FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1995
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to _____
For Quarter Ended June 30, 1995 Commission File Number: 1-10394
CVB FINANCIAL CORP.
(Exact name of registrant as specified in its charter)
California 95-3629339
(State or other jurisdiction of (I.R.S.Employer Identification No.)
incorporation or organization)
701 North Haven Ave, Suite 350, Ontario, California 91764
(Address of Principal Executive Offices) (Zip Code)
(Registrant's telephone number, including area code) (909) 980-4030
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
YES X NO
Number of shares of common stock of the registrant: 8,088,908 outstanding as
of August 8, 1995.
This Form 10-Q contains 22 pages. Exhibit index on page 20.
Page 1
PART I - FINANCIAL INFORMATION
CVB FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
dollar amounts in thousands
June 30, December 31,
1995 1994
------- ------------
(unaudited)
ASSETS
Investment securities held-to-maturity
(market values of $20,128 and $18,073) $ 19,729 $ 19,018
Investment securities available-for-sale 197,113 173,248
Federal funds sold and interest-bearing
deposits with other financial institutions 5,000 15,199
Loans and lease finance receivables, net 467,113 484,618
--------- ---------
Total earning assets 688,955 692,083
Cash and due from banks 76,881 94,630
Premises and equipment, net 12,221 12,801
Other real estate owned, net 12,828 9,860
Goodwill 8,818 9,139
Other assets 12,967 17,582
--------- ---------
$ 812,670 $ 836,095
========= =========
LIABILITIES AND STOCKHOLDERS'EQUITY
Liabilities:
Deposits:
Noninterest-bearing $ 271,373 $ 327,807
Interest-bearing 434,630 434,817
--------- ---------
706,003 762,624
Demand note issued to U.S. Treasury 9,349 6,430
Long-term capitalized lease 485 494
Repurchase Agreement 18,500 0
Other liabilities 6,488 4,607
--------- ---------
740,825 774,155
Stockholders' Equity:
Preferred stock (authorized 20,000,000 shares
without par; none issued or outstanding) 0 0
Common stock (authorized, 50,000,000 shares
without par; issued and outstanding
8,088,908 and 8,056,774) 32,638 32,438
Retained earnings 40,053 36,128
Net unrealized gains(losses) on investment
securities available-for-sale (846) (6,626)
--------- ---------
71,845 61,940
--------- ---------
812,670 $ 836,095
========= =========
See accompanying notes to the consolidated financial statements.
Page 2
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,
1995 1994 1995 1994
-------- -------- -------- --------
Interest income:
Loans, including fees $ 12,312 $ 10,047 $ 24,672 $ 19,638
Investment securities:
Taxable 3,261 2,388 6,512 4,480
Tax-advantaged 101 102 202 174
-------- -------- -------- --------
3,362 2,490 6,714 4,654
Federal funds sold and interest
bearing deposits with other
financial institutions 23 11 48 96
-------- -------- -------- --------
15,697 12,548 31,434 24,388
Interest expense:
Deposits 3,488 2,529 6,641 4,874
Other borrowings 566 96 1,046 168
-------- -------- -------- --------
4,054 2,625 7,687 5,042
-------- -------- -------- --------
Net interest income 11,643 9,923 23,747 19,346
Provision for credit losses 350 100 1,575 150
-------- -------- -------- --------
Net interest income after
provision for credit losses 11,293 9,823 22,172 19,196
Other operating income:
Service charges on deposit
accounts 1,689 1,437 3,338 2,685
(Losses) Gains on sale of
investment securities 0 0 0 (128)
Gains on sale of other real
estate owned 18 0 25 5
Other 501 321 943 649
-------- -------- -------- --------
2,208 1,758 4,306 3,211
Other operating expenses:
Salaries and employee benefits 4,045 3,754 8,295 7,330
Deposit insurance premiums 397 312 795 623
Occupancy 759 609 1,549 1,205
Equipment 557 458 1,075 916
Provision for losses on other
real estate owned 250 350 250 550
Other 2,973 2,091 5,637 4,049
-------- -------- -------- --------
8,981 7,574 17,601 14,673
-------- -------- -------- --------
Earnings before income taxes 4,520 4,007 8,877 7,734
Provision for income taxes 1,873 1,577 3,689 3,083
-------- -------- -------- --------
Net Earnings $ 2,647 $ 2,430 $ 5,188 $ 4,651
======== ======== ======== ========
Earnings per common share $ 0.31 $ 0.29 $ 0.61 $ 0.55
======== ======== ======== ========
Cash dividends per common share $ 0.08 $ 0.07 $ 0.16 $ 0.15
======== ======== ======== ========
See accompanying notes to the consolidated financial statements.
