FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended December 31, 1994
or
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from N/A to N/A
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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 N. Haven Avenue, Suite 350
Ontario, California 91764
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (909) 980-4030
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
Common Stock American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
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
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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K.( )
As of March 15, 1995, the aggregate market value of the common
stock held by non-affiliates of the registrant was approximately
$111,928,446.
Number of shares of common stock of the registrant outstanding as of
March 15, 1995: 8,066,915.
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The following documents are incorporated by reference herein:
Definitive Proxy Statement for the Annual Meeting Part III of Form 10-K
of Stockholders which will be filed within 120
days of the fiscal year ended December 31, 1994
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PART I
ITEM 1. BUSINESS
CVB FINANCIAL CORP.
CVB Financial Corp. (referred to herein on an unconsolidated basis as
"CVB" and on a consolidated basis as the "Company") is a bank holding
company incorporated in California on April 27, 1981 and registered under
the Bank Holding Company Act of 1956, as amended. The Company commenced
business on December 30, 1981 when, pursuant to a reorganization, it
acquired all of the voting stock of Chino Valley Bank (the "Bank"), which
is the Company's principal asset. The Company has one other operating
subsidiary, Community Trust Deed Services ("Community").
The Company's principal business is to serve as a holding
company for the Bank and Community and for other banking or
banking related subsidiaries which the Company may establish or
acquire. The Company has not engaged in any other activities to date. As a
legal entity separate and distinct from its subsidiaries, CVB's principal
source of funds is and will continue to be dividends paid by and other
funds advanced from primarily the Bank. Legal limitations are imposed on
the amount of dividends that may be paid and loans that may be made by the
Bank to CVB. See "Item 1. Business - Supervision and Regulation -
Restrictions on Transfers of Funds to CVB by the Bank." At December 31,
1994, the Company had $836.1 million in total consolidated assets, $484.6
million in total consolidated net loans and $762.6 million in total
consolidated deposits.
The principal executive offices of the Company and the Bank
are located at 701 North Haven Avenue, Suite 350, Ontario,
California.
CHINO VALLEY BANK
The Bank was incorporated under the laws of the State of
California on December 26, 1973, was licensed by the California
State Banking Department and commenced operations as a California
state chartered bank on August 9, 1974. The Bank's deposit
accounts are insured under the Federal Deposit Insurance Act up
to applicable limits. Like many other state chartered banks in
California, the Bank is not a member of the Federal Reserve
System. At December 31, 1994, the Bank had $833.9 million in
assets, $484.6 million in net loans and $763.5 million in
deposits.
The Bank currently has 19 banking offices located in San
Bernardino County, Riverside County and the eastern portion of
Los Angeles County in Southern California. Of the 19 offices,
the Bank opened seven as de novo branches and acquired the other
twelve in acquisition transactions. Since 1990, the Bank has added seven
offices, two in 1990, two in 1993 and three in 1994.
On March 5, 1993, the Company completed its acquisition of
Fontana First National Bank, a one-branch bank located in
Fontana, California ("Fontana"), for an aggregate cash purchase
price of $5.0 million. As of December 31, 1992, Fontana had
total assets of $26.3 million, net loans of $18.5 million,
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deposits of $22.8 million and shareholders' equity of $3.4
million. For the year ended December 31, 1992, Fontana reported
net income of $74,000.
On October 21, 1993, the Bank entered into an agreement with
the Federal Deposit Insurance Corporation (the "FDIC") for the purchase of
certain assets and the assumption of deposits and other liabilities of the
failed Mid City Bank. The agreement provided the Bank with the ability to
re-price the deposits assumed within specific time frames, regardless of
the original terms of the deposit. Net of the deposits that were re-priced
and allowed to withdraw, the Bank assumed approximately $20.0 million in
deposits, $2.0 million in investments, and $18.0 million in loans.
On June 24, 1994, the Company completed its acquisition of Western
Industrial National Bank, ("WIN") a two-branch bank located in El Monte,
California for an aggregate cash purchase price of $14.8 million. The
Company assumed approximately $43.5 million in deposits and acquired
approximately $34.1 million in loans.
On July 8, 1994, the Bank entered into an Insured Deposit Purchase and
Assumption Agreement with the FDIC for the purchase of Pioneer Bank,
Fullerton, California ("Pioneer"). The Bank assumed an aggregate of
approximately $52.7 million in deposits and certain assets of Pioneer Bank
that included approximately $12.3 million in loans and $8.2 million in
investments and federal funds sold.
Through its network of banking offices, the Bank emphasizes
personalized service combined with offering a full range of
banking services to businesses, professionals and individuals
located in the service areas of its offices. Although the Bank
focuses the marketing of its services to small- and medium-sized
businesses, a full range of retail banking services are made
available to the local consumer market.
