May 13, 1994
Transmitted Via EDGAR
Securities and Exchange Commission
Division of Corporate Finance
450 Fifth Street, N.W.
Washington, D.C. 20549
RE: CVB Financial Corp. - Form 10-Q
Commission File No. 1-10394
Gentlemen:
On behalf of CVB Financial Corp. (the "Company"), pursuant to Section 13
of the Securities Exchange Act of 1934, as amended (the "1934 Act"),
we are submitting the Company's Quarterly Report on Form 10-Q.
A conforming paper copy of this filing is also being filed with the
Commission herewith pursuant to Rule 901(d) of Regulation S-T. Please
acknowledge receipt of the conforming paper copy by stamping the
enclosed copy of this letter with your "RECEIVED" stamp and returning
it to our office in the enclosed envelope.
Very truly yours,
/s/Robert. J. Schurheck
Robert J. Schurheck
<PAGE>
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 March 31, 1994
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to _____
For Quarter Ended March 31, 1994 Commission File Number: 1-10394
CVB FINANCIAL CORP.
(Exact name of registrant as specified in its charter)
California 95-3629339
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
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: 7,293,682 outstanding as of
May 6, 1994
This Form 10-Q contains 18 pages.
PAGE 1
<PAGE>
<TABLE>
CVB FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
dollar amounts in thousands
<CAPTION>
March 31, December 31,
1994 1993
<S> (unaudited)
ASSETS
Investment securities held-to-maturity <C> <C>
(market values of $9,915 and 9,506) $ 9,911 $ 9,154
Investment securities available-for-sale
(market values of $167,541 and $141,378) 167,541 140,365
Federal funds sold and interest-bearing
deposits with other financial institutions 8,099 15,497
Loans and lease finance receivables, net 429,871 442,084
------------- -------------
Total earning assets 615,422 607,100
Cash and due from banks 51,843 45,356
Premises and equipment, net 9,621 9,066
Other real estate owned, net 9,862 9,768
Goodwill 2,024 2,037
Other assets 11,289 14,081
------------- -------------
$ 700,061 $ 687,408
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Noninterest-bearing $ 220,716 $ 221,553
Interest-bearing 408,324 374,404
------------- -------------
629,040 595,957
Demand note issued to US Treasury 6,444 14,205
Long-term capitalized lease 508 512
Other liabilities 3,943 16,777
------------- -------------
639,935 627,451
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
7,283,682 and 7,274,582) 20,683 20,619
Retained earnings 40,972 39,338
Net unrealized gains(losses) on investment
securities available-for-sale (1,529) 0
------------- -------------
60,126 59,957
$ 700,061 $ 687,408
============= =============
</TABLE>
See accompanying notes to the consolidated financial statements.
PAGE 2
<PAGE>
<TABLE>
CVB FINANCIAL CORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(unaudited)
dollar amounts in thousands, except per share
<CAPTION>
For the
Three Months
Ended March 31,
1994 1993
<S> <C> <C>
Interest income:
Loans, including fees $ 9,591 $ 8,578
Investment securities:
Taxable 2,092 2,388
Tax-advantaged 72 46
------------ ------------
2,164 2,434
Federal funds sold and interest bearing
deposits with other financial institutions 85 51
------------ ------------
11,840 11,063
Interest expense:
Deposits 2,345 2,554
Other borrowings 71 70
------------ ------------
2,416 2,624
------------ ------------
Net interest income 9,424 8,439
Provision for credit losses 50 420
------------ ------------
Net interest income after
provision for credit losses 9,374 8,019
Other operating income:
Service charges on deposit accounts 1,248 1,252
(Losses) Gains on sale of investment securities (128) 574
Gains on sale of other real estate owned 5 0
Other 328 323
------------ ------------
1,453 2,149
Other operating expenses:
Salaries and employee benefits 3,576 3,436
Deposit insurance premiums 312 284
Occupancy 596 496
Equipment 458 328
Provision for losses on other real estate owned 200 725
Other 1,958 1,510
------------ ------------
7,100 6,779
Earnings before income taxes 3,727 3,389
Provision for income taxes 1,506 1,218
------------ ------------
Net earnings $ 2,221 $ 2,171
============ ============
Earnings per common share $ 0.29 $ 0.29
Cash dividends per common share $ 0.08 $ 0.07
</TABLE>
See accompanying notes to the consolidated financial statements.
