	$	17,224	 	 	$	17,127	 	 	$	34,590	 	 	$	27,049	 	

Earnings per share:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Basic - as reported	 	$	0.28	 	 	$	0.29	 	 	$	0.57	 	 	$	0.46	 	
Basic - pro forma	 	$	0.28	 	 	$	0.28	 	 	$	0.56	 	 	$	0.45	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Diluted - as reported	 	$	0.28	 	 	$	0.29	 	 	$	0.57	 	 	$	0.45	 	
Diluted - pro forma	 	$	0.27	 	 	$	0.28	 	 	$	0.56	 	 	$	0.44	 	
     The Black-Scholes option-pricing model requires the use of subjective assumptions, which can materially affect fair value estimates. Therefore, this model does not necessarily provide a reliable single measure of the fair value of the Company’s stock options. The fair value of each stock option granted in 2005 was estimated on the date of the grant using the following weighted-average assumptions as of June 30, 2005: (1) expected dividend yield of 2.0%; (2) risk-free interest rate of 3.8%; (3) expected volatility of 40.3%; and (4) expected lives of options of 7.0 years. The assumptions as of June 30, 2004 are as follow: (1) expected dividend yield of 2.2%; (2) risk-free interest rate of 3.8%; (3) expected volatility of 36.7%; and (4) expected lives of options of 7.4 years. There were 11,000 and 370,550 options granted during the first six months in 2005 and 2004, respectively. 
     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 May 2005, the Financial Accounting Standards Board (“FASB”) issued Statement No. 154, “Accounting Changes and Error Corrections. A replacement of APB Opinion No. 20 and FASB Statement No. 3” (“SFAS 154”). SFAS 154 requires retrospective application to prior periods’ financial statements of changes in accounting principle. It also requires that the new accounting principle be applied to the balances of assets and liabilities as of the beginning of the earliest period for which retrospective application is practicable and that a corresponding adjustment be made to the opening balance of retained earnings for that period rather than being reported in an income statement. The statement will be effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. The Company does not expect the adoption of SFAS 154 to have a material effect on the Company’s consolidated financial position or results of operations. 
     In December 2004, the Financial Accounting Standards Board (“FASB”) staff issued a revision to SFAS No. 123, “Accounting for Stock-Based Compensation,” SFAS No. 123R, “Share-Based Payment.” 
12 

Table of Contents
SFAS No. 123R focuses primarily on transactions in which the entity exchanges its equity instruments for employee services and generally establishes standards for the accounting for transactions in which an entity obtains goods or services in share-based payment transactions. SFAS No. 123R requires that the cost resulting from all share-based payment transactions be recognized in the financial statements over the period during which an employee is required to provide service in exchange for the award. SFAS No. 123R establishes fair value as the measurement objective in accounting for share-based payment arrangements and requires all entities to apply a fair-value based method in accounting for share-based transactions with employees. SFAS No. 123R also amends SFAS No. 95, “Statement of Cash Flows”, to require that excess tax benefits be reported as a financing cash inflow rather than as a reduction of taxes paid. SFAS No. 123R was effective as of the beginning of the first interim reporting period that begins after June 15, 2005. On April 14, 2005, the effective date was amended by the Securities and Exchange Commission. As a result, SFAS No. 123R is now effective for most public companies for annual (rather than interim) periods that begin after June 15, 2005. Therefore, we will begin to expense options in the first quarter of 2006, unless further amended by the Securities Exchange Commission. Management is currently evaluating the effect of adoption of SFAS No. 123R, but does not expect the adoption to have a material effect on the Company’s financial condition, results of operations or cash flows. 
     Reclassification - Certain amounts in the prior periods’ financial statements and related footnote disclosures have been reclassified to conform to the current presentation. 
     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, 2004. 
     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. 
     In early 2004, the Company experienced a burglary at one of its business financial centers. The burglary resulted in a loss to our customers of items located in their safe deposit boxes. The Company had been compensating its customers for their losses with the acknowledgement of the insurance company that they were not confirming or denying coverage to us under our insurance policies. The Company paid $400,000 on these claims. In early fall, the insurance company ceased approving these claims. 
     At the end of 2004, it became apparent that the insurance company may deny coverage of our claims. Therefore, the Company reserved an additional $2.2 million as an estimate of claims yet to be paid as of December 31, 2004. During the first quarter of 2005, the insurance company expressed its interest to settle these claims. The Company settled with the insurance company in April 2005 agreeing to reimburse the Company for all of the claims paid. As a result, we reversed the reserve for claims of $2.6 million effective the first quarter of 2005. This amount is included in other operating expenses. 
13 

Table of Contents
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 and its wholly owned subsidiary, Golden West Enterprises, Inc. 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 2004 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 Company’s periodic filings with the Securities and Exchange Commission, and in particular “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, 2004. We do not undertake, and specifically disclaim, 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 two other active subsidiaries, Community Trust Deed Services, which is owned by CVB Financial Corp. and Golden West Enterprises, Inc, which is owned by the Bank. We have three other inactive subsidiaries: CVB Ventures, Inc.; Chino Valley Bancorp and ONB Bancorp. We are also the common stockholder of CVB Statutory Trust I and CVB Statutory Trust II, which were created in December 2003 to issue 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. Increased pricing pressure on our loans and deposits has compressed our net interest margin, resulting in an increase in the importance of other operating income to the Company’s total revenue. 
     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 are still subject to any changes in the economy in our market area. Although we do not originate mortgages on single-family residences, we still benefit from construction growth in Southern California since we provide construction loans to builders. Southern California is experiencing growth in 
14 

Table of Contents
construction on single-family residences and commercial buildings, and our balance sheet at June 30, 2005 reflects growth in construction loans of $13.9 million since December 31, 2004. We are also subject to competition from other financial institutions, which affects our pricing of products and services, and the fees and interest rates we can charge on them. 
     Our growth in loans and investments compared with the second quarter of 2004 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 0.84% for the second quarter of 2005. 
     On February 25, 2005, we acquired Granite State Bank (“Granite”). The Company issued 696,049 common shares and $13.3 million in cash to Granite shareholders in connection with the acquisition. The total purchase price in cash and stock was $26.7 million. Granite had total assets of $111.4 million, total loans of $62.8 million and total deposits of $103.1 million as of the acquisition date, February 25, 2005. Granite also had two offices, one in Monrovia and one in South Pasadena. These two offices now operate as business financial centers of the Bank. 
     In 2001 we implemented our “Central Valley Initiative” which is intended to grow our presence in the southern Central Valley of California. This area has a large agribusiness economy and fits in well with the agribusiness lending we already have in the Bank. As part of this initiative, we opened our 40th business financial center in Madera, California in May 2005. In the Central Valley and in other markets in which we intend to enter or expand our business, we will continue to consider acquisition opportunities and the opening of de novo offices. 
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 operating results and financial condition depend, and which involve the most complex or subjective decisions or assessment are as follows: 
     Allowance for Credit Losses: Arriving at an appropriate level of allowance for credit losses involves a high degree of judgment. The Company’s 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 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 provision for credit losses is charged to expense. For a full 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 the Company’s 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 
15 

Table of Contents
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 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 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 the Company’s 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. Management 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 recognizable. 
     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. Both goodwill and intangible assets are tested on an annual basis for impairment. 
ANALYSIS OF THE RESULTS OF OPERATIONS 
Earnings 
     Our net earnings for the six months ended June 30, 2005 were $35.2 million. This represented an increase of $7.7 million or 27.8%, over net earnings of $27.5 million, for the six months ended June 30, 2004. Basic earnings per share for the six-month period increased to $.57 per share for 2005, compared to $0.46 per share for 2004. Diluted earnings per share increased to $.57 per share for the first six months of 2005, compared to $0.45 per share for the same period last year. The annualized return on average assets was 1.52% for the first six months of 2005 compared to an annualized return on average assets of 1.38% for the six months ended June 30, 2004. The annualized return on average equity was 21.58% for the first 
16 

Table of Contents
six months ended June 30, 2005, compared to an annualized return of 18.51% for the six months ended June 30, 2004. 
     In early 2004, the Company experienced a burglary at one of its business financial centers. The burglary resulted in a loss to our customers of items located in their safe deposit boxes. The Company had been compensating its customers for their losses with the acknowledgement of the insurance company that they were not confirming or denying coverage to us under our insurance policies. The Company paid $400,000 on these claims. In early fall, the insurance company ceased approving these claims. 
     At the end of 2004, it became apparent that the insurance company may deny coverage of our claims. Therefore, the Company reserved an additional $2.2 million as an estimate of claims yet to be paid as of December 2004. During the first quarter of 2005, the insurance company expressed its interest in settling these claims. The Company settled with the insurance company in April 2005 agreeing to reimburse the Company for all of the claims paid. This allowed the Company to reverse the $2.6 million estimated robbery loss in the first quarter of 2005. This amount is included in other operating expenses for the six months ended June 30, 2005. 
     During the first quarter of 2004, the Company wrote down the carrying value of two issues of Federal Home Loan Mortgage Association preferred stock. These securities pay dividends based on a variable rate related to LIBOR (London Interbank Offered Rate). Consequently, the value of these securities declined as the result of historically low interest rates. Since this loss of value was deemed other-than-temporary, the Company charged $6.3 million against earnings in the first quarter of 2004 to adjust for the impairment of these preferred securities. 
     For the quarter ended June 30, 2005, our net earnings were $17.5 million. This represented an increase of $27,000 or 0.15%, over net earnings of $17.5 million, for the second quarter of 2004. Basic earnings per share decreased to $0.28 per share for the second quarter of 2005 compared to $0.29 per share for the second quarter of 2004. Diluted earnings per share decreased to $.28 per share for the second quarter of 2005 compared to $0.29 per share for the same three-month period last year. The annualized return on average assets was 1.47% for the second quarter of 2005 compared to an annualized return on average assets of 1.71% for the same period last year. The annualized return on average equity was 21.30% for the second quarter of 2005 compared to an annualized return on average equity of 23.05% for the second quarter of 2004. The decrease in net earnings is primarily attributed to the net gains on the sale of securities of $3.4 million, net of $1.8 million income taxes, during the second quarter of 2004 compared to net losses on the sale of securities of $30,000, net of $16,000 income taxes during the second quarter of 2005. 
     Net earnings, excluding the impact of the settlement of the robbery loss and net losses on sale of investment securities, totaled $33.5 million for the six months ended June 30, 2005. This represented an increase of $5.3 million, or 18.62%, compared to net earnings, excluding other-than-temporary impairment write-down on investment securities and net gains on sale of investment securities, of $28.2 million for the same period in 2004. For the second quarter of 2005, net earnings, excluding the impact of losses on sale of investment securities, totaled $17.5 million. This represented an increase of $3.4 million, or 24.42%, compared to net earnings, excluding the net gains on sale of investment securities, of $14.1 million for the second quarter of 2004. 
     The following table reconciles the differences in net earnings with and without the settlement of the robbery loss, the other-than-temporary impairment write-down on investment securities and the net gain/loss on sale of investment securities in conformity with accounting principles generally accepted in the United States of America: 
17 