The Bank offers a wide range of deposit instruments. These
include checking, savings, money market and time certificates of
deposit for both business and personal accounts. The Bank also
serves as a federal tax depository for its business customers.
The Bank also provides a full complement of lending
products, including commercial, installment and real estate
loans. Commercial products include lines of credit and other
working capital financing, accounts receivable lending and
letters of credit. Financing products for individuals include
automobile financing, lines of credit and home improvement and
home equity lines of credit. Real estate loans include mortgage
and construction loans.
The Bank also offers a wide range of specialized services
designed for the needs of its commercial accounts. These
services include cash management systems for monitoring cash
flow, a credit card program for merchants, courier pick-up and
delivery, payroll services and electronic funds transfers by way
of domestic and international wires and automated clearing house.
The Bank also makes available investment products to customers,
including a full array of fixed income vehicles and a program
pursuant to which it places its customers' funds in federally
insured time certificates of deposit of other institutions. The
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Bank does not operate a trust department; however, it makes
arrangements with a correspondent institution to offer trust
services to its customers on request.
COMMUNITY TRUST DEED SERVICES
The Company owns 100% of the voting stock of Community,
which has one office. Community's services, which are provided to
the Bank and non-affiliated persons, include preparing and filing
notices of default, reconveyances and related documents and
acting as a trustee under deeds of trust. At present, the
assets, revenues and earnings of Community are not material in
amount as compared to the Bank.
COMPETITION
The banking and financial services business in California generally,
and in the Bank's market areas specifically, is highly competitive. The
increasingly competitive environment is a result primarily of changes in
regulation, changes in technology and product delivery systems, and the
accelerating pace of consolidation among financial services providers. The
Bank competes for loans and deposits and customers for financial services
with other commercial banks, savings and loan associations, securities and
brokerage companies, mortgage companies, insurance companies, finance
companies, money market funds, credit unions, and other nonbank financial
service providers. Many of these competitors are much larger in total
assets and capitalization, have greater access to capital markets, and
offer a broader array of financial services than the Bank. In order to
compete with the other financial services providers, the Bank principally
relies upon local promotional activities, personal relationships
established by officers, directors and employees with its customers, and
specialized services tailored to meet its customers' needs. In those
instances where the Bank is unable to accommodate a customer's needs, the
Bank will arrange for those services to be provided by its correspondents.
The Bank has 19 offices located in San Bernardino, Riverside, northern
Orange and eastern Los Angeles counties. Neither the deposits nor loans of
the offices of the Bank exceed 1% of the aggregate deposits or loans of all
financial services companies located in the counties in which the Bank
operates.
EMPLOYEES
At December 31, 1994, the Company employed 345 persons -- 217 on a
full-time and 128 on a part-time basis. The Company believes that its
employee relations are satisfactory.
EFFECT OF GOVERNMENTAL POLICIES AND RECENT LEGISLATION
Banking is a business that depends on rate differentials. In general,
the difference between the interest rate paid by the Bank on its deposits
and its other borrowings and the interest rate received by the Bank on
loans extended to its customers and securities held in the Bank's portfolio
comprise the major portion of the Company's earnings. These rates are
highly sensitive to many factors that are beyond the control of the Bank.
Accordingly, the earnings and growth of the Company are subject to the
influence of domestic and foreign economic conditions, including inflation,
recession and unemployment.
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The commercial banking business is not only affected by general
economic conditions but is also influenced by the monetary and fiscal
policies of the federal government and the policies of regulatory agencies,
particularly the Federal Reserve Board. The Federal Reserve Board
implements national monetary policies (with objectives such as curbing
inflation and combating recession) by its open-market operations in United
States Government securities, by adjusting the required level of reserves
for financial institutions subject to its reserve requirements and by
varying the discount rates applicable to borrowings by depository
institutions. The actions of the Federal Reserve Board in these areas
influence the growth of bank loans, investments and deposits and also
affect interest rates charged on loans and paid on deposits. The nature
and impact of any future changes in monetary policies cannot be predicted.
From time to time, legislation is enacted which has the effect of
increasing the cost of doing business, limiting or expanding permissible
activities or affecting the competitive balance between banks and other
financial institutions. Proposals to change the laws and regulations
governing the operations and taxation of banks, bank holding companies and
other financial institutions are frequently made in Congress, in the
California legislature and before various bank regulatory and other
professional agencies. For example, legislation was recently introduced in
Congress that would repeal the current statutory restrictions on
affiliations between commercial banks and securities firms. Under the
proposed legislation, bank holding companies would be allowed to control
both a commercial bank and a securities affiliate, which could engage in
the full range of investment banking activities, including corporate
underwriting. The likelihood of any major legislative changes and the
impact such changes might have on the Company are impossible to predict.