Page 3
CVB FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
dollar amounts in thousands
For the Six Months
Ended June 30,
1995 1994
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITES:
Interest received $ 30,337 $ 22,786
Service charges and other fees received 4,305 3,339
Interest paid (7,214) (4,866)
Cash paid to suppliers and employees (16,861) (15,707)
Income taxes paid (2,311) (2,026)
--------- ---------
8,256 3,526
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of securities available
for sale 13,517 53,369
Proceeds from maturities of securities
available for sale 11,350 14,077
Proceeds from maturities of securities
held to maturity 811 942
Purchases of securities available for sale (38,948) (91,996)
Purchases of securities held to maturity (1,445) (2,469)
Net (increase)decrease in loans 11,768 58
Loan origination fees received 1,101 1,447
Proceeds from sale of premises and equipment 598 39
Purchase of premises and equipment (865) (2,586)
Payment for purchase of Western Industrial
National Bank 0 (14,797)
Other investing activities 2,704 (5,087)
--------- ---------
591 (47,003)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase(decrease)in transaction deposits (76,085) 19,080
Net increase(decrease)in time deposits 19,464 12,298
Net increase(decrease)in short-term borrowings 20,925 16,105
Dividends paid (1,299) (1,171)
Exercise of stock options 200 117
--------- ---------
(36,795) 46,429
--------- ---------
NET INCREASE(DECREASE)IN CASH AND CASH EQUIVILENTS (27,948) 2,952
CASH AND CASH EQUIVALENTS, beginning of year 109,829 60,853
--------- ---------
CASH AND CASH EQUIVALENTS BEFORE ACQUISITION 81,881 63,805
CASH AND CASH EQUIVALENTS RECEIVED IN THE PURCHASE
OF WESTERN INDUSTRIAL NATIONAL BANK 0 16,595
--------- ---------
CASH AND CASH EQUIVALENTS, June 30, $ 81,881 $ 80,400
========= =========
See accompanying notes to the consolidated financial statements.
Page 4
CVB FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
dollar amounts in thousands
For the Six Months
Ended June 30,
1995 1994
-------- --------
RECONCILIATION OF NET EARNINS TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
Net earnings $ 5,188 $ 4,651
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Loss (Gain) on sale of investment securities 0 128
Amortization of premiums on investment
securities (20) 175
Provisions for loan and OREO losses 1,825 700
Accretion of deferred loan fees and costs (935) (984)
Loan origination costs capitalized (927) (1,271)
Depreciation and amortization 920 685
Change in accrued interest receivable (143) (794)
Change in accrued interest payable 473 175
Change in other assets and liabilities 1,875 61
-------- --------
3,068 (1,125)
-------- --------
$ 8,256 $ 3,526
======== ========
Supplemental Schedule of Noncash Investing and Financing Activities
Purchase of Western Industrial National Bank:
Cash and cash equivalents acquired $ ( 16,595)
Fair value of other assets acquired (36,375)
Fair value of liabilities assumed 44,150
Goodwill (5,977)
---------
Cash paid for purchase of Western Industrial
National Bank $ (14,797)
=========
See accompanying notes to the consolidated financial statements.
Page 5
CVB FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the six months ended June 30, 1995 and 1994
1. Summary of Significant Accounting Policies. See note 1 of the Notes to
Consolidated Financial Statements in CVB Financial Corp.'s 1994 Annual
Report. Goodwill resulting from purchase accounting treatment of
acquired banks is amortized straight line over 15 years.
The Company adopted SFAS 114 as of January 1, 1995. The adoption of the
standard did not result in a material impact on the financial position or
results of operations at that date. As of June 30, 1995, loans for
which impairment has been recognized amounted to $9,500,000. The
allowance for credit losses related to those loans amounted to
$2,000,000. In addition, loans for which impairment was recognized were
secured by collateral with a fair market value of $8,000,000 as of
June 30, 1995. The Company recognizes the change in present value as
bad-debt expense in the same manner in which impairment initially was
recognized or as a reduction in the amount of bad-debt expense that
otherwise would be reported.
2. Certain reclassifications have been made in the 1994 financial
information to conform to the presentation used in 1995.
3. In the ordinary course of business, the Company enters into commitments to
extend credit to its customers. These commitments are not reflected in the
accompanying consolidated financial statements. As of June 30, 1995,the
Company had entered into commitments with certain customers amounting to
$87.4 million compared to $76.7 million at December 31, 1994. Letters of
credit at June 30, 1995 and December 31, 1994 were $5.3 million and
$5.7 million, respectively.
4. The interim consolidated financial statements are unaudited and reflect
all adjustments and reclassifications which, in the opinion of
management, are necessary for a fair statement of the results of
operations and financial condition for the interim period. All
adjustments and reclassifications are of a normal and recurring nature.