Table of Contents
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Net Earnings Reconciliation	
 	 	For the Six Months	
 	 	Ended June 30,	
 	 	2005	 	2004	
 	 	Taxes	 	Taxes	 	Net Earnings	 	Income	 	Income Taxes	 	Net Earnings	
 	 	 	 	 	 	 	 	 	 	( amounts in thousands )	 	 	 	 	 	 	 	 	
Net earnings without the settlement of the robbery loss, other-than-temporary impairment write-down, and net gain/(loss) on sale of securities	 	$	50,879	 	 	$	17,382	 	 	$	33,497	 	 	$	42,841	 	 	$	14,601	 	 	$	28,240	 	
Settlement of robbery loss	 	 	2,600	 	 	 	888	 	 	 	1,712	 	 	 	—	 	 	 	—	 	 	 	—	 	
Other-than-temporary impairment write-down	 	 	—	 	 	 	—	 	 	 	—	 	 	 	(6,300	)	 	 	(2,147	)	 	 	(4,153	)	
Net gain/(loss) on sale of securities	 	 	(46	)	 	 	(16	)	 	 	(30	)	 	 	5,212	 	 	 	1,776	 	 	 	3,436	 	
 	 	 	 	 	
Net Earnings as reported	 	$	53,433	 	 	$	18,254	 	 	$	35,179	 	 	$	41,753	 	 	$	14,230	 	 	$	27,523	 	
 	 	 	 	 -	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Net Earnings Reconciliation	
 	 	For the Three Months	
 	 	Ended June 30,	
 	 	2005	 	2004	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	Before	 	 	 	 	
 	 	Before Income	 	Income	 	 	 	 	 	Income	 	 	 	 	
 	 	Taxes	 	Taxes	 	Net Earnings	 	Taxes	 	Income Taxes	 	Net Earnings	
 	 	 	 	 	 	 	 	 	 	( amounts in thousands )	 	 	 	 	 	 	 	 	
Net earnings without the net gain/loss on sale of securities	 	$	26,161	 	 	$	8,653	 	 	$	17,508	 	 	$	21,701	 	 	$	7,630	 	 	$	14,071	 	
Net gain/(loss) on sale of securities	 	 	(46	)	 	 	(16	)	 	 	(30	)	 	 	5,212	 	 	 	1,832	 	 	 	3,380	 	
 	 	 	 	 	
Net Earnings as reported	 	$	26,115	 	 	$	8,637	 	 	$	17,478	 	 	$	26,913	 	 	$	9,462	 	 	$	17,451	 	
 	 	 	 	 -	
     We have presented net earnings without the settlement of the robbery loss, the other-than-temporary impairment write-down on investment securities and the realized net gains/losses on sale of investment securities to show shareholders the earnings from operations unaffected by the impact of these items. We believe this presentation allows the reader to more easily assess the results of the Company’s 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 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, net 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 (before provision for credit losses) totaled $83.2 million for the six months ended June 30, 2005. This represented an increase of $11.7 million, or 16.38%, over net interest income (before provision for credit losses) of $71.5 million for the same period in 2004. The increase in net interest income of $11.7 million resulted from a $23.7 million increase in interest income, offset by a $12.0 million increase in interest expense. The $23.7 million increase in interest income resulted from a $614.8 million increase in average earning assets and an increase in the average yield on earning assets to 5.47% for the first six months of 2005 from 5.07% for the same period in 2004. The $12.0 million increase in interest expense resulted from a $430.5 million increase in average interest-bearing liabilities and the increase in the average rate paid on interest-bearing liabilities to 2.23% for the first six months of 2005 from 1.65% for the same period in 2004. 
18 

Table of Contents
     Interest income totaled $116.1 million for the first six months of 2005. This represented an increase of $23.7 million, or 25.61%, compared to the total interest income of $92.4 million for the same period last year. The increase in interest income was primarily the result of the increase in average earnings assets from $3.75 billion in the first six months of 2004 to $4.37 billion in the same period in 2005. This represents a 16.38% increase for the first six months of 2005 over the same period last year and an increase in the average yield on earning assets of 40 basis points. 
     Interest expense totaled $32.9 million for the first six months of 2005. This represented an increase of $11.9 million, or 57.16%, over total interest expense of $20.9 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 of 58 basis points. 
     For the second quarter ended June 30, 2005, the Company’s net interest income (before provision for credit losses) totaled $42.2 million. This represented an increase of $6.3 million, or 17.63%, over net interest income (before provision for credit losses) of $35.9 million for the same period in 2004. The increase in net interest income of $6.3 million for the second quarter of 2005 resulted from an increase of $13.6 million in interest income and a $7.3 million increase in interest expense. The increase in interest income of $13.6 million resulted from the increase in average earning assets of $636.7 million and an increase in the average yield on earning assets to 5.54% for the second quarter of 2005 from 5.01% the same period in 2004. The increase of $7.3 million in interest expense resulted from the increase in the average rate paid on interest-bearing liabilities to 2.34% for the second quarter of 2005 from 1.64% the same period in 2004 and a $475.1 million increase in average interest-bearing liabilities. 
     The increase in interest income for the second quarter ending June 30, 2005 as compared to the second quarter ending June 30, 2004 was primarily the result of the increase in average earning assets and an increase in the average yield on earning assets of 53 basis points between the second quarter of 2005 and the second quarter of 2004. Interest income totaled $60.1 million for the second quarter of 2005. This represented an increase of $13.6 million, or 29.33%, compared to total interest income of $46.5 million for the same period last year. 
     The increase in interest expense was primarily the result of the increase in the rate paid on interest-bearing liabilities. Interest expense totaled $17.8 million for the second quarter of 2005. This represented an increase of $7.3 million or 69.16%, over total interest expense of $10.5 million for the same period last year. Both the increase in the yield on earning assets and the rate paid on interest-bearing liabilities reflects the increasing interest rate environment between the second quarters of 2005 and 2004. 
     Table 1 shows the average balances of assets, liabilities, and stockholders’ equity and the related interest income, expense, and rates for the six-month and three-month periods ended June 30, 2005 and 2004. Yields for tax-preferenced investments are shown on a taxable equivalent basis using a 35% tax rate. 
19 

Table of Contents
TABLE 1 — Distribution of Average Assets, Liabilities, and Stockholders’ Equity; Interest Rates and Interest Differentials 
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Six-Month Period Ended June 30,	
 	 	2005	 	2004	
 	 	Average	 	 	 	 	 	Average	 	Average	 	 	 	 	 	Average	
 	 	Balance	 	Interest	 	Rate (6)	 	Balance	 	Interest	 	Rate (6)	
 	 	(amounts in thousands)	
ASSETS	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 		
Investment Securities	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Taxable (1)	 	$	1,747,560	 	 	$	37,600	 	 	 	4.31	%	 	$	1,554,319	 	 	$	30,427	 	 	 	3.93	%	
Tax preferenced (2)	 	 	401,013	 	 	 	8,885	 	 	 	5.93	%	 	 	350,249	 	 	 	7,626	 	 	 	5.76	%	
Investment in FHLB stock	 	 	59,436	 	 	 	1,138	 	 	 	3.83	%	 	 	41,341	 	 	 	960	 	 	 	4.64	%	
Federal Funds Sold & Interest Bearing Deposits with other institutions	 	 	9,961	 	 	 	135	 	 	 	2.71	%	 	 	571	 	 	 	3	 	 	 	1.05	%	
Loans (3) (4)	 	 	2,151,089	 	 	 	68,312	 	 	 	6.40	%	 	 	1,807,735	 	 	 	53,386	 	 	 	5.94	%	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total Earning Assets	 	 	4,369,059	 	 	 	116,070	 	 	 	5.47	%	 	 	3,754,215	 	 	 	92,402	 	 	 	5.07	%	
Total Non Earning Assets	 	 	299,317	 	 	 	 	 	 	 	 	 	 	 	260,358	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total Assets	 	$	4,668,376	 	 	 	 	 	 	 	 	 	 	$	4,014,573	 	 	 	 	 	 	 	 	 	

LIABILITIES AND STOCKHOLDERS’ EQUITY	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Demand Deposits	 	$	1,356,372	 	 	 	 	 	 	 	 	 	 	$	1,147,478	 	 	 	 	 	 	 	 	 	
Savings Deposits (5)	 	 	1,099,590	 	 	$	5,405	 	 	 	0.99	%	 	 	1,013,371	 	 	$	3,530	 	 	 	0.70	%	
Time Deposits	 	 	500,059	 	 	 	5,904	 	 	 	2.38	%	 	 	519,414	 	 	 	3,758	 	 	 	1.45	%	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total Deposits	 	 	2,956,021	 	 	 	11,309	 	 	 	0.77	%	 	 	2,680,263	 	 	 	7,288	 	 	 	0.55	%	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Other Borrowings	 	 	1,353,778	 	 	 	21,587	 	 	 	3.17	%	 	 	990,130	 	 	 	13,644	 	 	 	2.73	%	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Interest Bearing Liabilities	 	 	2,953,427	 	 	 	32,896	 	 	 	2.23	%	 	 	2,522,915	 	 	 	20,932	 	 	 	1.65	%	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total deposits and borrowings	 	 	4,309,799	 	 	 	 	 	 	 	 	 	 	 	3,670,393	 	 	 	 	 	 	 	 	 	
Other Liabilities	 	 	29,828	 	 	 	 	 	 	 	 	 	 	 	45,101	 	 	 	 	 	 	 	 	 	
Stockholders’ Equity	 	 	328,749	 	 	 	 	 	 	 	 	 	 	 	299,079	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total Liabilities and Stockholders’ Equity	 	$	4,668,376	 	 	 	 	 	 	 	 	 	 	$	4,014,573	 	 	 	 	 	 	 	 	 	

Net interest income	 	 	 	 	 	$	83,174	 	 	 	 	 	 	 	 	 	 	$	71,470	 	 	 	 	 	

Net interest spread — tax equivalent	 	 	 	 	 	 	 	 	 	 	3.24	%	 	 	 	 	 	 	 	 	 	 	3.42	%	
Net interest margin	 	 	 	 	 	 	 	 	 	 	3.90	%	 	 	 	 	 	 	 	 	 	 	3.90	%	
Net interest margin — tax equivalent	 	 	 	 	 	 	 	 	 	 	3.96	%	 	 	 	 	 	 	 	 	 	 	3.97	%	
Net interest margin excluding loan fees	 	 	 	 	 	 	 	 	 	 	3.70	%	 	 	 	 	 	 	 	 	 	 	3.70	%	
Net interest margin excluding loan fees — tax equivalent	 	 	 	 	 	 	 	 	 	 	3.77	%	 	 	 	 	 	 	 	 	 	 	3.77	%	

(1)	 	Includes short-term interest bearing deposits with other institutions.	
 		