See "Item 1. Business - Supervision and Regulation."
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SUPERVISION AND REGULATION
Bank holding companies and banks are extensively regulated under both
federal and state law. Set forth below is a summary description of certain
laws which relate to the regulation of the Company and the Bank. The
description does not purport to be complete and is qualified in its
entirety by reference to the applicable laws and regulations.
THE COMPANY
The Company, as a registered bank holding company, is subject to
regulation under the Bank Holding Company Act of 1956, as amended (the
"BHCA"). The Company is required to file with the Federal Reserve Board
quarterly and annual reports and such additional information as the Federal
Reserve Board may require pursuant to the BHCA. The Federal Reserve Board
may conduct examinations of the Company and its subsidiaries.
The Federal Reserve Board may require that the Company terminate an
activity or terminate control of or liquidate or divest certain
subsidiaries or affiliates when the Federal Reserve Board believes the
activity or the control of the subsidiary or affiliate constitutes a
significant risk to the financial safety, soundness or stability of any of
its banking subsidiaries. The Federal Reserve Board also has the authority
to regulate provisions of certain bank holding company debt, including
authority to impose interest ceilings and reserve requirements on such
debt. Under certain circumstances, the Company must file written notice
and obtain approval from the Federal Reserve Board prior to purchasing or
redeeming its equity securities.
Under the BHCA and regulations adopted by the Federal Reserve Board, a
bank holding company and its nonbanking subsidiaries are prohibited from
requiring certain tie-in arrangements in connection with any extension of
credit, lease or sale of property or furnishing of services. Further, the
Company is required by the Federal Reserve Board to maintain certain levels
of capital. See "Item 1. Business - Supervision and Regulation - Capital
Standards."
The Company is required to obtain the prior approval of the Federal
Reserve Board for the acquisition of more than 5% of the outstanding shares
of any class of voting securities or substantially all of the assets of any
bank or bank holding company. Prior approval of the Federal Reserve Board
is also required for the merger or consolidation of the Company and another
bank holding company.
The Company is prohibited by the BHCA, except in certain statutorily
prescribed instances, from acquiring direct or indirect ownership or
control of more than 5% of the outstanding voting shares of any company
that is not a bank or bank holding company and from engaging directly or
indirectly in activities other than those of banking, managing or
controlling banks or furnishing services to its subsidiaries. However, the
Company, subject to the prior approval of the Federal Reserve Board, may
engage in any, or acquire shares of companies engaged in, activities that
are deemed by the Federal Reserve Board to be so closely related to banking
or managing or controlling banks as to be a proper incident thereto. In
making any such determination, the Federal Reserve Board is required to
consider whether the performance of such activities by the Company or an
affiliate can reasonably be expected to produce benefits to the public,
such as greater convenience, increased competition or gains in efficiency,
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that outweigh possible adverse effects, such as undue concentration of
resources, decreased or unfair competition, conflicts of interest or
unsound banking practices. The Federal Reserve Board is also empowered to
differentiate between activities commenced de novo and activities commenced
by acquisition, in whole or in part, of a going concern.
Under Federal Reserve Board regulations, a bank holding company is
required to serve as a source of financial and managerial strength to its
subsidiary banks and may not conduct its operations in an unsafe or unsound
manner. In addition, it is the Federal Reserve Board's policy that in
serving as a source of strength to its subsidiary banks, a bank holding
company should stand ready to use available resources to provide adequate
capital funds to its subsidiary banks during periods of financial stress or
adversity and should maintain the financial flexibility and capital-raising
capacity to obtain additional resources for assisting its subsidiary banks.
A bank holding company's failure to meet its obligations to serve as a
source of strength to its subsidiary banks will generally be considered by
the Federal Reserve Board to be an unsafe and unsound banking practice or a
violation of the Federal Reserve Board's regulations or both. This
doctrine has become known as the "source of strength" doctrine. Although
the United States Court of Appeals for the Fifth Circuit found the Federal
Reserve Board's source of strength doctrine invalid in 1990, stating that
the Federal Reserve Board had no authority to assert the doctrine under the
BHCA, the decision, which is not binding on federal courts outside the
Fifth Circuit, was recently reversed by the United States Supreme Court on
procedural grounds. The validity of the source of strength doctrine is
likely to continue to be the subject of litigation until definitively
resolved by the courts or by Congress.