Results for the period ending June 30, 1995 are not necessarily
indicative of results which may be expected for any other interim period
or for the year as a whole.
5. The actual number of shares outstanding at June 30, 1995 was 8,088,908.
Earnings per share are calculated on the basis of the weighted average
number of shares outstanding during the quarter plus shares issuable upon
the assumed exercise of outstanding common stock options. The number of
shares used in the calculation of earnings per share was 8,524,795 and
8,644,633 for the six and three month periods ended June 30, 1995 and
8,411,614 and 8,525,601 for the six and three mont periods ended June 30,
1994. All 1994 per share information in the financial statements and in
management's discussion and analysis has been restated to give
retroactive effect to the 10% stock dividend declared on December 21,
1994.
6. Supplemental cash flow information. During the six-month period ended
June 30, 1995, loans amounting to $4.9 million were transferred to Other
Real Estate Owned ("OREO") as a result of foreclosure on the real
properties held as collateral. OREO sold during the six-month period
ended June 30, 1995, amounted to $561,000.
Page 6
CVB FINANCIAL CORP. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
Management's discussion and analysis is written to provide greater
insight into the results of operations and the financial condition of
CVB Financial Corp. and its subsidiaries. Reference should be made to the
financial statements included in this report and in the Company's 1994
annual report for a more complete understanding of CVB Financial Corp. and
its operations.
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 Chino Valley Bank.
On April 3, 1995 and June 6, 1995, the Bank filed an
application with the State Banking Department and the Federal Deposit
Insurance Corporation, respectively, to close one the branches at South El
Monte. The Bank had two branches in South El Monte that had been acquired
on June 26, 1994 from Western Industrial National Bank. The branches are
located approximately one mile apart and the Bank expects to consolidate
the two branches into one. As the deposit relationships have been
established and the Bank maintains additional branches in the area, no
reduction of goodwill appears necessary. Subject to regulatory approval,
the Bank plans to close the branch during the third quarter of 1995.
The Bank has entered into an agreement with Vineyard National Bank to
purchase its Victorville office. The transaction will include
approximately $4.5 million in deposits and $2.5 million in loans.
Consummation of the purchase is subject to regulatory approval.
RESULTS OF OPERATIONS
The Company reported net earnings of $2,647,000, or $0.31 per share,
for the quarter ended June 30, 1995, compared to $2,430,000, or $0.29 per
share for the same period in 1994, an increase of $217,000, or 8.93%. Net
earnings for the six months ended June 30, 1995, were $5,188,000, or $0.61
per share. This represents an increase of $537,000 or 11.55% compared
with earnings of $4,651,000 or $0.55 per share for the same period of
1994.
The annualized return on average assets during the quarter ended June 30,
1995 was 1.32%, and the annualized return on average equity was 15.48%.
For the quarter ended June 30, 1994, the annualized return on average
assets was 1.39% and the annualized return on average equity was 16.19%.
For the first six months of 1995, the annualized return on average assets
decreased to 1.29% from 1.34% for the six months ended June 30, 1994. The
annualized return on average equity increased to 15.73% for the six months
ended June 30, 1995, from 15.50% for the same period last year.
Pre-tax operating earnings, which exclude the impact of gains or losses
on sale of securities and OREO and provisions for losses on loans and OREO,
were $10,677,000 during the six months ended June 30, 1995, an increase of
$2,120,000 or 24.77% from $8,557,000 for the first six months of 1994.
Page 7
Net Interest Income/Net Interest Margin
The principal component of the Company's earnings is net interest income
which is the difference between interest and fees earned on loans and
investments and interest paid on deposits and other borrowings. When net
interest income is expressed as a percentage of average earning assets, the
result is the net interest margin. The net interest spread ("NIS") is the
yield on average earning assets minus the average cost of interest-bearing
deposits and borrowed funds.
Net interest income increased from $9.9 million for the three months
ended June 30, 1994, to $11.6 million for the three months ended June 30,1995
an increase of $1.7 million, or 17.33%, between the two periods. Net interest
income increased from $19.3 million for the first six months of 1994 to
$23.7 million for the first six months of 1995, an increase of $4.4 million,
or 22.75%. The increase in net interest income for both the three month and
six month periods was the result of increased volume of average earning
assets combined with an increase in the yield on earnings assets. The net
interest margin for the three month period ending June 30, 1995, was 6.74%
up from 6.49% for the same three month period of 1994. The net interest
margin was 6.85% for the first six months of 1995 up from 6.37% for the same
period last year. The net interest spread was 5.62% for the three months
ended June 30, 1995, compared to 5.70% for the three months ended June 30,
1994. For the six months ended June 30, 1995, and June 30, 1994, the net
interest spread was 5.81% and 5.56%, respectively.