(2)	 	Non tax equivalent rate for 2005 was 4.34% and 2004 was 4.01%.	
 		
(3)	 	Loan fees are included in total interest income as follows, (000)s omitted: 2005, $4,214 and 2004, $3,735.	
 		
(4)	 	Non performing loans are included in net loans as follows, (000)s omitted: 2005, $0 and 2004, $1,455.	
 		
(5)	 	Includes interest bearing demand and money market accounts	
 		
(6)	 	Annualized	
20 

Table of Contents
TABLE 1 — Distribution of Average Assets, Liabilities, and Stockholders’ Equity; Interest Rates and Interest Differentials 
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Three-month period ended June 30,	
 	 	2005	 	2004	
 	 	Average	 	 	 	 	 	Average	 	Average	 	 	 	 	 	Average	
 	 	Balance	 	Interest	 	Rate (6)	 	Balance	 	Interest	 	Rate (6)	
 	 	(amounts in thousands)	
ASSETS	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 		
Investment Securities	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Taxable (1)	 	$	1,751,961	 	 	$	18,896	 	 	 	4.32	%	 	$	1,577,502	 	 	$	15,189	 	 	 	3.85	%	
Tax preferenced (2)	 	 	418,095	 	 	 	4,798	 	 	 	6.10	%	 	 	343,900	 	 	 	3,656	 	 	 	5.62	%	
Investment in FHLB stock	 	 	63,581	 	 	 	663	 	 	 	4.17	%	 	 	43,093	 	 	 	470	 	 	 	4.36	%	
Federal Funds Sold & Interest Bearing Deposits with other institutions	 	 	14,262	 	 	 	97	 	 	 	2.72	%	 	 	264	 	 	 	1	 	 	 	1.52	%	
Loans (3) (4)	 	 	2,202,295	 	 	 	35,619	 	 	 	6.49	%	 	 	1,848,755	 	 	 	27,136	 	 	 	5.90	%	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total Earning Assets	 	 	4,450,194	 	 	 	60,073	 	 	 	5.54	%	 	 	3,813,514	 	 	 	46,452	 	 	 	5.01	%	
Total Non Earning Assets	 	 	333,138	 	 	 	 	 	 	 	 	 	 	 	289,749	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total Assets	 	$	4,783,332	 	 	 	 	 	 	 	 	 	 	$	4,103,263	 	 	 	 	 	 	 	 	 	

LIABILITIES AND STOCKHOLDERS’ EQUITY	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Demand Deposits	 	 	1,375,603	 	 	 	 	 	 	 	 	 	 	$	1,192,256	 	 	 	 	 	 	 	 	 	
Savings Deposits (5)	 	 	1,104,664	 	 	$	2,850	 	 	 	1.03	%	 	 	1,025,355	 	 	$	1,773	 	 	 	0.70	%	
Time Deposits	 	 	503,450	 	 	 	3,397	 	 	 	2.71	%	 	 	503,001	 	 	 	1,832	 	 	 	1.54	%	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total Deposits	 	 	2,983,717	 	 	 	6,247	 	 	 	0.84	%	 	 	2,720,612	 	 	 	3,605	 	 	 	0.53	%	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Other Borrowings	 	 	1,426,978	 	 	 	11,589	 	 	 	3.21	%	 	 	1,031,610	 	 	 	6,940	 	 	 	2.66	%	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Interest Bearing Liabilities	 	 	3,035,092	 	 	 	17,836	 	 	 	2.34	%	 	 	2,559,966	 	 	 	10,545	 	 	 	1.64	%	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total deposits and borrowings	 	 	4,410,695	 	 	 	 	 	 	 	 	 	 	 	3,752,222	 	 	 	 	 	 	 	 	 	
Other Liabilities	 	 	43,565	 	 	 	 	 	 	 	 	 	 	 	46,589	 	 	 	 	 	 	 	 	 	
Stockholders’ Equity	 	 	329,072	 	 	 	 	 	 	 	 	 	 	 	304,452	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total Liabilities and Stockholders’ Equity	 	$	4,783,332	 	 	 	 	 	 	 	 	 	 	$	4,103,263	 	 	 	 	 	 	 	 	 	

Net interest income	 	 	 	 	 	$	42,237	 	 	 	 	 	 	 	 	 	 	$	35,907	 	 	 	 	 	

Net interest spread — tax equivalent	 	 	 	 	 	 	 	 	 	 	3.20	%	 	 	 	 	 	 	 	 	 	 	3.37	%	
Net interest margin	 	 	 	 	 	 	 	 	 	 	3.91	%	 	 	 	 	 	 	 	 	 	 	3.88	%	
Net interest margin — tax equivalent	 	 	 	 	 	 	 	 	 	 	3.95	%	 	 	 	 	 	 	 	 	 	 	3.91	%	
Net interest margin excluding loan fees	 	 	 	 	 	 	 	 	 	 	3.72	%	 	 	 	 	 	 	 	 	 	 	3.68	%	
Net interest margin excluding loan fees — tax equivalent	 	 	 	 	 	 	 	 	 	 	3.76	%	 	 	 	 	 	 	 	 	 	 	3.71	%	

(1)	 	Includes short-term interest bearing deposits with other institutions.	
 		
(2)	 	Non tax equivalent rate for 2005 was 4.38% and 2004 was 3.93%.	
 		
(3)	 	Loan fees are included in total interest income as follows, (000)s omitted: 2005, $2,140 and 2004, $1,887.	
 		
(4)	 	Non performing loans are included in net loans as follows, (000)s omitted: 2005, $0 and 2004, $1,455.	
 		
(5)	 	Includes interest bearing demand and money market accounts	
 		
(6)	 	Annualized	
          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 we generate our source of funds and employ our earning assets. Our taxable equivalent (TE) net interest margin was 3.96% for the first six months of 2005 compared to 3.97% for the same period last year. The slight decrease in the net interest margin over the same period last year is the result of the increasing interest rate environment, which impacted interest earned and interest paid as a percent of earning assets. This was partially offset by changes in the mix of assets and liabilities as follows: 
 	•	 	Increase in average demand deposits (interest free deposits) as a percent of average earning assets from 30.57% in the first six months of 2004 to 31.04% for the same period in 2005	
 		
 	•	 	Increase in average interest-bearing liabilities as a percent of average earning assets from 67.20% in the first six months of 2004 to 67.60% for the same period in 2005	
 		
 	•	 	Increase in average borrowings as a percent of average earning assets from 26.37% in the first six months of 2004 to 30.99% in the same period of 2005	
 		
 	•	 	Decrease in average investment securities as a percent of average earning assets from 50.73% in the first six months of 2004 to 49.18% in the same period of 2005	
 		
 	•	 	Interest expense as a percent of average earning assets increased from 1.11% in the first six months of 2004 to 1.50% in the same period of 2005, an increase of 39 basis points	
     It is difficult to attribute the above changes to any one factor. However, the increasing interest rate environment is a significant factor. The advent of rising interest rates should have a positive impact on our net interest income. 
21 

Table of Contents
     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 3.24% for the first six months of 2005 and 3.42% for the same period last year. The decrease in the net interest spread for the six months ended June 30, 2005 resulted from a 58 basis point increase in the cost of interest-bearing liabilities offset by a 40 basis point increase in the yield on earning assets, thus generating a 18 basis point decrease in the net interest spread over the same period last year. 
     For the second quarter of 2005 the Company’s net interest spread (TE) was 3.20% as compared to 3.37% for the same period last year. The decrease in the net interest spread for the second quarter ended June 30, 2005 resulted from a 70 basis point increase in the cost of interest-bearing liabilities offset by a 53 basis point increase in the yield on earning assets, thus generating a 17 basis point decrease in the net interest spread over the same period last year. 
     The yield (TE) on earning assets increased to 5.47% for the first six months of 2005, from 5.07% 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 49.23% in the first six months of 2005 from 48.15% for the same period in 2004. Average investments as a percent of earning assets decreased to 50.77% in the first six months of 2005 from 51.85% for the same period in 2004. Average federal funds sold and interest-bearing deposits with other institutions as a percent of earning assets increased to 0.23% in the first six months of 2005 from 0.02% for the same period in 2004. Investments and federal funds sold typically have a lower yield than loans. The yield on loans for the first six months of 2005 increased to 6.40% as compared to 5.94% for the same period in 2004 as a result of the increasing interest rate environment and competition for quality loans. The yield (TE) on investments for the first six months of 2005 increased to 4.61% compared to 4.27% for the same period in 2004 as a result of the increasing interest rate environment. The increase in the yield on earning assets for the first six months of 2005 was the result of higher yields on both loans and investments as a result of the increasing interest rate environment. 
     The cost of average interest-bearing liabilities increased to 2.23% for the first six months of 2005 as compared to 1.65% for the same period in 2004, reflecting an increasing interest rate environment and a change in the mix of interest-bearing liabilities. Average borrowings as a percent of average interest-bearing liabilities increased to 30.99% during the first six months of 2005 as compared to 26.37% for the same period in 2004. Borrowings typically have a higher cost than interest-bearing deposits. The cost of interest-bearing deposits for the first six months of 2005 increased to 1.43% as compared to 0.96% for the same period in 2004, reflecting the increasing interest rate environment offset by competition for interest-bearing deposits. The cost of borrowings for the first six months of 2005 increased to 3.17% as compared to 2.73% for the same period in 2004, also reflecting the increasing interest rate environment. 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 the FDIC require interest on all demand deposits. 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). 
22 