The Company is also a bank holding company within the meaning of
Section 3700 of the California Financial Code. As such, the Company and
its subsidiaries are subject to examination by, and may be required to file
reports with, the California State Banking Department.
Finally, the Company is subject to the periodic reporting requirements
of the Securities Exchange Act of 1934, as amended, including but not
limited to, filing annual, quarterly and other current reports with the
Securities and Exchange Commission.
THE BANK
The Bank, as a California state chartered bank, is subject to primary
supervision, periodic examination and regulation by the California
Superintendent of Banks ("Superintendent") and the FDIC. If, as a result
of an examination of a bank, the FDIC should determine that the financial
condition, capital resources, asset quality, earnings prospects,
management, liquidity or other aspects of the bank's operations are
unsatisfactory or that the bank or its management is violating or has
violated any law or regulation, various remedies are available to the FDIC.
Such remedies include the power to enjoin "unsafe or unsound" practices, to
require affirmative action to correct any conditions resulting from any
violation or practice, to issue an administrative order that can be
judicially enforced, to direct an increase in capital, to restrict the
growth of the bank, to assess civil monetary penalties, to remove officers
and directors and ultimately to terminate a bank's deposit insurance, which
for a California state-chartered bank would result in a revocation of the
bank's charter. The Superintendent has many of the same remedial powers.
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The Bank has never been the subject of any such actions by the FDIC or the
Superintendent.
The deposits of the Bank are insured by the FDIC in the manner and to
the extent provided by law. For this protection, the Bank pays a
semiannual statutory assessment. See "Item 1. Business - Supervision and
Regulation - Premiums for Deposit Insurance." Although the Bank is not a
member of the Federal Reserve System, it is nevertheless subject to certain
regulations of the Federal Reserve Board.
Various requirements and restrictions under the laws of the State of
California and the United States affect the operations of the Bank. State
and federal statutes and regulations relate to many aspects of the Bank's
operations, including reserves against deposits, interest rates payable on
deposits, loans, investments, mergers and acquisitions, borrowings,
dividends, locations of branch offices and capital requirements. Further,
the Bank is required to maintain certain levels of capital. See "Item 1.
Business - Supervision and Regulation - Capital Standards."
RESTRICTIONS ON TRANSFERS OF FUNDS TO CVB BY THE BANK
CVB is a legal entity separate and distinct from the Bank. The
Company's ability to pay cash dividends is limited by state law.
There are statutory and regulatory limitations on the amount of
dividends which may be paid to CVB by the Bank. California law restricts
the amount available for cash dividends by state chartered banks to the
lesser of its retained earnings or its net income for its last three fiscal
years (less any distributions to shareholders made during such period).
Notwithstanding this restriction, a bank may, with the prior approval of
the Superintendent, pay a cash dividend in an amount not exceeding the
greater of the retained earnings of the bank, net income for such bank's
last preceding fiscal year, and the net income of the bank for its current
fiscal year.
The FDIC also has authority to prohibit the Bank from engaging in
activities that, in the FDIC's opinion, constitute unsafe or unsound
practices in conducting its business. It is possible, depending upon the
financial condition of the bank in question and other factors, that the
FDIC could assert that the payment of dividends or other payments might,
under some circumstances, be such an unsafe or unsound practice. Further,
the FDIC and the Federal Reserve Board have established guidelines with
respect to the maintenance of appropriate levels of capital by banks or
bank holding companies under their jurisdiction. Compliance with the
standards set forth in such guidelines and the restrictions that are or may
be imposed under the prompt corrective action provisions of federal law
could limit the amount of dividends which the Bank or the Company may pay.
See "Item 1. Business - Supervision and Regulation - Prompt Corrective
Regulatory Action and Other Enforcement Mechanisms" and - "Capital
Standards" for a discussion of these additional restrictions on capital
distributions.
At present, substantially all of CVB's revenues, including funds
available for the payment of dividends and other operating expenses, is,
and will continue to be, primarily dividends paid by the Bank. At
December 31, 1994, the Bank had $3.9 million in retained earnings available
for the payment of cash dividends.
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The Bank is subject to certain restrictions imposed by federal law on
any extensions of credit to, or the issuance of a guarantee or letter of
credit on behalf of, CVB or other affiliates, the purchase of or
investments in stock or other securities thereof, the taking of such
securities as collateral for loans and the purchase of assets of CVB or
other affiliates. Such restrictions prevent CVB and such other affiliates
from borrowing from the Bank unless the loans are secured by marketable
obligations of designated amounts. Further, such secured loans and
investments by the Bank to or in CVB or to or in any other affiliate is
limited to 10% of the Bank's capital and surplus (as defined by federal
regulations) and such secured loans and investments are limited, in the
aggregate, to 20% of the Bank's capital and surplus (as defined by federal
regulations). California law also imposes certain restrictions with
respect to transactions involving CVB and other controlling persons of the
Bank. Additional restrictions on transactions with affiliates may be
imposed on the Bank under the prompt corrective action provisions of
federal law. See "Item 1. Business - Supervision and Regulation - Prompt
Corrective Regulatory Action and Other Enforcement Mechanisms."