PAGE 3
<PAGE>
<TABLE>
CVB FINANCIAL CORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
dollar amounts in thousands
<CAPTION>
For the Three
Months
Ended March 31,
1994 1993
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Interest received $ 10,813 $ 10,569
Service charges and other fees received 1,586 1,575
Interest paid (2,246) (2,535)
Cash paid to suppliers and employees (8,070) (6,075)
Income taxes paid (1,301) (1,657)
--------------- ---------------
782 1,877
--------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from the sale of investment securities 53,170 7,278
Proceeds from the maturity of investment securities 9,126 21,100
Purchase of investment securities (93,134) (32,232)
Net (increase) decrease in loans 10,176 (23,112)
Loan origination fees received 684 726
Gain on sale of other real estate owned 5 0
Proceeds from sale of premises and equipment 18 4
Purchase of premises and equipment (915) (284)
Payment for purchase of Fontana First National Bank 0 (5,043)
Other investing activities (5,617) (4,525)
--------------- ---------------
(26,487) (36,088)
--------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net decrease in transaction deposits 17,571 (3,507)
Net increase in time deposits 15,512 23,706
Net decrease in short-term borrowings (7,765) (5,242)
Dividends paid (588) (526)
Exercise of stock options 64 3
--------------- ---------------
24,794 14,434
--------------- ---------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (911) (19,777)
CASH AND CASH EQUIVALENTS, beginning of year 60,853 71,229
--------------- ---------------
CASH AND CASH EQUIVALENTS, March 31 $ 59,942 $ 51,452
=============== ===============
PAGE 4
<PAGE>
For the Three Months
Ended March 31,
1994 1993
<C> <C>
RECONCILIATION OF NET EARNINGS TO NET CASH PROVIDED
BY OPERATING ACTIVITIES:
Net earnings $ 2,221 $ 2,171
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Loss (Gain) on sale of investment securities 128 (574)
Amortization of premiums on investment securities 175 238
Provision for loan and OREO losses 250 1145
Accretion of deferred loan fees and costs (612) (366)
Loan origination costs capitalized (633) (423)
Depreciation and amortization 337 259
Change in accrued interest receivable (590) (366)
Change in accrued interest payable 170 90
Change in other assets and liabilities (664) (297)
--------------- ---------------
(1,439) (294)
--------------- ---------------
$ 782 $ 1,877
=============== ===============
Supplemental Schedule of Noncash Investing and
Financing Activities
Purchase of Fontana First National Bank:
Cash and cash equivalents acquired $ (8,235)
Fair value of other assets acquired (18,622)
Fair value of liabilities assumed 23,708
Goodwill (1,894)
---------------
Cash paid for purchase of Fontana First National Bank $ (5,043)
===============
</TABLE>
See accompanying notes to the consolidated financial statements.
PAGE 5
<PAGE>
CVB FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF THE REGISTRANT
For the Three months ended March 31, 1994 and 1993
1. Summary of Significant Accounting Policies.
See note 1 of the Notes to Consolidated Financial Statements in CVB
Financial Corp.'s 1993 Annual Report. Goodwill resulting from purchase
accounting treatment of acquired banks is amortized straight line over 15
years.
2. Certain reclassifications have been made in the 1993 financial information
to conform to the presentation used in 1994.
3. In the ordinary course of business, CVB Financial Corp. enters into
commitments to extend credit to its customers. These commitments are not
reflected in the accompanying consolidated financial statements. As of
March 31, 1994, the Company had entered into commitments with certain
customers amounting to $59.9 million compared to $61.5 million at December
31, 1993. Letters of credit at March 31, 1994 and December 31, 1993 were
$6.0 million, and $7.2 million, respectively.
4. The interim consolidated financial statements are unaudited and reflect all
adjustments and reclassifications which are, in the opinion of the
management, necessary for a fair statement of the results of operations and
financial condition for the interim period. All adjustments and
reclassifications are of a normal and recurring nature. Results for the
period ending March 31, 1994 are not necessarily indicative of results
which may be expected for any other interim period or for the year as a
whole.