Interest income from earning assets increased due to an increase in the
yield on earning assets and a greater volume of average earning assets.
Interest and fee income from loans increased from $19.6 million for the six
months ended June 30, 1994, to $24.7 million for the six months ended June 30,
1995, an increase of $5.0 million, or 25.63%. Interest income from investment
securities increased from $4.7 million for the six months ended June 30, 1994,
to $6.7 million for the six months ended June 30, 1995, an increase of $2.0
million, or 44.26%. Interest on average earning assets increased from $24.4
million for the six months ended June 30, 1994 to $31.4 million for the six
months ended June 30, 1995, an increase of $7.0 million, or 28.89%.
Interest expense increased from $5.0 million for the six months ended
June 30, 1994, to $7.7 million for the six months ended June 30, 1995. The
increase in interest expense resulted from an increase in average deposits of
$84.1 million, or 13.68%, and an increase in the cost of deposits. Average
interest bearing deposits increased by $37.8 million, or 45.0% of the total
increase in average deposits. The cost of average interest bearing deposits
increased from 2.44% for the six months ended June 30, 1994, to 3.04% for the
six months ended June 30, 1995. Demand deposits averaged $261.1 million, or
37.4% of total deposits during the six months ended June 30, 1995, versus an
average of $214.9 million, or 35.0% of total deposits during the same period
last year. As a result, increases in interest earning assets were funded by a
greater percentage of demand deposits, resulting in a lesser increase in the
cost of funds in relation to the increases in the yield on earning assets.
The yield on earning assets increased from 8.02% to 9.06% for the six months
ended June 30, 1994 and 1995, respectively, an increase of 104 basis points.
For the same periods, the cost of interest bearing liabilities was 2.46% and
3.25%, an increase of 79 basis points. As the increase in the yield on
earning assets was greater than the increase in the cost of interest bearing
liabilities, the net interest spread increased from 5.56% for the six months
ended June 30, 1994 to 5.81% for the six months ended June 30, 1995.
Page 8
Table 1 shows the average balances of assets, liabilities, and
stockholders' equity and the related interest income, expense, and rates for
the six month periods ended June 30, 1995 and 1994. Rates for taxpreferenced
investments are shown on a taxable equivalent basis using a 34.0% tax rate.
TABLE 1 - Distribution of Average Assets, Liabilities, and Stockholders'
Equity; Interest Rates and Interest Differentials
(dollars in thousands)
Six-month periods ended June 30,
1995 1994
---------------------- ----------------------
Average Average
ASSETS Balance Interest Rate Balance Interest Rate
---------------------- ----------------------
Investment Securities
Taxable $ 209,186 6,512 6.23% $159,997 4,480 5.60%
Tax preferenced (1) 8,163 202 6.93% 7,171 174 6.82%
Federal Funds Sold & Interest-
bearing deposits with other
financial institutions 1,668 48 5.76% 6,072 96 3.16%
Net Loans (2) (3) 476,647 24,672 10.35% 436,323 19,638 9.00%
----------------------- ---------------------
Total Earnings Assets 695,664 31,434 9.06% 609,563 24,38 8.02%
Total Non-earning Assets 110,152 82,647
------- -------
Total Assets $ 805,816 $692,210
======= =======
LIABILITIES AND STOCKHOLDERS'EQUITY
Demand Deposits $ 261,145 $214,891
Savings Deposits (4) 306,794 3,455 2.25% 303,293 3,259 2.15%
Time Deposits 130,468 3,186 4.88% 96,158 1,615 3.36%
----------------------- ---------------------
Total Deposits 698,407 6,641 1.90% 614,342 4,874 1.59%
----------------------- ---------------------
Other Borrowings 35,903 1,046 5.83% 11,212 168 3.00%
----------------------- ---------------------
Total Interest-Bearing
Liabilities 473,165 7,687 3.25% 410,663 5,042 2.46%
Other Liabilities 5,527 6,653
------- -------
Stockholders' Equity 65,979 60,003
------- -------
Total Liabilities and
Stockholders' Equity $ 805,816 $692,210
======= =======
Net interest spread 5.81% 5.56%
Net interest margin 6.85% 6.37%
(1) Yields are calculated on a taxable equivalent basis.
(2) Loan fees are included in total interest income as follows: 1995, $1,108;
1994, $1,159.
(3) Nonperforming loans are included in net loans as follows: 1995, $25,968;
1994, $17,414.
(4) Includes interest-bearing demand and money market accounts.
Page 9
Table 2 summarizes the changes in interest income and interest expense based
on changes in average asset and liability balances (volume) and changes in
average rates (rate). For each category of earning assets and interestbearing
liabilities, information is provided with respect to changes attributable to
(1) changes in volume (change in volume multiplied by initial rate), (2)
changes in rate (change in rate multiplied by initial volume) and (3) changes
in rate/volume (change in rate multiplied by change in volume).