CAPITAL STANDARDS
The Federal Reserve Board and the FDIC have adopted risk-based minimum
capital guidelines intended to provide a measure of capital that reflects
the degree of risk associated with a banking organization's operations for
both transactions reported on the balance sheet as assets and transactions,
such as letters of credit and recourse arrangements, which are recorded as
off balance sheet items. Under these guidelines, nominal dollar amounts of
assets and credit equivalent amounts of off balance sheet items are
multiplied by one of several risk adjustment percentages, which range from
0% for assets with low credit risk, such as certain U.S. Treasury
securities, to 100% for assets with relatively high credit risk, such as
commercial loans.
A banking organization's risk-based capital ratios are obtained by
dividing its qualifying capital by its total risk adjusted assets. The
regulators measure risk-adjusted assets, which includes off balance sheet
items, against both total qualifying capital (the sum of Tier 1 capital and
limited amounts of Tier 2 capital) and Tier 1 capital. Tier 1 Capital
consists primarily of common stock, retained earnings, noncumulative
perpetual preferred stock (cumulative perpetual preferred stock for bank
holding companies) and minority interests in certain subsidiaries, less
most intangible assets. Tier 2 capital may consist of a limited amount of
the allowance for possible loan and lease losses, cumulative preferred
stock, long term preferred stock, eligible term subordinated debt and
certain other instruments with some characteristics of equity. The
inclusion of elements of Tier 2 capital is subject to certain other
requirements and limitations of the federal banking agencies. The federal
banking agencies require a minimum ratio of qualifying total capital to
risk-adjusted assets of 8% and a minimum ratio of Tier 1 capital to risk-
adjusted assets of 4%.
In addition to the risked-based guidelines, federal banking regulators
require banking organizations to maintain a minimum amount of Tier 1
capital to total assets, referred to as the leverage ratio. For a banking
organization rated in the highest of the five categories used by regulators
to rate banking organizations, the minimum leverage ratio of Tier 1 capital
to total assets is 3%. For all banking organizations not rated in the
highest category, the minimum leverage ratio must be at least 100 to 200
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basis points above the 3% minimum, or 4% to 5%. In addition to these
uniform risk-based capital guidelines and leverage ratios that apply across
the industry, the regulators have the discretion to set individual minimum
capital requirements for specific institutions at rates significantly above
the minimum guidelines and ratios.
The federal banking regulators have issued a proposed rule to take
account of interest rate risk in calculating risk-based capital. The
proposed rule includes a supervisory model for taking account of interest
rate risk. Under that model, institutions would report their assets,
liabilities and off balance sheet positions in time bands based upon their
remaining maturities. The federal banking agencies would then calculate a
net risk weighted interest rate exposure. If that interest rate risk
exposure was in excess of a certain threshold (1% of assets), the
institution could be required to hold additional capital proportionate to
that excess risk. Alternatively, the agencies have proposed making interest
rate risk exposure a subjective factor in considering capital adequacy.
Exposures would be measured in terms of the change in the present value of
an institution's assets minus the change in the present value of its
liabilities and off-balance sheet positions for an assumed 100 basis point
parallel shift in market interest rates. However, the federal banking
agencies have proposed to let banks use their own internal measurement of
interest rate risk if it is declared adequate by examiners.
Effective January 17, 1995, the federal banking agencies issued a
final rule relating to capital standards and the risks arising from the
concentration of credit and nontraditional activities. Institutions which
have significant amounts of their assets concentrated in high risk loans or
nontraditional banking activities and who fail to adequately manage these
risks, will be required to set aside capital in excess of the regulatory
minimums. The federal banking agencies have not imposed any quantitative
assessment for determining when these risks are significant, but have
identified these issues as important factors they will review in assessing
an individual bank's capital adequacy.
In December 1993, the federal banking agencies issued an interagency
policy statement on the allowance for loan and lease losses which, among
other things, establishes certain benchmark ratios of loan loss reserves to
classified assets. The benchmark set forth by such policy statement is the
sum of (a) assets classified loss; (b) 50 percent of assets classified
doubtful; (c) 15 percent of assets classified substandard; and (d)
estimated credit losses on other assets over the upcoming 12 months.