5. The actual number of shares outstanding at March 31, 1994 was 7,283,682.
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 7,542,147 at
March 31, 1994, and 7,531,944 at March 31, 1993. All 1993 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 15, 1993 and paid January 17, 1994.
6. Supplemenal cash flow information: during the quarter ended March 31,
1994, and March 31, 1993, loans amounting to $1.6 million and $2.5
million, respectively, were transferred to Other Real Estate Owned
("OREO") as a result of foreclosure on the collateralizing real
properties. OREO sold during the three-monh period, with financing
substantially provided by the Bank, amounted to $1.2 million and
$1.6 million at March 31, 1994, and March 31, 1993, respectively.
PAGE 6
<PAGE>
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 1993 annual report for a
more complete understanding of CVB Financial Corp. and its operations.
Throughout this discussion, "Company" will refer to CVB Financial Corp. and
its subsidiaries as a consolidated entity. "CVB" will refer to CVB Financial
Corp. as the unconsolidated parent company, and "Bank" will refer to Chino
Valley Bank.
The Company adopted SFAS No. 115 as of January 1, 1994. Under the new
accounting rules securities which the Company has classified as available for
sale are reported at current market value with an adjustment net of taxes to
shareholders' equity. The adoption resulted in a $1.5 million decrease in
stockholder's equity net of $1.1 million of applicable income taxes. (See
Investment Securities and Debt Securities Available-for-Sale)
On November 16, 1993, the Company executed a definitive agreement and plan
of reorganization with Western Industrial National Bank. The agreement provides
for the Company to acquire Western Industrial National Bank through a merger of
the Bank and Western Industrial National Bank. Consummation of the acquisition
is subject to regulatory approval, and it is expected to be finalized during the
second quarter of 1994.
RESULTS OF OPERATIONS
The Company reported net earnings of $2,221,000, or $0.29 per share, for
the quarter ended March 31, 1994. This compares to $2,171,000, or $0.29 per
share, for the same period in 1993. Net earnings increased $50,000 or 2.3%
between the two periods. The annualized return on average assets during the
quarter ended March 31, 1994 was 1.30% and the annualized return on average
equity was 14.80%, representing a decrease from the quarter ended March 31, 1993
which showed a return on average assets of 1.46% (annualized) and a return on
average equity of 16.43% (annualized).
Pre-tax operating earnings, which exclude the impact of gains or
losses on sale of securities and OREO and provisions for losses on OREO, were
$4,099,000 during the quarter ended March 31, 1994, an increase of 139,000 or
3.50% from $3,960,000 for the first quarter of 1993. This increase is
attributable primarily to an increase in interest income and a decrease in
interest expense. The net interest income improved primarily as a result of a
36.08% increase in average noninterest-bearing demand deposits.
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 the 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 funds.
Increases in average loans outstanding and average noninterest-
PAGE 7
<PAGE>
bearing deposits resulted in an increase in net interest income. Net interest
income was $9,424,000 for the quarter ended March 31, 1994 as compared to
$8,439,000 for the same period last year, an increase of $985,000 or 11.67%
between the two periods.
A continuing shift in the deposit mix towards noninterest-bearing
accounts combined with a decline in interest rates in general resulted in a
decrease in the Company's cost of funds. Noninterest-bearing deposits averaged
34.10% of total deposits during the quarter ended March 31, 1994 versus 28.72%
during the same period of 1993. The cost of funds decreased from 2.72% at
March 31, 1993, to 2.37% at March 31, 1994.
The yield on earning assets decreased from 8.42% to 7.85% at March
31, 1993 and 1994, respectively. As the decrease in the yield on earning assets
was greater than the decrease in the cost of interest bearing liabilities, the
net interest spread decreased from 5.70% for the quarter ended March 31, 1993,
to 5.49% for the quarter ended March 31, 1994. The decrease in the net
interest spread contributed to a decrease in the net interest margin. The net
interest margin also declined as a result of a decline in the yield on earning
assets. The net interest margin was 6.25% for the three months ended March 31,
1994, compared to 6.42% during the same period for 1993.