TABLE 2 - Rate and Volume Analysis for Changes in Interest Income, Interest
Expense and Net Interest Income
(amounts in thousands)
Comparison of six-month period
ended June 30, 1995 and 1994
Increase (decrease) in interest income or expense
due to changes in
--------------------------------------
Rate/
Volume Rate Volume Total
--------------------------------------
Interest Income:
Taxable investment securities $ 1,377 $ 501 $ 154 $ 2,032
Tax preferenced securities 25 3 0 28
Fed funds sold & interest bearing
deposits with other institutions (70) 78 (56) (48)
Loans 1,815 2,947 272 5,034
--------------------------------------
Total earnings assets 3,147 3,529 370 7,046
--------------------------------------
Interest Expense:
Savings deposits 38 156 2 196
Time deposits 576 733 262 1,571
Other borrowings 370 159 349 878
--------------------------------------
Total interest-bearing liabilities 984 1,048 613 2,645
--------------------------------------
Net Interest Income $ 2,163 $2,481 $ (243) $ 4,401
======================================
Page 10
The net interest spread and the net interest margin are largely
affected by the Company's ability to reprice assets and liabilities as
interest rates change. At June 30, 1995, the Bank's 90 days or less
maturity/repricing gap was a negative $57.4 million as compared to a negative
$34.4 million at December 31, 1994. Generally, a negative gap produces a
higher net interest margin and net interest spread when rates fall and a
lower net interest margin and net interest spread when rates rise. However,
as interest rates for different asset and liability products offered by the
Bank respond differently to changes in interest rate environment, gap
analysis is only a general indicator of interest rate sensitivity.
Credit Loss Experience
The Company maintains an allowance for potential credit losses that is
increased by a provision for credit losses charged against operating results
and recoveries on loans previously charged off, and reduced by actual loan
losses charged to the allowance. The provision for credit losses was
$1,575,000 for the six months ended June 30, 1995, compared to a provision of
$150,000 for the six months ended June 30, 1994. Loans charged to the
allowance, net of recoveries totaled $2,166,000 for the six months ended June
30, 1995, compared to $201,000 for the same period last year. At June 30,
1995, the allowance for credit losses totaled $8.9 million, or 1.87% of total
loans, compared to an allowance of $9.9 million, or 2.06% of total loans, at
June 30, 1994. Nonaccrual loans have declined from $12.6 million at December
31, 1994 to $10.4 million at June 30, 1995, a decrease of $2.2 million or
17.8%. Table 6 presents nonperforming assets (nonaccrual loans, loans 90 days
or more past due, restructured loans, and other real estate owned) as of
December 31, 1994 and June 30, 1995. The Company has adopted the methods
prescribed by Financial Accounting Standard 114 for calculating the fair
value of specific loans determined for which the eventual collection
of all principal and interest is impaired.
While management believes that the allowance was adequate at June 30,
1995 to absorb losses from any known or inherent risks in the portfolio, no
assurance can be given that economic conditions which adversely affect the
Company's service areas or other circumstances will not be reflected in
increased provisions or credit losses in the future. Table 3 shows
comparative information on net credit losses, provisions for credit losses,
and the allowance for credit losses for the periods indicated.
Page 11
TABLE 3 - Summary of Credit Loss Experience Six-months
(amounts in thousands) ended June 30,
1995 1994
----------------------
Amount of Total Loans at End of Period $ 475,993 $ 482,396
========= =========
Average Total Loans Outstanding $ 485,766 $ 444,935
========= =========
Allowance for Credit Losses at Beginning of Period $ 9,471 $ 8,849
Loans Charged-Off:
Real Estate Loans 2,107 0
Commercial and Industrial 121 167
Consumer Loans 20 70
--------- ---------
Total Loans Charged-Off 2,248 237
--------- ---------
Recoveries:
Real Estate Loans 0 0
Commercial and Industrial 66 23
Consumer Loans 16 13
--------- ---------
Total Loans Recovered 82 36
--------- ---------
Net Loans Charged-Off 2,166 201
--------- ---------
Provision Charged to Operating Expense 1,575 150
--------- ---------
Adjustment Incident to Mergers 0 1,125
--------- ---------
Allowance for Credit Losses at End of Period $ 8,880 $ 9,923
========= =========
Net Loans Charged-Off to Average Total Loans* 0.89% 0.09%
Net Loans Charged-Off to Total Loans at End of Period* 0.91% 0.08%
Allowance for Credit Losses to Average Total Loans 1.83% 2.23%
Allowance for Credit Lossess to Total Loans at End of
Period 1.87% 2.06%
Net Loans Charged-Off to allowance for Credit Losses* 48.78% 4.05%
Net Loans Charged-Off to Provision for Credit Losses 137.52% 134.00%
* Net Loan Charge-Off amounts are annualized.