Federally supervised banks and savings associations are currently
required to report deferred tax assets in accordance with SFAS No. 109.
See "Item 1. Business - Supervision and Regulation -- Accounting Changes."
The federal banking agencies recently issued final rules governing banks
and bank holding companies, which become effective April 1, 1995, which
limit the amount of deferred tax assets that are allowable in computing an
institutions regulatory capital. The standard has been in effect on an
interim basis since March 1993. Deferred tax assets that can be realized
for taxes paid in prior carryback years and from future reversals of
existing taxable temporary differences are generally not limited. Deferred
tax assets that can only be realized through future taxable earnings are
limited for regulatory capital purposes to the lesser of (i) the amount
that can be realized within one year of the quarter-end report date, or
(ii) 10% of Tier 1 capital. The amount of any deferred tax in excess of
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this limit would be excluded from Tier 1 capital and total assets and
regulatory capital calculations.
Future changes in regulations or practices could further reduce the
amount of capital recognized for purposes of capital adequacy. Such a
change could affect the ability of the Bank to grow and could restrict the
amount of profits, if any, available for the payment of dividends.
As of December 31, 1994, the Company and the Bank had total risk-based
capital ratios of 12.0% and 11.7%, Tier 1 risk-based capital ratios of
10.8% and 10.4% and leverage ratios of 7.5% and 7.3%, respectively.
PROMPT CORRECTIVE ACTION AND OTHER ENFORCEMENT MECHANISMS
Federal law requires each federal banking agency to take prompt
corrective action to resolve the problems of insured depository
institutions, including but not limited to those that fall below one or
more prescribed minimum capital ratios. The law required each federal
banking agency to promulgate regulations defining the following five
categories in which an insured depository institution will be placed, based
on the level of its capital ratios: well capitalized, adequately
capitalized, undercapitalized, significantly undercapitalized and
critically undercapitalized.
In September 1992, the federal banking agencies issued uniform final
regulations implementing the prompt corrective action provisions of federal
law. An insured depository institution generally will be classified in the
following categories based on capital measures indicated below:
"Well capitalized" "Adequately capitalized"
Total risk-based capital of 10%; Total risk-based capital of 8%;
Tier 1 risk-based capital of 6%; Tier 1 risk-based capital of 4%;
and Leverage ratio of 5%. and Leverage ratio of 4%.
"Undercapitalized" "Significantly undercapitalized"
Total risk-based capital less Total risk-based capital less
than 8%; Tier 1 risk-based capital less than 6%; Tier 1 risk-based
less than 4%; or capital less than 3%; or
Leverage ratio less than 4%. Leverage ratio less than 3%.
"Critically undercapitalized"
Tangible equity to total assets less than 2%.
An institution that, based upon its capital levels, is classified as
"well capitalized," "adequately capitalized" or undercapitalized" may be
treated as though it were in the next lower capital category if the
appropriate federal banking agency, after notice and opportunity for
hearing, determines that an unsafe or unsound condition or an unsafe or
unsound practice warrants such treatment. At each successive lower capital
category, an insured depository institution is subject to more
restrictions. The federal banking agencies, however, may not treat an
institution as "critically undercapitalized" unless its capital ratio
actually warrants such treatment.
The law prohibits insured depository institutions from paying
management fees to any controlling persons or, with certain limited
exceptions, making capital distributions if after such transaction the
institution would be undercapitalized. If an insured depository
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institution is undercapitalized, it will be closely monitored by the
appropriate federal banking agency, subject to asset growth restrictions
and required to obtain prior regulatory approval for acquisitions,
branching and engaging in new lines of business. Any undercapitalized
depository institution must submit an acceptable capital restoration plan
to the appropriate federal banking agency 45 days after becoming
undercapitalized. The appropriate federal banking agency cannot accept a
capital plan unless, among other things, it determines that the plan
(i) specifies the steps the institution will take to become adequately
capitalized, (ii) is based on realistic assumptions and (iii) is likely to
succeed in restoring the depository institution's capital. In addition,
each company controlling an undercapitalized depository institution must
guarantee that the institution will comply with the capital plan until the
depository institution has been adequately capitalized on an average basis
during each of four consecutive calendar quarters and must otherwise
provide adequate assurances of performance. The aggregate liability of
such guarantee is limited to the lesser of (a) an amount equal to 5% of the
depository institution's total assets at the time the institution became
undercapitalized or (b) the amount which is necessary to bring the
institution into compliance with all capital standards applicable to such
institution as of the time the institution fails to comply with its capital
restoration plan. Finally, the appropriate federal banking agency may
impose any of the additional restrictions or sanctions that it may impose
on significantly undercapitalized institutions if it determines that such
action will further the purpose of the prompt correction action provisions.