Table of Contents
TABLE 2 — Rate and Volume Analysis for Changes in Interest Income, Interest Expense and Net Interest Income 
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Comparison of six-month period ended June 30,	
 	 	2005 and 2004	
 	 	Increase (Decrease) Due to	
 	 	 	 	 	 	 	 	 	 	Rate/	 	 	
 	 	Volume	 	Rate	 	Volume	 	Total	
 	 	(amounts in thousands)	
Interest Income:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Taxable investment securities	 	$	3,797	 	 	$	2,953	 	 	$	423	 	 	$	7,173	 	
Tax-advantaged securities	 	$	1,462	 	 	$	298	 	 	$	(501	)	 	 	1,259	 	
Fed funds sold & interest-bearing deposits with other institutions	 	$	49	 	 	$	5	 	 	$	78	 	 	 	132	 	
Investment in FHLB stock	 	$	420	 	 	$	(167	)	 	$	(75	)	 	 	178	 	
Loans	 	$	10,114	 	 	$	4,124	 	 	$	688	 	 	 	14,926	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total interest on earning assets	 	 	15,842	 	 	 	7,213	 	 	 	613	 	 	 	23,668	 	

Interest Expense:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Savings deposits	 	$	299	 	 	$	1,457	 	 	$	119	 	 	 	1,875	 	
Time deposits	 	$	(139	)	 	$	2,395	 	 	$	(110	)	 	 	2,146	 	
Other borrowings	 	$	4,991	 	 	$	2,190	 	 	$	762	 	 	 	7,943	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total interest on interest-bearing liabilities	 	 	5,151	 	 	 	6,042	 	 	 	771	 	 	 	11,964	 	

Net Interest Income	 	$	10,691	 	 	$	1,171	 	 	$	(158	)	 	$	11,704	 	

 	 	Comparison of three-month period ended June 30,	
 	 	2005 and 2004	
 	 	Increase (Decrease) Due to	
 	 	 	 	 	 	 	 	 	 	Rate/	 	 	
 	 	Volume	 	Rate	 	Volume	 	Total	
 	 	(amounts in thousands)	
Interest Income:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Taxable investment securities	 	$	1,664	 	 	$	1,854	 	 	$	189	 	 	$	3,707	 	
Tax-advantaged securities	 	$	1,052	 	 	$	409	 	 	$	(319	)	 	 	1,142	 	
Fed funds sold & interest-bearing deposits with other institutions	 	$	53	 	 	$	1	 	 	$	42	 	 	 	96	 	
Investment in FHLB stock	 	$	223	 	 	$	(20	)	 	$	(10	)	 	 	193	 	
Loans	 	$	5,200	 	 	$	2,719	 	 	$	564	 	 	 	8,483	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total interest on earning assets	 	 	8,192	 	 	 	4,963	 	 	 	466	 	 	 	13,621	 	

Interest Expense:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Savings deposits	 	$	138	 	 	$	844	 	 	$	95	 	 	 	1,077	 	
Time deposits	 	$	2	 	 	$	1,467	 	 	$	96	 	 	 	1,565	 	
Other borrowings	 	$	2,658	 	 	$	1,434	 	 	$	557	 	 	 	4,649	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total interest on interest-bearing liabilities	 	 	2,798	 	 	 	3,745	 	 	 	748	 	 	 	7,291	 	

Net Interest Income	 	$	5,394	 	 	$	1,218	 	 	$	(282	)	 	$	6,330	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
     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 $68.3 million for the first six months of 2005. This represented an increase of $14.9 million, or 27.96%, over interest and fees on loans of $53.4 million for the same period in 2004. The increase in interest and fees on loans for the first six months of 2005 reflects increases in the average balance of loans and an increase in interest rates. The yield on loans increased to 6.40% for the first six months of 2005, compared to 5.94% for the same period last year. Deferred loan origination 
23 

Table of Contents
fees, net of costs, totaled $16.3 million at June 30, 2005. This represented an increase of $1.7 million, or 11.96%, over deferred loan origination fees, net of costs, of $14.6 million at December 31, 2004. 
     Interest and fees on loans totaled $35.6 million for the second quarter of 2005. This represented an increase of $8.5 million, or 31.26%, over interest and fees on loans of $27.1 million for the same period last year. The increase was primarily due to increases in the average balance of loans and an increase in interest rates during 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 June 30, 2005 and 2004. 
     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. Net deferred 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 $4.2 million for the first six months of 2005, as compared to $3.7 million for the same period in 2004, an increase of $480,000, or 12.84%. 
     We recognized loan fee income of $2.1 million for the second quarter of 2005, as compared to $1.9 million for the same period in 2004, an increase of $253,000 or 13.41%. 
Interest on Investments 
     Our second component of interest income is interest on investments, which totaled $46.5 million for the first six months of 2005. This represented an increase of $8.4 million, or 22.16%, over interest on investments of $38.1 million for the same period in 2004. The increase in interest on investments for the first six months of 2005 over the same period last year reflected increases in the average balance of investments and increases in the interest rate environment. 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 environments 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 4.61% for the first six months of 2005, compared to 4.27% for the same period last year as a result of the increasing interest rate environment, and the increase in the average investment portfolio. 
     For the second quarter of 2005, interest income on investments totaled $23.7 million. This represented an increase of $4.9 million, or 25.74%, over interest on investments of $18.8 million for the same period in 2004. The increase in interest on investments for the second quarter of 2005 over the same period last year reflected increases in the average balance of investments and increases in the interest rate environment. The weighted-average yield (TE) on investments increased to 4.66% for the second quarter of 2005, compared to 4.17% for the same period in 2004 as a result of the increasing interest rate environment. 
Provision for Credit Losses 
     The Company maintains an allowance for probable credit losses that is increased by a provision for credit losses charged against operating results. We did not make a provision for credit losses during the first six months of 2005 or 2004, and we believe our credit 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 or credit losses in the future. The nature of this process requires considerable judgment. See “Risk Management — Credit Risk” herein. 
24 

Table of Contents
Other Operating Income 
     Other operating income has become an increasingly important source of revenue for the Company. Other operating income includes income derived from special services offered by the Bank, such as wealth management and trust services, merchant card, investment services, 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; the gross revenue from Community Trust Deed Services and other revenues not included as interest on earning assets. 
     Other operating income, including losses on the sale of investment securities, totaled $14.3 million for the first six months of 2005. This represents an increase of $1.6 million, or 12.35%, over other operating income, including other-than-temporary impairment write-down and gains on the sale of investment securities, of $12.8 million for the same period last year. The increase was the result of a $6.3 million other-than-temporary impairment write-down of two issues of preferred stock issued by Freddie Mac during the first quarter of 2004 which was offset by the gains on the sales of investment securities of $5.2 million. Other operating income without losses on sale of investment securities totaled $14.4 million for the first six months of 2005, and increase of $537,000 or 3.87%, when compared to other operating income without the other-than-temporary impairment write-down and gains on sale of investment securities of $13.9 million for the same period of 2004. (see table below). 
     For the second quarter of 2005 other operating income, including losses on the sale of investment securities, totaled $7.3 million. This represents a decrease of $4.7 million, or 39.28% from other operating income, including the gain on sale of investment securities of $12.0 million for the same period last year. The decrease was the result of a gain on sale of securities of $5.2 million during second quarter 2004. Other operating income, without the losses on the sale of investment securities, totaled $7.3 million, an increase of $541,000 or 7.96%, when compared to other operating income without the gains on sale of investment securities of $6.8 million for the same period of 2004. 
     Other operating income as a percent of net revenues (net interest income before loan loss provision plus other operating income) was 14.73% for the first six months of 2005, as compared to 15.18% for the same period last year. Excluding the other-than-temporary impairment write-down and net gains/losses on sales of investment securities, other operating income as a percent of net revenues was 14.77% for the first six months of 2005, as compared to 16.26% for the same period in 2004. 
     For the second quarter of 2005 other operating income as a percent of net revenues (net interest income before loan loss provision plus other operating income) was 14.72% as compared to 25.06% for the same period in 2004. Excluding the net gains/losses on sale of investment securities, other operating income as a percent of net revenues was 14.80% for the second quarter of 2005, as compared to 15.92% in 2004. 
     The following table reconciles the differences in other operating income and the percentage of net revenues with and without the other-than-temporary impairment write-down and net gains/losses on sale of investment securities in conformity with accounting principles generally accepted in the United States of America: 
25 

Table of Contents
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Other Operating Income Reconciliation	
 	 	For the Six Months	
 	 	Ended June 30,	
 	 	2005	 	2004	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	Without	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	impairment	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	write-down	 	Impairment	 	 	
 	 	Without net	 	 	 	 	 	 	 	 	 	and gain on	 	writedown	 	 	
 	 	loss on sale of	 	Net loss on	 	Reported	 	sale of	 	and net gain	 	Reported	
 	 	securities	 	securities	 	earnings	 	securities	 	on securities	 	earnings	
 	 	(amounts in thousands)	
Other Operating Income	 	$	14,417	 	 	$	(46	)	 	$	14,371	 	 	$	13,880	 	 	$	(1,088	)	 	$	12,792	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net Revenues	 	$	97,591	 	 	$	(46	)	 	$	97,545	 	 	$	85,350	 	 	$	(1,088	)	 	$	84,262	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Percent of Other Operating Income to Net Revenues	 	 	14.77	%	 	 	100.00	%	 	 	14.73	%	 	 	16.26	%	 	 	100.00	%	 	 	15.18	%	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Other Operating Income Reconciliation	
 	 	For the Three Months	
 	 	Ended June 30,	
 	 	2005	 	2004	
 	 	Without net	 	 	 	 	 	 	 	 	 	Without net	 	 	 	 	
 	 	loss on sale of	 	Net loss on	 	Reported	 	gain on sale of	 	Net gain on	 	Reported	
 	 	securities	 	securities	 	earnings	 	securities	 	securities	 	earnings	
 	 	(amounts in thousands)	
Other Operating Income	 	$	7,339	 	 	$	(46	)	 	$	7,293	 	 	$	6,798	 	 	$	5,212	 	 	$	12,010	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net Revenues	 	$	49,576	 	 	$	(46	)	 	$	49,530	 	 	$	42,705	 	 	$	5,212	 	 	$	47,917	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Percent of Other Operating Income to Net Revenues	 	 	14.80	%	 	 	100.00	%	 	 	14.72	%	 	 	15.92	%	 	 	100.00	%	 	 	25.06	%	
     We have presented other operating income without the other-than-temporary impairment write-down and net gains/losses on sales of investment securities to show shareholders the earnings from operations unaffected by the impact of these items. We believe this presentation allows the reader to determine our profitability before the impact of these items. We believe the reader will be able to more easily assess the results of the Company’s operations and business. 
     Service charges on deposit accounts totaled $6.3 million in the first six months of 2005. This represented a decrease of $1.0 million or 13.85% from service charges on deposit accounts of $7.3 million for the same period in 2004. 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. The decrease in service charges on deposit accounts in the first six months of 2005 was due to higher earning allowance rates and higher deposit balances offsetting service charges owed. Service charges on deposit accounts represented 43.79% of other operating income in the first six months of 2005, as compared to 57.10% in 2004. 
     For the second quarter of 2005, service charges on deposit accounts totaled $3.3 million. This represents a decrease of $260,000, or 7.41% from service charges of $3.5 million for the same period last year. Service charges on deposit accounts represented 44.58% of other operating income in the second quarter of 2005, as compared to 29.24% in the same period in 2004. 
     Wealth Management 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 
26 