Table 1 shows the average balances of assets, liabilities, and
stockholders' equity and the related interest income, expense, and rates for the
three-month periods ended March 31, 1994 and 1993. Rates for tax-preferenced
loans and investments are shown on a taxable equivalent basis using a 34.25% tax
rate. Table 2 summarizes the changes in interest income and interest expense
based on changes in average asset and liability balances (volume) and changes in
average rates (rate). For each category of earning assets and interest-bearing
liabilities, information is provided with respect to changes attributable to (1)
changes in volume (change in volume multiplied by initial rate), (2) changes in
rate (change in rate multiplied by initial volume) and (3) changes in
rate/volume (change in rate multiplied by change in volume).
PAGE 8
<PAGE>
<TABLE>
TABLE 1 - Distribution of Average Assets, Liabilities, and Stockholders' Equity; Interest Rates and
Interest Differentials
(amounts in thousands)
<CAPTION>
Three-month periods ended March 31,
1994 1993
Average Average
ASSETS Balance Interest Rate Balance Interest Rate
<S> <C> <C> <C> <C> <C> <C>
Investment Securities
Taxable $ 152,934 2,092 5.47% $ 133,079 2,388 7.18%
Tax preferenced<F1> 6,299 72 6.39% 5,957 46 4.36%
Federal Funds Sold & Interest-bearing
deposits with other financial institutions 10,857 85 3.13% 7,680 51 2.66%
Net Loans<F1><F2> 434,392 9,591 8.83% 379,918 8,578 9.03%
------------- --------- --------- ------------- --------- ---------
Total Earnings Assets 604,482 11,840 7.85% 526,634 11,063 8.42%
Total Non-earning Assets 79,442 67,877
------------- -------------
Total Assets $ 683,924 $ 594,511
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Demand Deposits $ 206,214 $ 151,541
Savings Deposits<F4> 302,514 1,551 2.05% 280,264 1,671 2.38%
Time Deposits 96,077 794 3.31% 95,756 883 3.69%
------------- --------- --------- ------------- --------- ---------
Total Deposits 604,805 2,345 1.55% 527,561 2,554 1.94%
------------ --------- --------- ------------- --------- ---------
Other Borrowings 10,025 71 2.83% 10,487 70 2.67%
------------ --------- --------- ------------- --------- ---------
Interest-Bearing Liabilities 408,616 2,416 2.37% 386,507 2,624 2.72%
------------ --------- --------- ------------- --------- ---------
Other Liabilities 9,052 3,601
Stockholders' Equity 60,042 52,862
------------ -------------
Total Liabilities and
Stockholders' Equity $ 683,924 $ 594,511
============= =============
Net interest spread 5.49% 5.70%
Net interest margin 6.25% 6.42%
<FN>
<F3> Yields are calculated on a taxable equivalent basis.
<F2>Loan fees are included in total interest income as follows: 1994, $663; 1993, $661.
<F3> Nonperforming loans are included in net loans as follows: 1994, $14,269; 1993, $12,304.
<F4> Includes interest-bearing demand and money market accounts.
</TABLE>
PAGE 9
<PAGE>
<TABLE>
TABLE 2 - Rate and Volume Analysis for Changes in Interest Income, Interest Expense
and Net Interest Income
(amounts in thousands)
<CAPTION>
Comparison of three-month period
ended March 31, 1994 and 1993
Increase (decrease) in interest income or
expense due to changes in
------------------------------------------
Rate/
Volume Rate Volume Total
<S> <C> <C> <C> <C>
Interest Income:
Taxable investment securities 356 (567) (85) (296)
Tax preferenced securities 3 22 1 26
Fed funds 21 9 4 34
Loans 1,230 (190) (27) 1,013
--------- --------- --------- ---------
Total earnings assets 1,610 (726) (107) 777
--------- --------- --------- ---------
Interest Expense:
Savings deposits 133 (234) (19) (120)
Time deposits 3 (92) 0 (89)
Other borrowings (3) 5 (1) 1
--------- --------- --------- ---------
Total interest-bearing liabiliites 133 (321) (20) (208)
--------- --------- --------- ---------
Net Interest Income 1,477 (405) (87) 985
========= ========= ========= =========
</TABLE>
PAGE 10
<PAGE>
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 March 31, 1994, the Bank's 90 days or less maturity/repricing
gap was a negative $20.3 million as compared to a positive $25.9 million at
December 31, 1993. 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 loan losses was $50,000 for the
three months ended March 31, 1994, compared to a provision of $420,000 for the
three months ended March 31, 1993. Loans charged to the allowance, net of
recoveries totaled $140,000 for the quarter ended March 31, 1994, compared to
$180,000 for the same period last year. At March 31, 1994, the allowance for
credit losses totaled $8.78 million, or 2.00% of total loans, compared to $8.85
million, or 1.96% of total loans, at December 31, 1993. The decrease in the
amount charged to the allowance for loans losses reflects the decline in the
size of the loan portfolio, and the decrease in nonaccrual loans from year end.