Other Operating Income
Other operating income includes service charges on deposit accounts,
gain on sale of securities, gross revenue from Community Trust Deed Services,
the Company's non-bank subsidiary, and other revenues not derived from
interest on earning assets. Other operating income, excluding gains on sales
of securities and OREO, for the six months ended June 30, 1995 was $4.3 million,
compared to $3.2 million for the same period last year. Fees from merchant
bankcard services and sublease income contributed to the increase in Other
income. Other operating income for the three months ended June 30, 1994
included a loss on the sale of securities of $128,000.
Page 12
Other Operating Expenses
Other operating expenses increased from $14.7 million for the six months
ended June 30, 1994 to $17.6 million for the six months ended June 30, 1995.
Other operating expenses for 1994 included $550,000 provision for possible
losses on other real estate owned (OREO). A $250,000 provision was made for
possible losses on other real estate owned during the first six months of
1995. Such allowances reduce the possibility that the Company will
experience additional losses on the ultimate disposition of the properties.
However, a further decline in prices in southern California real estate may
cause the Company to increase its valuation allowance in the future. Note 1
of the financial statements included in the Company's 1994 annual report
describes the Company's accounting for OREO. Excluding provisions for possible
losses on OREO, total other operating expenses for the three months ended June
30, 1995 and 1994 were $17,351,000 and $14,123,000, respectively, an increase
of $3,228,000, or 22.86%.
As a result of the acquisitions of Western Industrial National Bank on
June 24, 1994 and Pioneer Bank on July 8, 1994, the Bank has increased the
number of branches by three to nineteen resulting in an increase in operating
expenses. Salaries and employee benefits totaled $8,295,000, for the six
months ended June 30,1995, an increase of $965,000, or 13.17% compared to
$7,330,000 for the same period last year as a result of a general increase in
wages and the acquisitions. The Bank also expanded its merchant bankcard
services and created a new international banking department during the first
quarter of 1995. As a percent of average assets, other operating expenses
have increased from 4.24% for the six months ended June 30, 1994 to 4.37% for
the six months ended June 30, 1995. As a percent of total revenue, other
operating expenses have declined from 53.2% to 49.2% for the same periods,
respectively.
BALANCE SHEET ANALYSIS
At June 30, 1995 total assets were $812.7 million, representing a
decrease of $23.4 million or 2.80% from total assets of $836.1 million at
December 31, 1994. Total deposits of $706.0 million at June 30, 1995,
decreased $56.6 million, or 7.42%, from $762.6 million at December 31,
1994. Net loans decreased $17.5 million, or 3.61%, from $484.6 million at
December 31, 1994 to $467.1 million at June 30, 1995.
Investment Securities and Debt Securities Available-for-Sale
In May 1992, the Financial Accounting Standards Board adopted Statement
of Financial Accounting Standards No. 115, "Accounting for Certain Investments
and Debt and Equity Securities" (SFAS 115"). The Company adopted SFAS 115 in
the first quarter of 1994. Under the new rules, securities "available for sale"
are carried at their market values and changes in the securities' market
values, net of taxes, are recorded to equity capital. At June 30, 1995, the
Company's unrealized losses on securities-available-for sale totaled $1.4
million. Net unrealized losses at June 30, 1995 totaled $846,000. At
December 31, 1994, net unrealized losses on securities available for sale
totaled $6.6 million, a decrease in unrealized losses of $5.8 million, or
87.23% between the two periods. Note 1 to the financial statements in the
Company's 1994 Annual Report discusses its current accounting policy.
Page 13
Table 4 sets forth investment securities held-to-maturity
and available-for-sale, at June 30, 1995 and December 31, 1994.