Table of Contents
probate services. Trust Services generated fees of $2.3 million in the first six months of 2005. This represents a decrease $2,000, or 0.10% from fees generated by Trust Services of $2.3 million in the same period in 2004. Fees generated by Trust Services represented 15.80% of other operating income in the first six months of 2005, as compared to 17.77% for the same period in 2004. 
     For the second quarter of 2005 fees generated by Trust Services totaled $1.0 million. This represents a decrease of $72,000, or 6.51% from wealth management income of $1.1 million for the same period last year. Fees generated by Trust Services represented 14.25% of other operating income in the second quarter of 2005, as compared to 9.25% in the same period in 2004. 
     Investment Services, which provides mutual funds, certificates of deposit, and other non-insured investment products, generated fees totaling $916,000 in the first six months of 2005. This represented an increase of $114,000, or 14.26%, over fees generated of $802,000 for the same period last year. Fees generated by Investment Services represented 6.37% of other operating income in the first six months of 2005, as compared to 6.27% for the same period in 2004. 
     For the second quarter of 2005 fees generated by Investment Services totaled $470,000. This represents an increase of $43,000, or 10.19% over investment services income of $427,000 for the same period last year. Fees generated by the investment services represented 6.45% of other operating income in the second quarter of 2005, as compared to 3.55% in 2004. 
     Bankcard services, which provide merchant bankcard services (credit card processing, merchant terminals, and customer support) generated fees totaling $1.2 million in the first six months of 2005. This represented an increase of $410,000, or 49.68%, over fees generated of $826,000 for the same period in 2004. The increase is primarily due to growth of the transaction volumes with our customer base and the controlling of costs in processing these transactions. Fees generated by Bankcard services represented 8.60% of other operating income in the first six months of 2005, as compared to 6.46% for the same period last year. 
     For the second quarter of 2005 fees generated by Bankcard totaled $633,000. This represents an increase of $232,000, or 57.88% over Bankcard services income of $401,000 for the same period last year. Fees generated by Bankcard services represented 8.67% of other operating income in the second quarter of 2005, as compared to 3.34% in the same period in 2004. 
     Bank Owned Life Insurance (“BOLI”) income totaled $1.6 million in the first six months of 2005. This represents an increase of $1.1 million, or 243.7%, over BOLI income generated of $460,000 for the same period in 2004. The increase is due to the additional interest earned on the $50 million BOLI acquired in 2004. 
     For the second quarter of 2005, BOLI income totaled $1.2 million. This represents an increase of $992,000, or 397.0 % over BOLI income generated of $250,000 for the second quarter of 2004. 
     Other fees and income, which includes wire fees, other business services, international banking fees, check sales, ATM fees, miscellaneous income, etc., was $2.1 million in the first six months of 2005. This represented a decrease of $96,000, or 4.36%, from other fees and income of $2.2 million generated in 2004. The decrease is primarily due the decrease of volume in other banking service and international banking fees. 
     For the second quarter of 2005 other fees and income totaled $703,000. This represents a decrease of $395,000, or 35.96% from other fees and income of $1.1 million for the same period last year. Other fees and income represented 9.64% of other operating income in the second quarter of 2005, as compared to 9.14% in the same period in 2004. 
27 

Table of Contents
     Total revenue from Community Trust Deed Services was approximately $44,000 in the first six months of 2005 and $30,000 for the same period in 2004. 
Other Operating Expenses 
     Other operating expenses for the Company include expenses for salaries and benefits, occupancy, equipment, stationary and supplies, professional services, promotion, data processing, amortization of intangibles, and other expenses, including prepayment penalties. Other operating expenses totaled $44.1 million for the first six months of 2005. This represents an increase of $1.6 million, or 3.77% over other operating expenses of $42.5 million for the same period in 2004. 
     For the second quarter of 2005, other operating expenses totaled $23.4 million. This represents an increase of $2.4 million, or 11.48% over other operating expenses of $21.0 million for the same period last year. 
     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 1.91% for the first six months of 2005, compared to a ratio of 2.13% for the same period in 2004. The decrease is partially due to the $2.6 million settlement of the robbery loss received in first quarter of 2005. The ratio further indicates that management is controlling greater levels of assets with proportionately smaller operating expenses, an indication of operating efficiency. 
     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 six months of 2005, the efficiency ratio was 45.22%, compared to a ratio of 50.45% for the same period in 2004. The decrease was primarily due to the impact of the $2.6 million settlement of the robbery loss received during the first quarter of 2005 and the $6.3 million other-than-temporary impairment write-down in the first quarter of 2004, offset by the net gains/losses on sale of investment securities. Without the settlement of the robbery loss, impairment charge on investment securities and net gains/losses on sale of investment securities, our efficiency ratio would have been 47.87% in 2005 as compared to 49.81% in 2004. 
     For the second quarter of 2005 the efficiency ratio increased to 47.27% as compared to 43.83% for the same period last year. Without the net gains/losses on the sale of securities, the efficiency ratio would have been 47.23% as compared to 49.18% for the same period last year. 
     The following table reconciles the differences in operating efficiency ratio with and without the settlement of the robbery loss, the other-than-temporary impairment write-down and the net gain/loss on sale of investment securities: 
28 

Table of Contents
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Operating Efficiency Ratio Reconciliation	
 	 	For the Six Months	
 	 	Ended June 30,	
 	 	2005	 	2004	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	Without other-	 	 	 	 	
 	 	Without	 	 	 	 	 	 	 	 	 	than-temporary	 	 	 	 	
 	 	settlement of	 	 	 	 	 	 	 	 	 	impairment	 	 	 	 	
 	 	robbery loss	 	 	 	 	 	 	 	 	 	write-down	 	Impairment	 	 	
 	 	and net loss	 	Robbery loss	 	 	 	 	 	and net gain	 	write-down	 	 	
 	 	on sale of	 	and net loss	 	Reported	 	on sale of	 	and net gain	 	Reported	
 	 	securities	 	on securities	 	earnings	 	securities	 	on securities	 	earnings	
 	 	(amounts in thousands)	
Other Operating Expense	 	$	46,712	 	 	$	(2,600	)	 	$	44,112	 	 	$	42,509	 	 	$	—	 	 	$	42,509	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net Revenues	 	$	97,591	 	 	$	(46	)	 	$	97,545	 	 	$	85,350	 	 	$	(1,088	)	 	$	84,262	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Operating Efficiency Ratio	 	 	47.87	%	 	 	 	 	 	 	45.22	%	 	 	49.81	%	 	 	 	 	 	 	50.45	%	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Operating Efficiency Ratio Reconciliation	
 	 	For the Three Months	
 	 	Ended June 30,	
 	 	2005	 	2004	
 	 	Without net	 	 	 	 	 	 	 	 	 	Without net	 	 	 	 	
 	 	loss on sale of	 	Net loss on	 	Reported	 	gain on sale of	 	Net gain on	 	Reported	
 	 	securities	 	securities	 	earnings	 	securities	 	securities	 	earnings	
 	 	(amounts in thousands)	
Other Operating Expense	 	$	23,415	 	 	$	—	 	 	$	23,415	 	 	$	21,004	 	 	$	—	 	 	$	21,004	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net Revenues	 	$	49,576	 	 	$	(46	)	 	$	49,530	 	 	$	42,705	 	 	$	5,212	 	 	$	47,917	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Operating Efficiency Ratio	 	 	47.23	%	 	 	 	 	 	 	47.27	%	 	 	49.18	%	 	 	 	 	 	 	43.83	%	
     We have presented the operating efficiency ratio without the other-than-temporary impairment write-down and net gains on sales of investment securities to show shareholders the earnings from operations 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 $26.3 million for the first six months of 2005. This represented an increase of $2.9 million, or 12.57%, over salaries and related expenses of $23.4 million for the same period in 2004. The increases for 2005 primarily resulted from increased staffing levels as a result of the Granite State Bank acquisition and annual salary adjustments. At June 30, 2005, we employed 672 full time equivalent employees, compared to 643 full time equivalent employees at June 30, 2004. Salaries and related expenses as a percent of average assets decreased to 1.14% for the first six months of 2005, compared to 1.17% for the same period in 2004. 
     For the second quarter of 2005 salaries and related expenses totaled $13.1 million. This represents an increase of $1.5 million, or 13.2% over salaries and related expenses of $11.6 million for the same period last year. The increases for the second quarter of 2005 primarily resulted from increased staffing levels and annual salary adjustments. Salaries and related expenses as a percent of average assets decreased to 1.10% for the second quarter of 2005, compared to 1.14% for the same period in 2004. 
     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 $4.0 million for the first six months of 2005. This represented an increase of $276,000, or 7.51%, over occupancy expense of $3.7 million for the same 
29 