Gross loans declined $12.2 million since December 31, 1993 while nonaccrual
loans declined $2.9 million since year end.
While management believes that the allowance was adequate at March 31,
1994 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.
PAGE 11
<PAGE>
TABLE 3 - Summary of Credit Loss Experience
(amounts in thousands)
<TABLE>
<CAPTION>
Three-months
ended March
31, 1994 1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C> <C>
Amount of Total Loans at End of Period $ 438,655 $ 450,933 $ 381,123 $ 370,837 $ 367,849 $ 347,593
========== ========= ========= ========== ========= =========
Average Total Loans Outstanding $ 442,739 $ 416,984 $ 368,452 $ 362,457 $ 361,241 $ 291,476
========== ========= ========= ========== ========= =========
Allowance for Credit Losses at Beginning of Period $ 8,849 $ 6,461 $ 5,263 $ 5,092 $ 5,037 $ 3,713
Loans Charged-Off:
Real Estate Loans 0 530 120 154 7 0
Commercial and Industrial 144 334 452 282 548 142
Consumer Loans 8 154 115 42 85 105
---------- --------- --------- ---------- --------- ---------
Total Loans Charged-Off 152 1,018 687 478 640 247
---------- --------- --------- ---------- --------- ---------
Recoveries:
Real Estate Loans 0 0 0 0 0 0
Commercial and Industrial 9 57 94 15 101 98
Consumer Loans 3 42 19 30 49 59
---------- --------- --------- ---------- --------- ---------
Total Loans Recovered 12 99 113 45 150 157
---------- --------- --------- ---------- --------- ---------
Net Loans Charged-Off 140 919 574 433 490 90
---------- --------- --------- ---------- --------- ---------
Provision Charged to Operating Expense 50 1,720 1,772 604 545 1,414
---------- --------- --------- ---------- --------- ---------
Adjustment Incident to Mergers 24 1,587
Allowance for Credit Losses at End of period $ 8,783 $ 8,849 $ 6,461 $ 5,263 $ 5,092 $ 5,037
========== ========= ========= ========== ========= =========
Net Loans Charged-Off to Average Total Loans* 0.13% 0.22% 0.16% 0.12% 0.14% 0.03%
Net Loans Charged-Off to Total Loans at End of Period* 0.13% 0.20% 0.15% 0.12% 0.13% 0.03%
Allowance for Credit Losses to Average Total Loans 1.98% 2.12% 1.75% 1.45% 1.41% 1.73%
Allowance for Credit Lossess to Total Loans
at the end of the Period 2.00% 1.96% 1.70% 1.42% 1.38% 1.45%
Net Loans Charged-Off to allowance for Credit Losses* 6.38% 10.39% 8.88% 8.23% 9.62% 1.79%
Net Loans Charged-Off to Provision for Credit Losses* 280.00% 53.43% 32.39% 71.69% 89.91% 6.36%
* Net Loan Charge-Off amounts are annualized.
</TABLE>
PAGE 12
<PAGE>
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 quarter ended March 31, 1994 was $1,576,000
compared to $1,575,000 reported for the same quarter of 1993. Other operating
income for the three months ended March 31, 1993 included $574,000 in gains
realized from the sale of securities. For the three months ended March 31,
1994, other operating income includes a loss on the sale of securities of
$128,000.
Other Operating Expenses
Expenses associated with salaries, equipment and promotion were the primary
cause of the increase in other operating expenses. Excluding provisions for
possible losses on other real estate owned ("OREO"), total other operating
expenses for the quarters ended March 31, 1994 and 1993 were $6,900,000 and
$6,054,000, respectively, an increase of $846,000, or 14.0%. An increase in
other operating expenses for the three months ended March 31, 1994 compared with
the same period last year was primarily related to the acquisitions of Fontana
First National Bank and Mid City Bank. Fontana First National Bank was acquired
March 8, 1993 and Mid City Bank was acquired October 21, 1993. Since both
acquisitions added assets to the Company, as a percentage of average assets,
other operating expenses remained at 4.0% during both three month periods.