Table 4 - Composition of Securities Portfolio
(amounts in thousands)
June 30, 1995
Amortized Market Net Yield
Cost Value Unrealized
Gain/(Loss)
U.S. Treasury securities
Available for Sale $ 42,637 $ 42,919 $ 282 5.84%
FHLMC, FNMA CMO's, REMIC's
and mortgage-backed
pass-through securities
Available for Sale 115,077 113,734 (1,343) 5.89%
Held to Maturity 7,906 8,194 288 5.71%
Other Government Agency
Securities
Available for Sale 38,679 38,869 190 6.58%
GNMA mortgage-backed
pass-through securities
Held to Maturity 1,620 1,731 111 9.22%
Tax-exempt Municipal
Securities
Held to Maturity 9,381 9,381 0 5.00%
Other securities
Available for Sale 1,591 1,591 0 N/A
Held to Maturity 822 822 0 7.23%
---------------------------------------------
$ 217,713 $ 217,241 $ (472) 5.94%
=============================================
Page 14
December 31,1994
Amortized Market Net Yield
Cost Value Unrealized
Gain/(Loss)
U.S. Treasury securities
Available for Sale $ 59,294 $ 58,125 $ (1,169) 6.19%
FHLMC, FNMA CMO's, REMIC's
and mortgage-backed
pass-through securities
Available for Sale 113,404 104,520 (8,884) 5.75%
Held to Maturity 8,385 7,997 (388) 5.72%
Other Government Agency
Securities
Available for Sale 10,633 10,078 (555) 4.67%
GNMA mortgage-backed
pass-through securities
Held to Maturity 1,787 1,838 51 9.09%
Tax-exempt Municipal
Securities
Held to Maturity 8,214 7,606 (608) 4.95%
Other securities
Available for Sale 525 525 0 N/A
Held to Maturity 632 632 0 7.52%
----------------------------------------------
$202,874 $191,321 $ (11,553) 5.27%
==============================================
Loan Composition and Nonperforming Assets
Table 5 sets forth the distribution of the loan portfolio by type as
of the dates indicated (dollar amounts in thousands):
Table 5 - Distribution of Loan Portfolio by Type
June 30, December 31,
1995 1994
Commercial and Industrial (1) $236,879 $262,494
Real Estate:
Construction 22,621 26,302
Mortgage 132,759 116,077
Consumer 16,780 15,553
Lease finance receivables 21,774 23,246
Agribusiness 47,675 52,920
-------- ------------
Gross Loans $478,488 $496,592
Less:
Allowance for credit losses 8,880 9,471
Deferred net loan fees 2,495 2,503
-------- ------------
Net loans $467,113 $484,618
======== ============
(1) Includes $151.8 million and $173.7 million of loans for which the
Company holds real property as collateral at June 30, 1995 and December
31, 1994, respectively.
Page 15
As set forth in Table 6, nonperforming assets (nonaccrual loans, loans 90
days or more past due, restructured loans, and other real estate owned)
totaled $38.8 million, or 4.77% of total assets, at June 30, 1995. This
compares to $31.4 million, or 3.76% of total assets, at December 31, 1994, an
increase of $7.4 million or 23.4 % between the two periods. Although
management believes that nonperforming loans are generally well secured and
that potential losses are reflected in the allowance for credit losses, there
can be no assurance that the continued deterioration in economic conditions or
collateral values will not result in future credit losses.
Table 6 - Nonperforming Assets
June 30, 1995 December 31, 1994
Nonaccrual loans $10,364 $12,613
Loans past due 90 days or
more and still accruing interest 0 -0-
Restructured loans 15,604 8,954
Other real estate owned (OREO), net 12,828 9,860
------------- ----------------
Total nonperforming assets $38,796 $31,427
Percentage of nonperforming
assets to total loans outstanding & OREO 7.94% 6.24%
Percentage of nonperforming
assets to total assets 4.77% 3.76%
At June 30, 1995, nonaccrual loans were $10.4 million, down from $12.6
million at December 31, 1994. The majority of nonaccrual loans were
collateralized by real property at June 30, 1995. The estimated ratio of the
outstanding loan balances to the fair values of related collateral
(loan-tovalue ratio) for nonaccrual loans at that date ranged from
approximately 25% to 90%. Resturctured loans have increased from $8.9 million
at December 31, 1994 to $15.6 million at June 30,1995. The Bank has allocated
specific reserves to provide for any potential loss on these loans.
Management cannot, however, predict the extent to which the current economic
environment may persist or worsen or the full impact such environment may
have on the Company's loan portfolio.
Page 16
Deposits and Other Borrowings
Total deposits decreased to $706.0 million at June 30, 1995, from $762.6
million at December 31, 1994, a decrease of $56.6 million, or 7.42%. Total
deposits at December 31, 1994, included approximately $40.0 million in short
term demand deposits which were subsequently withdrawn. For the six months
ended June 30, 1995, noninterest-bearing deposits averaged 37.39% of total
deposits, compared to 34.98% for the six month period last year.
Noninterest-bearing deposits were $271.4 million and $327.8 million at June
30, 1995 and December 31, 1994, respectively. Savings deposits averaged
43.93% of total deposits during the first six months of 1995 compared to
49.37% for the first six months of 1994. Savings deposits (money market,
savings and interest-bearing checking) decreased $19.7 million during the
first six months of 1995. Savings deposits were $297.8 million at June 30,
1995 compared to $317.4 million at December 31, 1994. Time deposits increased
by $19.5 million during the first six months of 1995. For the six months
ended June 30, 1995, time deposits averaged 18.68% of total deposits, up from
15.65% during the same period in 1994.