Table of Contents
period in 2004. The increase in occupancy expense is primarily due to the addition of three banking centers, two from the Granite State Bank acquisition and one denovo branch. Equipment expense totaled $3.9 million for the first six months of 2005. This represented an increase of $145,000, or 3.92%, over the $3.7 million expense for the same period in 2004. 
     For the second quarter of 2005 occupancy expense totaled $2.0 million. This represents an increase of $52,000, or 2.75% over occupancy expense of $1.9 million for the same period last year. Equipment expense for the second quarter of 2005 totaled $2.1 million. This represents an increase of $257,000, or 13.85% over equipment expense of $1.9 million for the same period last year. 
     Stationary and supplies expense totaled $2.5 million for the first six months of 2005. This represented an increase of $137,000, or 5.69%, over the expense of $2.4 million for the same period in 2004. For the second quarter of 2005, stationary and supplies expense totaled $1.3 million. This represents an increase of $161,000 or 13.59% over the expense of $1.2 million for the same period in 2004. 
     Professional services totaled $2.2 million for the first six months of 2005. This represented an increase of $97,000 or 4.59%, over an expense of $2.1 million for the same period in 2004. For the second quarter of 2005, professional services totaled $1.2 million. This represents an increase of $193,000, or 19.31% over professional services of $1.0 million for the same period last year. 
     Promotion expense totaled $3.4 million for the first six months of 2005. This represented an increase of $608,000, or 22.05%, over an expense of $2.8 million for the same period in 2004. For the second quarter of 2005 promotion expense totaled $1.6 million. This represents an increase of $332,000, or 26.81% over promotion expense of $1.2 million for the same period last year. The increase in promotion expense was primarily associated with the acquisition of Granite State Bank. 
     Data processing expense totaled $824,000 for the first six months of 2005. This represented an increase of $94,000, or 12.86%, over an expense of $730,000 for the same period in 2004. For the second quarter of 2005 data processing expense totaled $467,000. This represents an increase of $91,000, or 24.07% over data processing expense of $377,000 for the same period last year. The increase in data processing expense was primarily due to the acquisition of Granite State Bank. 
     The amortization expense of intangibles totaled $885,000 for the first six months of 2005 and $592,000 for the same period in 2004. This represents an increase of $292,000, or 49.29%. The increase is mainly due to additional amortization of core deposit premium as a result of the acquisition of Granite State Bank in February 2005. For the second quarter of 2005 amortization expense totaled $588,000. This represents an increase of $292,000, or 98.58% over amortization expense of $296,000 for the same period last year. 
     Other operating expense totaled $174,000 for the first six months of 2005. This represented a decrease of $3.0 million, or 94.49%, from an expense of $3.2 million for the same period in 2004. For the second quarter of 2005 other operating expense totaled $1.0 million. This represents a decrease of $500,000, or 32.59% from other operating expense of $1.5 million for the same period last year. The decrease is primarily due to the $2.6 million settlement of the robbery loss. 
Income Taxes 
     The Company’s effective tax rate for the first six months of 2005 was 34.16%, compared to 34.08% for the same period in 2004. 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, although a portion comes from municipal leases. 
30 

Table of Contents
ANALYSIS OF FINANCIAL CONDITION 
     The Company reported total assets of $4.81 billion at June 30, 2005. This represented an increase of $300.8 million, or 6.67%, over total assets of $4.51 billion at December 31, 2004. Earning assets totaled $4.49 billion at June 30, 2005, increasing $236.1 million, or 5.55%, over earning assets of $4.26 billion at December 31, 2004. Total liabilities were $4.47 billion at June 30, 2005, up $281.5 million, or 6.71%, over total liabilities of $4.19 billion at December 31, 2004. Total equity increased $19.4 million, or 6.10%, to $336.9 million at June 30, 2005, compared with total equity of $317.5 million at December 31, 2004. 
Investment Securities 
     The Company reported total investment securities of $2.14 billion at June 30, 2005. This represented an increase of $58.5 million, or 2.81%, over total investment securities of $2.09 billion at December 31, 2004. Investment securities comprise 47.72% of the Company’s total earning assets at June 30, 2005. 
     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 unrealized gains or losses, net of income taxes, are recorded in stockholder’s equity. At June 30, 2005, securities held as available-for-sale had a fair market value of $2.14 billion, representing 99.48% of total investment securities, with an amortized cost of $2.14 billion. At June 30, 2005, the net unrealized holding gain on securities available-for-sale was $5.7 million and that resulted in accumulated other comprehensive gain of $3.3 million (net of $2.4 million in deferred taxes benefits). At December 31, 2004, we reported net unrealized gain on investment securities available-for-sale of $15.3 million and accumulated other comprehensive income of $8.9 million (net of deferred taxes of $6.4 million). 
31 

Table of Contents
Table 3 sets forth investment securities at June 30, 2005 and December 31, 2004. 
    Table 3 — Composition of Investment Securities 
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	June 30, 2005	
 	 	 	 	 	 	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	 	 	$	—	 	 	$	(1	)	 	$	498	 	 	 	0.02	%	
Mortgage-backed securities	 	 	1,173,025	 	 	 	3,814	 	 	 	(12,319	)	 	 	1,164,520	 	 	 	54.33	%	
CMO’s / REMIC’s	 	 	527,659	 	 	 	518	 	 	 	(2,103	)	 	 	526,074	 	 	 	24.54	%	
Government agency & government-sponsored enterprises	 	 	22,504	 	 	 	1	 	 	 	(351	)	 	 	22,154	 	 	 	1.03	%	
Municipal bonds	 	 	353,895	 	 	 	21,949	 	 	 	(822	)	 	 	375,022	 	 	 	17.50	%	
FHLMC preferred stock	 	 	58,340	 	 	 	—	 	 	 	(4,990	)	 	 	53,350	 	 	 	2.49	%	
Other securities	 	 	1,910	 	 	 	—	 	 	 	—	 	 	 	1,910	 	 	 	0.09	%	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total Investment Securities	 	$	2,137,832	 	 	$	26,282	 	 	$	(20,586	)	 	$	2,143,528	 	 	 	100.00	%	

 	 	December 31, 2004	
 	 	 	 	 	 	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	 	$	498	 	 	$	—	 	 	$	(2	)	 	$	496	 	 	 	0.02	%	
Mortgage-backed securities	 	 	1,360,304	 	 	 	8,759	 	 	 	(8,729	)	 	 	1,360,334	 	 	 	65.25	%	
CMO’s / REMIC’s	 	 	345,285	 	 	 	1,252	 	 	 	(910	)	 	 	345,627	 	 	 	16.58	%	
Government agency & government-sponsored enterprises	 	 	18,987	 	 	 	—	 	 	 	(230	)	 	 	18,757	 	 	 	0.90	%	
Municipal bonds	 	 	285,752	 	 	 	21,293	 	 	 	(468	)	 	 	306,577	 	 	 	14.70	%	
FHLMC preferred stock	 	 	58,340	 	 	 	—	 	 	 	(5,635	)	 	 	52,705	 	 	 	2.53	%	
Other securities	 	 	518	 	 	 	—	 	 	 	—	 	 	 	518	 	 	 	0.02	%	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total Investment Securities	 	$	2,069,684	 	 	$	31,304	 	 	$	(15,974	)	 	$	2,085,014	 	 	 	100.00	%	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
     The weighted-average yield (TE) on the investment portfolio at June 30, 2005 was 4.61% with a weighted-average life of 3.8 years. This compares to a yield of 4.38% at December 31, 2004 with a weighted-average life of 3.6 years and a yield of 4.27% at June 30, 2004 with a weighted-average life of 3.3 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 94.91% of the portfolio represents securities issued by either 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 June 30, 2005. 
32 

Table of Contents
Composition of the Fair Value and Gross Unrealized Losses of Securities Available-for-Sale: 
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	June 30, 2005	
 	 	Less than 12 months	 	12 months or longer	 	Total	
 	 	 	 	 	 	Gross	 	 	 	 	 	Gross	 	 	 	 	 	Gross	
 	 	 	 	 	 	Unrealized	 	 	 	 	 	Unrealized	 	 	 	 	 	Unrealized	
 	 	 	 	 	 	Holding	 	 	 	 	 	Holding	 	 	 	 	 	Holding	
Description of Securities	 	Fair Value	 	Losses	 	Fair Value	 	Losses	 	Fair Value	 	Losses	
 	 	(amounts in thousands)	
U.S. Treasury Obligation	 	$	498	 	 	$	1	 	 	$	—	 	 	$	—	 	 	$	498	 	 	$	1	 	
Mortgage-backed securities	 	 	374,265	 	 	 	2,125	 	 	 	542,059	 	 	 	10,194	 	 	 	916,324	 	 	 	12,319	 	
CMO/REMICs	 	 	215,927	 	 	 	1,019	 	 	 	142,051	 	 	 	1,084	 	 	 	357,978	 	 	 	2,103	 	
Government agency & government- sponsored enterprises	 	 	4,946	 	 	 	40	 	 	 	16,207	 	 	 	311	 	 	 	21,153	 	 	 	351	 	
Municipal bonds	 	 	40,763	 	 	 	640	 	 	 	6,685	 	 	 	182	 	 	 	47,448	 	 	 	822	 	
FHLMC Preferred Stock	 	 	53,350	 	 	 	4,990	 	 	 	—	 	 	 	—	 	 	 	53,350	 	 	 	4,990	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	$	689,749	 	 	$	8,815	 	 	$	707,002	 	 	$	11,771	 	 	$	1,396,751	 	 	$	20,586	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Composition of the Fair Value and Gross Unrealized Losses of Securities Available-for-Sale: 
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	December 31, 2004	
 	 	Less than 12 months	 	12 months or longer	 	Total	
 	 	 	 	 	 	Gross	 	 	 	 	 	Gross	 	 	 	 	 	Gross	
 	 	 	 	 	 	Unrealized	 	 	 	 	 	Unrealized	 	 	 	 	 	Unrealized	
 	 	 	 	 	 	Holding	 	 	 	 	 	Holding	 	 	 	 	 	Holding	
Description of Securities	 	Fair Value	 	Losses	 	Fair Value	 	Losses	 	Fair Value	 	Losses	
 	 	(amounts in thousands)	
U.S. Treasury & Government Securities	 	$	496	 	 	$	2	 	 	$	—	 	 	$	—	 	 	$	496	 	 	$	2	 	
Mortgage-backed securities	 	 	210,245	 	 	 	761	 	 	 	507,072	 	 	 	7,968	 	 	 	717,317	 	 	 	8,729	 	
CMO/REMICs	 	 	90,111	 	 	 	681	 	 	 	52,014	 	 	 	229	 	 	 	142,125	 	 	 	910	 	
Government agency & government- sponsored enterprises	 	 	12,711	 	 	 	179	 	 	 	6,047	 	 	 	51	 	 	 	18,758	 	 	 	230	 	
Municipal bonds	 	 	30,077	 	 	 	272	 	 	 	6,673	 	 	 	196	 	 	 	36,750	 	 	 	468	 	
FHLMC Preferred Stock	 	 	58,340	 	 	 	5,635	 	 	 	—	 	 	 	—	 	 	 	58,340	 	 	 	5,635	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	$	401,980	 	 	$	7,530	 	 	$	571,806	 	 	$	8,444	 	 	$	973,786	 	 	$	15,974	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
     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 June 30, 2005 and December 31, 2004. We have 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 we 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. 
     Despite the unrealized loss position of these securities, we have concluded, as of June 30, 2005, that these investments are not other-than temporarily impaired. This assessment was based on the following factors: i) the length of 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. 
     At June 30, 2005 and December 31, 2004, investment securities having an amortized cost of approximately $1.90 billion and $1.66 billion, respectively, were pledged to secure public deposits, short and long-term borrowings, and for other purposes as required or permitted by law. 
33 