The Company provided $200,000 during the quarter ended March 31, 1994 to
increase valuation allowances against OREO. This compares to $725,000 provided
during the same period last year. 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 1993 annual report
describes the Company's accounting for OREO.
PAGE 13
<PAGE>
BALANCE SHEET ANALYSIS
At March 31, 1994 total assets were $700.1 million, representing an
increase of $12.7 million or 1.84% from total assets of $687.4 million at
December 31, 1993. Total deposits of $629.0 million at March 31, 1994,
increased $33.1 million, or 5.55%, from $596.0 million at December 31, 1993.
Net loans declined $12.2 million, or 2.76%, from $442.1 million at December 31,
1993 to $429.9 million at March 31, 1994.
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. The Company recorded a decrease in
equity capital of $1.5 million net of $1.1 million of applicable income taxes
during the first quarter of 1994. Note 1 to the financial statements in the
Company's 1993 Annual Report discusses its current accounting policy.
Table 4 sets forth investment securities held-to-maturity
and available-for-sale, at March 31, 1994 and December 31, 1993.
<TABLE>
Table 4 - Composition of Securities Portfolio
(amounts in thousands)
<CAPTION>
March 31, 1994 December 31, 1993
Net Net
Amortized Market Unrealized Amortized Market Unrealized
Cost Value Gain/(Loss) Yield Cost Value Gain/(Loss Yield
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury securities (available for sale) 41,751 42,339 588 6.37% 32,923 34,262 1,339 7.70%
FHLMC, FNMA CMO's, REMIC's 117,724 114,804 (2,920) 5.47% 92,442 92,111 (331) 5.46%
and mortgage-backed pass-through securities
(available for sale)
Government Agency Fund 0 0 0 0.00% 15,000 15,005 5 4.50%
(available for sale)
Other Government Agency Securities 10,668 10,397 (271) 4.66% 0 0 0 0.00%
(available for sale)
GNMA mortgage-backed pass-through 2,326 2,519 193 8.29% 2,750 2,995 245 8.29%
securities (held to maturity)
Tax-exempt Municipal Securities 7,005 6,816 (189) 4.84% 5,857 5,964 107 4.90%
(held to maturity)
Other (held to maturity) 580 580 0 7.56% 547 547 0 7.81%
-------- --------- -------- ------------ --------- --------- ------ -----
180,054 177,455 (2,599) 5.65% 149,519 150,884 1,365 5.90%
======== ========= ======== ============ ========= ========= ====== =====
Note: "Amortized Cost" exludes mark-to-market adjustment required under SFAS 115.
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</TABLE>
Loans Composition and Nonperforming Assets
Table 5 sets forth the distribution of the loan portfolio by type as
of the dates indicated (amounts in thousands):
Table 5 - Distribution of Loan Portfolio by Type
March 31, December 31,
1994 1993
Commercial and Industrial (1) $ 302,861 $282,177
Real Estate:
Construction 34,092 56,358
Mortgage 70,392 79,929
Consumer, net of discount 11,433 12,517
Lease finance receivables 21,502 21,556
--------- --------
Gross Loans $ 440,280 $452,537
Less:
Allowance for credit losses 8,784 8,849
Deferred net loan fees 1,625 1,604
--------- --------
Net loans $ 429,871 $442,084
========= ========
(1) Includes $200.3 and $188.5 million of loans for which the Company
holds real property as collateral at March 31, 1994 and December 31, 1993,
respectively.
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 $24.1 million, or 3.35% of total assets, at March 31, 1994. This
compares to $23.0 million, or 3.35% of total assets, at December 31, 1993, an
increase of $1.1 million or 4.8% between the two periods. Nonperforming
assets were $21.3 million or 3.50% of total assets at March 31, 1993. 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
March 31,1994 December 31, 1993
Nonaccrual loans $ 9,548 $ 12,492
Loans past due 90 days or more
and still accruing interest 1,272 -0-
Restructured loans 3,449 770
Other real estate owned (OREO), net 9,862 9,768
-------- --------
Total nonperforming assets $24,131 $23,030
Percentage of nonperforming assets
to total loans outstanding & OREO 5.38% 5.00%
Percentage of nonperforming
assets to total assets 3.35% 3.35%
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At March 31, 1994, nonaccrual loans were $9.5 million, down from $12.5
million at December 31, 1993. All nonaccrual loans were collateralized by real
property at March 31, 1994. The estimated ratio of the outstanding loan
balances to the fair values of related collateral (loan-to-value ratio) for
nonaccrual loans at that date ranged from approximately 25% to 90%. 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.