Liquidity
The 1994 annual report describes the Company's principal sources of
liquidity, liquidity management objectives and liquidity measurements.
There are several accepted methods of measuring liquidity. Since the
balance between loans and deposits is integral to liquidity, the Company
monitors its loan-todeposit ratio (gross loans divided by total deposits) as
an important part of its liquidity management. In general, the closer this
ratio is to 100%, the more reliant an institution becomes on its illiquid loan
portfolio to absorb fluctuations in deposits. At June 30, 1995, the Company's
loan-to-deposit ratio was 67.42% compared to 64.79% at December 31, 1994.
Another method used to measure liquidity is the liquidity ratio. This
ratio is calculated by dividing the difference between short-term liquid
assets (federal funds sold and investments maturing within one year) and large
liabilities (time deposits over $100,000 maturing within one year, federal
funds purchased, and other borrowed funds) by the sum of loans and long-term
investments. As of June 30, 1995 the ratio was a negative 8.64% as compared
to a negative 4.48% at December 31, 1994. Conceptually, this shows that the
Company was funding a modest 8.64% and 4.48% of its long-term, illiquid assets
with large liabilities at these dates, respectively.
Cash flows provided by operating activities, primarily representing net
interest income, totaled $8.3 million at June 30, 1995 compared to $3.5
million at June 30, 1994. Net cash used in investing activities primarily
purchases of investment securities totaled $591,000 at June 30, 1995.
For the same period last year, net cash used in investing activities
decreased by $47.0 million. Cash flows from financing activities primarily
representing decreases in deposits and short term borrowings totaled
$36.8 million at June 30, 1995 compared to an increase of $46.4 million
at June 30, 1994.
Page 17
Capital Resources
The Company's equity capital was $71.8 million at June 30, 1995. The
primary source of capital for the Company continues to be the retention of
operating earnings. The Company's 1994 annual report (management's
discussion and analysis and note 12 of the accompanying financial
statements) describes the regulatory capital requirements of the Company and
the Bank.
As of December 31, 1994, the Bank and the Company were required to meet
the risk-based capital standards set by the respective regulatory authorities.
The risk-based capital standards require the achievement of a minimum ratio of
total capital to risk-weighted assets of 8.0% (of which at least 4.0% must be
Tier 1 capital). In addition, the regulatory institutions require the highest
rated institutions to maintain a minimum leverage ratio of 3.0% as of December
31, 1994. At June 30, 1995, the Bank and the Company met the minimum risk-
based capital ratio and leverage ratio requirements.
Table 7 below presents the Company's and the Bank's risk-based
and leverage capital ratios as of June 30, 1995 and December 31, 1994:
Table 7 - Regulatory Capital Ratios
Required
Minimum June 30,1995 December 31, 1994
Capital Ratios Ratios Company Bank Company Bank
Risk-based
Capital Ratios:
Tier I 4.00% 11.9% 11.5% 10.8% 10.4%
Total 8.00% 13.1% 12.7% 12.0% 11.7%
Leverage Ratio 3.00% 8.0% 7.8% 7.5% 7.3%
Page 18
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
Not Applicable
Item 2 - Changes in Securities
Not Applicable
Item 3 - Defaults upon Senior Securities
Not Applicable
Item 4 - Submission of Matters to a Vote of Security Holders
The Annual Meeting of Shareholders of CVB Financial Corp. was
held May 18, 1995. At the meeting, the following individuals
were elected to serve as the Company's Board of Directors
until the 1996 Annual Meeting of Shareholders and until their
successors are elected and have qualified.
Against or Broker
For Withheld Abstained Non-Votes
George A. Borba 6,311,725 -0- 596,830 -0-
John A. Borba 6,311,268 457 596,830 -0-
Ronald O. Kruse 6,311,725 -0- 596,830 -0-
John J. LoPorto 6,311,725 -0- 596,830 -0-
Charles M. Magistro 6,311,725 -0- 596,830 -0-
John Vander Schaaf 6,311,459 266 596,830 -0-
D. Linn Wiley 6,311,360 365 596,830 -0-
The appointment of Deloitte & Touche LLP as independent public
accountants of the Company for the year ended December 31, 1995 was
ratified at the 1995 annual meeting of shareholders by the
following:
6,883,758 shares voted for
110 shares voted against
24,687 shares abstained
-0- broker non-votes
Item 5 - Other Information
Not Applicable
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
Not Applicable
Page 19
Exhibit Index
Exhibit No. Description Page
27 Financial Data Schedule 22
Page 20
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 11, 1995 /s/ Robert J. Schurheck
Robert J. Schurheck
Chief Financial Officer
Page 21