Table of Contents
Loans 
     At June 30, 2005, we reported total loans, net of deferred loan fees, of $2.30 billion. This represents an increase of $156.1 million, or 7.29%, over total loans, net of deferred loan fees, of $2.14 billion at December 31, 2004. Total loans, net of deferred loan fees, comprise 51.11% of our total earning assets at June 30, 2005. 
Table 4 — Distribution of Loan Portfolio by Type (dollar amount in thousands) 
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	June 30, 2005	 	 	 	 	 	December 31, 2004	 	 	 	 	
Commercial and Industrial	 	$	954,942	 	 	 	41.3	%	 	$	905,139	 	 	 	42.0	%	
Real Estate:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Construction	 	 	249,740	 	 	 	10.8	%	 	 	235,849	 	 	 	10.9	%	
Mortgage	 	 	726,965	 	 	 	31.4	%	 	 	553,000	 	 	 	25.7	%	
Consumer, net of unearned discount	 	 	45,714	 	 	 	2.0	%	 	 	38,521	 	 	 	1.8	%	
Municipal lease finance receivables	 	 	82,735	 	 	 	3.6	%	 	 	71,675	 	 	 	3.3	%	
Auto and equipment leases	 	 	57,364	 	 	 	2.5	%	 	 	52,783	 	 	 	2.4	%	
Agribusiness	 	 	194,967	 	 	 	8.4	%	 	 	297,659	 	 	 	13.9	%	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Gross Loans	 	 	2,312,427	 	 	 	100.0	%	 	 	2,154,626	 	 	 	100.0	%	
Less:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Allowance for credit losses	 	 	(24,127	)	 	 	 	 	 	 	(22,494	)	 	 	 	 	
Deferred net loan fees	 	 	(16,292	)	 	 	 	 	 	 	(14,552	)	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net Loans	 	$	2,272,008	 	 	 	 	 	 	$	2,117,580	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
     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 second 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. The increase in real estate loans is due to increased activity in the marketplace and increased desire by customers to refinance their business properties. The decrease in agribusiness loans is due to increased cash flow to dairies due to higher milk prices, thereby enabling them to pay down their loans. 
Non-performing Assets 
     As set forth in Table 5, there were no non-performing assets at June 30, 2005, and non-performing assets were $2,000 at December 31, 2004. 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. There were no impaired loans at June 30, 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. 
34 

Table of Contents
TABLE 5 — Non-Performing Assets (dollar amount in thousands) 
 	 	 	 	 	 	 	 	 	
 	 	June 30,	 	December 31,	
 	 	2005	 	2004	
 	 	(amounts in thousands)	
Nonaccrual loans	 	$	—	 	 	$	2	 	
Loans past due 90 days or more	 	 	—	 	 	 	—	 	
Restructured loans	 	 	—	 	 	 	—	 	
Other real estate owned (OREO)	 	 	—	 	 	 	—	 	
 	 	 	 	 	 	 	 	 	
Total nonperforming assets	 	$	—	 	 	$	2	 	

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 June 30, 2005 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 June 30, 2005 and December 31, 2004, the Company held no properties as Other Real Estate Owned. 
Bank Owned Life Insurance 
     The Company has Bank Owned Life Insurance (“BOLI”) with a cash surrender value of $70.6 million, of which $17.9 million was obtained through acquisitions and $52.7 million was obtained through purchase. We purchased $50.0 million of single premium insurance in the first quarter of 2004. The proceeds from these policies are used to help offset employee benefits costs. 
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 significant element in the performance of our Company. 
     At June 30, 2005, total deposits were $2.99 billion, representing an increase of $117.5 million, or 4.09%, over total deposits of $2.88 billion at December 31, 2004. Average total deposits for the first six months of 2005 were $2.96 billion. This represented an increase of $275.8 million, or 10.29%, over average total deposits of $2.68 billion for the six months ended June 30, 2004. The increase in deposits was partially a result of the Granite State Bank acquisition. The comparison of average balances for the first six months of the year 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: 
35 

Table of Contents
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	June 30, 2005	 	December 31, 2004	
 	 	(Amounts in thousands)	
Non-interest bearing deposits	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Demand deposits	 	$	1,394,898	 	 	 	46.6	%	 	$	1,322,255	 	 	 	46.0	%	
Interest bearing deposits	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Savings Deposits	 	 	1,087,383	 	 	 	36.3	%	 	 	1,072,619	 	 	 	37.3	%	
Time deposits	 	 	510,255	 	 	 	17.1	%	 	 	480,165	 	 	 	16.7	%	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total deposits	 	$	2,992,536	 	 	 	100.0	%	 	$	2,875,039	 	 	 	100.0	%	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
     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 $1.39 billion at June 30, 2005, representing an increase of $72.6 million, or 5.49%, over total demand deposits of $1.32 billion at December 31, 2004. Average demand deposits for the first six months of 2005 were $1.36 billion, an increase of $208.9 million, or 18.20%, over average demand deposits of $1.15 billion for the first six months of 2004. Non-interest-bearing demand deposits represented 46.60% of total deposits as of June 30, 2005 and 46.0% of total deposits as of December 31, 2004. 
     Savings deposits, which include savings, interest-bearing demand, and money market accounts, totaled $1.09 billion at June 30, 2005, representing an increase of $14.8 million, or 1.38%, over savings deposits of $1.07 billion at December 31, 2004. 
     Time deposits totaled $510.3 million at June 30, 2005 of which $15.2 million were brokered. This represented an increase of $30.1 million, or 6.27%, over total time deposits of $480.2 million at December 31, 2004. 
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 31.41% as of June 30, 2005, as compared to 28.25% as of December 31, 2004. 
     During 2005 and 2004, 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 $452.0 million and $356.0 million under these agreements at June 30, 2005 and December 31, 2004, respectively. The weighted average annual interest rate was 3.26% and 2.16% at June 30, 2005 and December 31, 2004, 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 $900.0 million and $830.0 million under these agreements at June 30, 2005 and December 31, 2004, respectively. The weighted average annual interest rate was 3.21% and 3.05% at June 30, 2005 and December 31, 2004, 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 
36 

Table of Contents
the agreement, is $15.0 million. On June 30, 2005 and December 31, 2004 the amounts held by the Bank in the TT&L Note Option Program were $5.1 million and $6.5 million, collateralized by securities, respectively. Amounts are payable on demand. The Bank borrows at a variable rate of 43 and 34 basis points less than the average weekly federal funds rate, which was 2.67% and 1.35% at June 30, 2005 and December 31, 2004, respectively. 
     At June 30, 2005, borrowed funds totaled $1.35 billion, representing an increase of $166.0 million, or 14.00%, over total borrowed funds of $1.19 billion at December 31, 2004. 
Aggregate Contractual Obligations 
     The following table summarizes our aggregate contractual obligations as of June 30, 2005: 
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	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	 	$	2,992,536	 	 	$	2,928,024	 	 	$	54,078	 	 	$	10,274	 	 	$	160	 	
FHLB and Other Borrowings	 	 	1,352,000	 	 	 	452,000	 	 	 	800,000	 	 	 	—	 	 	 	100,000	 	
Junior Subordinated Debentures	 	 	82,476	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	82,476	 	
Deferred Compensation	 	 	7,325	 	 	 	757	 	 	 	1,433	 	 	 	1,433	 	 	 	3,702	 	
Operating Leases	 	 	15,997	 	 	 	3,993	 	 	 	6,341	 	 	 	3,365	 	 	 	2,298	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total	 	$	4,450,334	 	 	$	3,384,774	 	 	$	861,852	 	 	$	15,072	 	 	$	188,636	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
     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. The debentures have the same maturity as the Trust Preferred Securities, which mature in 2033, but become callable in whole or in part in 2008. 
     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 June 30, 2005, we had commitments to extend credit of approximately $837.0 million and obligations under letters of credit of $76.8 million and available lines of credit totaling $913.8 million 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. 
37 

Table of Contents
     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 June 30, 2005: 
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	Maturity by Period	
 	 	 	 	 	 	Less Than	 	One Year	 	Four Year	 	After	
 	 	 	 	 	 	One	 	to Three	 	to Five	 	Five	
 	 	Total	 	Year	 	Years	 	Years	 	Years	
 	 	 	 	 	 	(amounts in thousands)	
Commitment to extend credit	 	 	837,030	 	 	 	375,310	 	 	 	35,736	 	 	 	66,039	 	 	 	359,945	 	
Obligations under letters of credit	 	 	76,808	 	 	 	64,105	 	 	 	648	 	 	 	12,055	 	 	 	—	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total	 	$	913,838	 	 	$	439,415	 	 	$	36,384	 	 	$	78,094	 	 	$	359,945	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
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 loan to deposit ratio the less liquid are the Bank’s assets. For the first six months of 2005, the Bank’s loan to deposit ratio averaged 73.81%, compared to an average ratio of 67.45% for the same period in 2004. 
     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 June 30, 2005, approximately $73.0 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 and interest payments on loans and investments, borrowed funds, and growth in deposits. Uses of funds include withdrawal of deposits, interest paid on deposits and borrowings, increased loan balances, purchases, and other operating expenses. 
     Net cash provided by operating activities totaled $48.4 million for the first six months of 2005, compared to $49.1 million for the same period last year. The decrease was primarily the result of a decrease in cash paid to suppliers and employees, offset by an increase in interest received. 
     Net cash used in investing activities totaled $184.2 million for the first six months of 2005, compared to $485.8 million used by investing activities for the same period in 2004. The decrease was primarily the result of a decrease in the purchase of investment securities, loans, and BOLI and an increase in the proceeds of sales of investment securities. 
     Funds provided by financing activities totaled $154.5 million for the first six months of 2005, compared to funds provided by financing activities of $489.7 million for the same period last year. The 
38 