An insured depository institution that is significantly
undercapitalized, or is undercapitalized and fails to submit, or in a
material respect to implement, an acceptable capital restoration plan, is
subject to additional restrictions and sanctions. These include, among
other things: (i) a forced sale of voting shares to raise capital or, if
grounds exist for appointment of a receiver or conservator, a forced
merger; (ii) restrictions on transactions with affiliates; (iii) further
limitations on interest rates paid on deposits; (iv) further restrictions
on growth or required shrinkage; (v) modification or termination of
specified activities; (vi) replacement of directors or senior executive
officers; (vii) prohibitions on the receipt of deposits from correspondent
institutions; (viii) restrictions on capital distributions by the holding
companies of such institutions; (ix) required divestiture of subsidiaries
by the institution; or (x) other restrictions as determined by the
appropriate federal banking agency. Although the appropriate federal
banking agency has discretion to determine which of the foregoing
restrictions or sanctions it will seek to impose, it is required to force a
sale of voting shares or merger, impose restrictions on affiliate
transactions and impose restrictions on rates paid on deposits unless it
determines that such actions would not further the purpose of the prompt
corrective action provisions. In addition, without the prior written
approval of the appropriate federal banking agency, a significantly
undercapitalized institution may not pay any bonus to its senior executive
officers or provide compensation to any of them at a rate that exceeds such
officer's average rate of base compensation during the 12 calendar months
preceding the month in which the institution became undercapitalized.
Further restrictions and sanctions are required to be imposed on
insured depository institutions that are critically undercapitalized. For
example, a critically undercapitalized institution generally would be
prohibited from engaging in any material transaction other than in the
ordinary course of business without prior regulatory approval and could
13
<PAGE>
not, with certain exceptions, make any payment of principal or interest on
its subordinated debt beginning 60 days after becoming critically
undercapitalized. Most importantly, however, except under limited
circumstances, the appropriate federal banking agency, not later than 90
days after an insured depository institution becomes critically
undercapitalized, is required to appoint a conservator or receiver for the
institution. The board of directors of an insured depository institution
would not be liable to the institution's shareholders or creditors for
consenting in good faith to the appointment of a receiver or conservator or
to an acquisition or merger as required by the regulator.
In addition to measures taken under the prompt corrective action
provisions, commercial banking organizations may be subject to potential
enforcement actions by the federal regulators for unsafe or unsound
practices in conducting their businesses or for violations of any law,
rule, regulation or any condition imposed in writing by the agency or any
written agreement with the agency. See "Item 1. Business - Supervision and
Regulation -- Potential Enforcement Actions."
SAFETY AND SOUNDNESS STANDARDS
On February 2, 1995, the federal banking agencies adopted final safety
and soundness standards for all insured depository institutions. The
standards, which were issued in the form of guidelines rather than
regulations, relate to internal controls, information systems, internal
audit systems, loan underwriting and documentation, compensation and
interest rate exposure. In general, the standards are designed to assist
the federal banking agencies in identifying and addressing problems at
insured depository institutions before capital becomes impaired. If an
institution fails to meet these standards, the appropriate federal banking
agency may require the institution to submit a compliance plan. Failure to
submit a compliance plan may result in enforcement proceedings. Additional
standards on earnings and classified assets are expected to be issued in
the near future.
In December 1992, the federal banking agencies issued final
regulations prescribing uniform guidelines for real estate lending. The
regulations, which became effective on March 19, 1993, require insured
depository institutions to adopt written policies establishing standards,
consistent with such guidelines, for extensions of credit secured by real
estate. The policies must address loan portfolio management, underwriting
standards and loan to value limits that do not exceed the supervisory
limits prescribed by the regulations.
Appraisals for "real estate related financial transactions" must be
conducted by either state certified or state licensed appraisers for
transactions in excess of certain amounts. State certified appraisers are
required for all transactions with a transaction value of $1,000,000 or
more; for all nonresidential transactions valued at $250,000 or more; and
for "complex" 1-4 family residential properties of $250,000 or more. A
state licensed appraiser is required for all other appraisals. However,
appraisals performed in connection with "federally related transactions"
must now comply with the agencies' appraisal standards. Federally related
transactions include the sale, lease, purchase, investment in, or exchange
of, real property or interests in real property, the financing or
refinancing of real property, and the use of real property or interests in
real property as security for a loan or investment, including mortgage-
backed securities.