Deposits and Other Borrowings
Total deposits increased to $629.0 million at March 31, 1994, from $596.0
million at December 31, 1993, an increase of $33.1 million, or 5.55%. As
indicated by Table 1, the Company's deposit mix continued to shift toward
noninterest-bearing deposits during the first three months of 1994. During the
first three months of 1994, noninterest-bearing deposits averaged 34.1% of total
deposits, compared to 28.7% during the same three month period last year.
Noninterest-bearing deposits were $220.7 million, $221.6 million and $158.9
million at March 31, 1994, December 31, 1993 and March 31, 1993, respectively.
Savings deposits (money market, savings and interest-bearing checking)
increased $18.4 million during the first three months of 1994. Savings
deposits averaged 50.0% of total deposits during the first three months of
1994 as compared to 53.1% during the first three months of 1993. Time
deposits increased by $15.5 million during the first three months of 1994.
During the first three months of 1994, time deposits averaged 15.9% of
total deposits, down from 18.2% during the first three months of 1993.
Other borrowings declined $7.8 million as the U.S. Treasury
maintained lower tax deposit balances at the Bank.
Liquidity
The 1993 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-to-deposit 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 March 31,1994, the Company's
loan-to-deposit ratio was 69.7% as compared to 75.7% at December 31, 1993.
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 March 31,1994 the ratio was a negative 6.6% as compared to a
negative 2.7% at December 31, 1993. Conceptually, this shows that the Company
was funding a modest 6.6% and 2.7% of its long-term, illiquid assets with large
liabilities at these dates respectively.
Neither the Company nor CVB had commitments for capital expenditures
at March 31, 1994 or December 31, 1993 which were material to an assessment of
their liquidity.
In November 16, 1993, the Company executed a definitive agreement and plan
of reorganization with Western Industrial National Bank. The agreement provides
for the Company to acquire Western Industrial National Bank through a merger of
PAGE 16
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the Bank and Western Industrial National Bank. The Bank will be the continuing
operation. The definitive agreement provides that the shareholders of Western
Industrial National Bank will receive $13,450,000, plus accrued net earnings for
the period from December 31, 1992, until the acquisition is consummated. The
transaction is subject to shareholder and regulatory approval. The Company
intends to fund the purchase price with existing cash and does not believe that
the transaction will have a material impact on its liquidity or capital
adequacy.
Capital Resources
The Company's equity capital was $60.1 million at March 31, 1994, up from
$59.9 million at December 31, 1993. The primary source of capital for the
Company continues to be the retention of operating earnings. The Company's 1993
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.
Table 7 below presents the Company's and the Bank's risk-based and
leverage capital ratios as of March 31, 1994 and December 31, 1993:
Table 7 - Regulatory Capital Ratios
Required
Minimum March 31, 1994 December 31, 1993
Capital Ratios Ratios Company Bank Company Bank
Risk-based
Capital Ratios:
Tier I 4.00% 12.2% 12.1% 11.8% 11.7%
Total 8.00% 13.5% 13.4% 13.1% 13.0%
Leverage Ratio 3.00% 8.5% 8.4% 8.4% 8.3%
PAGE 17
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PART II - OTHER INFORMATION
Item 1 -Legal Proceedings
Not Applicable
Item 2 -Changes in Securities
Not Applicable
Item 3 -Defaults upon Senior Securities
Not Applicable
Item 4 -Submission of Matters to a Vote of Security
Holders Not Applicable
Item 5 -Other Information
Not Applicable
Item 6 -Exhibits and Reports on Form 8-K
Not Applicable
PAGE 18
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CVB FINANCIAL CORP.
(Registrant)
Date: May 10, 1994
/s/ Robert J. Schurheck
Robert J. Schurheck
Chief Financial Officer
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