Table of Contents
decrease in net cash provided by financing activities was primarily the result of decrease in deposits and short-term borrowings during the period. 
     At June 30, 2005, cash and cash equivalents totaled $128.6 million. This represented a decrease of $36.4 million, or 22.07%, from a total of $165.0 million at June 30, 2004. 
Capital Resources 
     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 June 30, 2005, the Bank and the Company exceeded the minimum risk-based capital ratio and leverage ratio required to be considered “Well Capitalized”. 
     The Company’s equity capital was $336.9 million at June 30, 2005. This represented an increase of $19.4 million, or 6.10% over equity capital of $317.5 million at December 31, 2004. The Company’s 2004 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. 
     In October 2001, the Company’s Board of Directors authorized the purchase of up to $2.0 million shares of our common stock (without adjustment for stock splits and stock dividends). During the first six months of 2005, the Company repurchased 676,033 shares of our common stock for an aggregate amount of $12.3 million. As of June 30, 2005, 775,163 shares are available to be repurchased in the future under this repurchase plan. 
     Table 6 below presents the Company’s and the Bank’s risk-based and leverage capital ratios as of June 30, 2005 and December 31, 2004. 
     Table 6 — Regulatory Capital Ratios 
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Required	 	 	 	 	
 	 	Minimum	 	June 30, 2005	 	December 31, 2004	
Capital Ratios	 	Ratios	 	Company	 	Bank	 	Company	 	Bank	
Risk-based capital ratios:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Tier I	 	 	4.00	%	 	 	12.10	%	 	 	11.56	%	 	 	12.58	%	 	 	11.89	%	
Total	 	 	8.00	%	 	 	12.95	%	 	 	12.40	%	 	 	13.42	%	 	 	12.73	%	
Leverage ratio	 	 	4.00	%	 	 	7.81	%	 	 	7.45	%	 	 	8.30	%	 	 	7.83	%	
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. 
39 

Table of Contents
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 impaired when principal and interest are deemed uncollectible 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. 
40 

Table of Contents
     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 limited to the following conditions that existed as of the balance sheet date: 
— general economic and business conditions affecting the key lending areas of the Company, 
— 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, 
41 

Table of Contents
— 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. There was no provision for credit losses during the first six months of 2005 and 2004. 
     At June 30, 2005, we reported an allowance for credit losses of $24.1 million. This represented an increase of $1.6 million, or 7.26%, over the allowance for credit losses of $22.5 million at December 31, 2004. The increase is due to $756,000 of allowance for credit losses acquired through Granite State Bank and recoveries exceeding charge-offs for the second quarter of 2005. 
     Non-performing loans includes non-accrual loans, loans past due 90 or more days and still accruing, impaired loans, and restructured loans. There were no non-performing loans at June 30, 2005 and $2,000 in non-performing loans at December 31, 2004. 
42 

Table of Contents
TABLE 7 — Summary of Credit Loss Experience 
 	 	 	 	 	 	 	 	 	
 	 	Six months ended June 30,	
 	 	2005	 	2004	
 	 	(amounts in thousands)	
Amount of Total Loans at End of Period (1)	 	$	2,296,135	 	 	$	1,938,960	 	
 	 	 	 	 	 	 	 	 	
Average Total Loans Outstanding (1)	 	$	2,151,088	 	 	$	1,807,735	 	
 	 	 	 	 	 	 	 	 	
Allowance for Credit Losses:	 	 	 	 	 	 	 	 	
Beginning of Period	 	$	22,494	 	 	$	21,282	 	
Acquisition of Granite State Bank	 	 	756	 	 	 	—	 	
Loans Charged-Off:	 	 	 	 	 	 	 	 	
Real Estate Loans	 	 	—	 	 	 	83	 	
Commercial and Industrial	 	 	63	 	 	 	272	 	
Lease Financing Receivables	 	 	45	 	 	 	—	 	
Consumer Loans	 	 	25	 	 	 	121	 	
 	 	 	 	 	 	 	 	 	
Total Loans Charged-Off	 	 	133	 	 	 	476	 	

Recoveries:	 	 	 	 	 	 	 	 	
Real Estate Loans	 	 	494	 	 	 	178	 	
Commercial and Industrial	 	 	405	 	 	 	1,055	 	
Lease Financing Receivables	 	 	54	 	 	 	—	 	
Consumer Loans	 	 	57	 	 	 	101	 	
 	 	 	 	 	 	 	 	 	
Total Loans Recovered	 	 	1,010	 	 	 	1,334	 	
 	 	 	 	 	 	 	 	 	
Net Loans (Recovered)	 	 	(877	)	 	 	(858	)	
 	 	 	 	 	 	 	 	 	
Provision Charged to Operating Expense	 	 	—	 	 	 	—	 	
 	 	 	 	 	 	 	 	 	
Allowance for Credit Losses at End of period	 	$	24,127	 	 	$	22,140	 	

			
(1)	 	Net of deferred loan fees	
 	 	 	 	 	 	 	 	 	
Net Loans Charged-Off (Recovered) to Average Total Loans	 	 	-0.04	%	 	 	-0.05	%	
Net Loans Charged-Off (Recovered) to Total Loans at End of Period	 	 	-0.04	%	 	 	-0.04	%	
Allowance for Credit Losses to Average Total Loans	 	 	1.12	%	 	 	1.22	%	
Allowance for Credit Losses to Total Loans at End of Period	 	 	1.05	%	 	 	1.14	%	
Net Loans Charged-Off (Recovered) to Allowance for Credit Losses	 	 	-3.63	%	 	 	-3.88	%	
Net Loans Charged-Off (Recovered) to Provision for Credit Losses	 	 	—	 	 	 	—	 	
     While we believe that the allowance at June 30, 2005, 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 our 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, and debts. 
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 
43 

Table of Contents
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, 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 $1.72 billion, or 81.14%, of the total investment portfolio at June 30, 2005 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. 
     The following depicts the Company’s net interest income sensitivity analysis as of June 30, 2005: 
44 

Table of Contents
 	 	 	 	 	
 	 	Estimated Net	
Simulated	 	Interest Income	
Rate Changes	 	Sensitivity	
+ 200 basis points	 	 	(3.19% 	)	
- 200 basis points	 	 	(0.82% 	)	
     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 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 
45 

Table of Contents
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. 
     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. 
46 

Table of Contents
     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. 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 that they can only provide reasonable assurance of achieving the desired control objectives. We also evaluate the cost-benefit relationship of controls and procedures. 
47 

Table of Contents
     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. 
48 

Table of Contents
PART II — OTHER INFORMATION 
ITEM 1. LEGAL PROCEEDINGS 
     Not Applicable 
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. During the three months ended June 30, 2005, the Company repurchased a total of 676,033 shares of common stock for the total price of $12.3 million. All of the 676,033 shares were purchased in open market transactions. As of June 30, 2005, 775,163 shares are available to be repurchased in the future under this repurchase plan. 
     The follow table provides the information with respect to the purchases made during the second quarter ended June 30, 2005: 
ISSUER PURCHASES OF EQUITY SECURITIES
For the Three Months
Ended June 30, 2005 
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	Total Number of	 	 	
 	 	 	 	 	 	Total	 	 	 	 	 	Shares purchased as	 	Maximum Number of	
 	 	 	 	 	 	Number of	 	 	 	 	 	Part of Publicly	 	Shares that May Yet Be	
 	 	 	 	 	 	Shares	 	Average Price	 	Announced Plans or	 	Purchased Under the Plans	
Beginning date	 	Ending date	 	purchased	 	Paid per Share	 	Programs	 	or Programs	
April 1	 	April 30	 	 	172,000	 	 	$	17.21	 	 	 	172,000	 	 	 	1,279,196	 	
May 1	 	May 31	 	 	380,100	 	 	$	18.37	 	 	 	380,100	 	 	 	899,096	 	
June 1	 	June 30	 	 	123,933	 	 	$	18.80	 	 	 	123,933	 	 	 	775,163	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Total	 	 	676,033	 	 	$	18.31	 	 	 	676,033	 	 	 	 	 	

ITEM 3. DEFAULTS UPON SENIOR SECURITIES 
     Not Applicable 
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 
     On May 18, 2005, the Company held its 2005 annual meeting of shareholders. All of the Company’s existing directors were reelected until the 2006 Annual Meeting of Shareholders and until their successors are elected and have qualified. The following summarizes the votes received. 
     Election of Directors: 
 	 	 	 	 	 	 	 	 	
 	 	For	 	Withheld	
George A. Borba	 	 	54,922,952	 	 	 	842,554	 	
John A. Borba	 	 	50,204,960	 	 	 	5,560,546	 	
Ronald O. Kruse	 	 	55,676,050	 	 	 	89,456	 	
John J. LoPorto	 	 	55,669,486	 	 	 	96,020	 	
James C. Seley	 	 	55,702,640	 	 	 	62,866	 	
San Vaccaro	 	 	55,574,427	 	 	 	191,079	 	
D. Linn Wiley	 	 	55,563,571	 	 	 	201,935	 	
49 

Table of Contents
     The appointment of McGladrey & Pullen, LLP as independent public accountants of the Company for the year ended December 31, 2004 was ratified at the 2005 Annual Meeting of Shareholders by the following: 
 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	Broker	
For	 	Against	 	Abstain	 	Non-Votes	
41,388,303	 	 	1,389,487	 	 	 	493,650	 	 	 	12,494,066	 	
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 
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 
50 

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: August 5, 2005 	 	/s/ Edward J. Biebrich Jr. 	 	 	
  	 	 	 	 	
  	 	Edward J. Biebrich Jr.	 	 	
  	 	Chief Financial Officer	 	 	
51 
 
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: August 5, 2005 	 	/s/ D. Linn Wiley 	 	 	
  	 	 	 	 	
  	 	D. Linn Wiley	 	 	
  	 	Chief Executive Officer	 	 	

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: August 5, 2005 	 	/s/ Edward J. Biebrich, Jr. 	 	 	
  	 	 	 	 	
  	 	Edward J. Biebrich, Jr.	 	 	
  	 	Chief Financial Officer	 	 	

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 June 30, 2005, 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: August 5, 2005 	 	/s/ D. Linn Wiley 	 	 	
  	 	 	 	 	
  	 	D. Linn Wiley	 	 	
  	 	Chief Executive Officer	 	 	

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 June 30, 2005, 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: August 5, 2005 	 	/s/ Edward J. Biebrich Jr. 	 	 	
  	 	 	 	 	
  	 	Edward J. Biebrich Jr.	 	 	
  	 	Chief Financial Officer