14
<PAGE>
PREMIUMS FOR DEPOSIT INSURANCE
Federal law has established several mechanisms to increase funds to
protect deposits insured by the Bank Insurance Fund ("BIF") administered by
the FDIC. The FDIC is authorized to borrow up to $30 billion from the
United States Treasury; up to 90% of the fair market value of assets of
institutions acquired by the FDIC as receiver from the Federal Financing
Bank; and from depository institutions that are members of the BIF. Any
borrowings not repaid by asset sales are to be repaid through insurance
premiums assessed to member institutions. Such premiums must be sufficient
to repay any borrowed funds within 15 years and provide insurance fund
reserves of $1.25 for each $100 of insured deposits. The result of these
provisions is that the assessment rate on deposits of BIF members could
increase in the future. The FDIC also has authority to impose special
assessments against insured deposits.
The FDIC has adopted final regulations implementing a risk-based
premium system required by federal law. Under the regulations, which cover
the assessment periods commencing on and after January 1, 1994, insured
depository institutions are required to pay insurance premiums currently
within a range of 23 cents per $100 of deposits to 31 cents per $100 of
deposits depending on their risk classification. On January 31, 1995, the
FDIC issued proposed regulations that would establish a new assessment rate
schedule of 4 cents per $100 of deposits to 31 cents per $100 of deposits
applicable to members of BIF. There can be no assurance that the final
regulations will be adopted as proposed. To determine the risk-based
assessment for each institution, the FDIC will categorize an institution as
well capitalized, adequately capitalized or undercapitalized based on its
capital ratios. A well-capitalized institution is one that has at least a
10% total risk-based capital ratio, a 6% Tier 1 risk-based capital ratio
and a 5% Tier 1 leverage capital ratio. An adequately capitalized
institution will have at least an 8% total risk-based capital ratio, a 4%
Tier 1 risk-based capital ratio and a 4% Tier 1 leverage capital ratio. An
undercapitalized institution will be one that does not meet either of the
above definitions. The FDIC will also assign each institution to one of
three subgroups based upon reviews by the institution's primary federal or
state regulator, statistical analyses of financial statements and other
information relevant to evaluating the risk posed by the institution.
INTERSTATE BANKING AND BRANCHING
On September 29, 1994, the President signed into law the Riegel-Neal
Interstate Banking and Branching Efficiency Act of 1994 (the "Interstate
Act"). Under the Interstate Act, beginning one year after the date of
enactment, a bank holding company that is adequately capitalized and
managed may obtain approval under the BHCA to acquire an existing bank
located in another state without regard to state law. A bank holding
company would not be permitted to make such an acquisition if, upon
consummation, it would control (a) more than 10% of the total amount of
deposits of insured depository institutions in the United States or (b) 30%
or more of the deposits in the state in which the bank is located. A state
may limit the percentage of total deposits that may be held in that state
by any one bank or bank holding company if application of such limitation
does not discriminate against out-of-state banks. An out-of-state bank
holding company may not acquire a state bank in existence for less than a
minimum length of time that may be prescribed by state law except that a
state may not impose more than a five year existence requirement.
15
<PAGE>
The Interstate Act also permits, beginning June 1, 1997, mergers of
insured banks located in different states and conversion of the branches of
the acquired bank into branches of the resulting bank. Each state may
permit such combinations earlier than June 1, 1997, and may adopt
legislation to prohibit interstate mergers after that date in that state or
in other states by that state's banks. The same concentration limits
discussed in the preceding paragraph apply. The Interstate Act also permits
a national or state bank to establish branches in a state other than its
home state if permitted by the laws of that state, subject to the same
requirements and conditions as for a merger transaction.
The Interstate Act is likely to increase competition in the Company's
market areas especially from larger financial institutions and their
holding companies. It is difficult to assess the impact such likely
increased competition will have on the Company's operations.
COMMUNITY REINVESTMENT ACT AND FAIR LENDING DEVELOPMENTS
The Bank is subject to certain fair lending requirements and reporting
obligations involving home mortgage lending operations and Community
Reinvestment Act ("CRA") activities. The CRA generally requires the
federal banking agencies to evaluate the record of a financial institution
in meeting the credit needs of their local communities, including low and
moderate income neighborhoods. In addition to substantial penalties and
corrective measures that may be required for a violation of certain fair
lending laws, the federal banking agencies may take compliance with such
laws and CRA into account when regulating and supervising other activities.
On December 21, 1993, the federal banking agencies issued a proposal to
change the manner in which they measure a bank's compliance with its CRA
obligations, but no final regulation has yet been approved.
On March 8, 1994, the federal Interagency Task Force on Fair Lending
issued a policy statement on discrimination in lending. The policy
statement describes the three methods that federal agencies will use to
prove discrimination: overt evidence of discrimination, evidence of
disparate treatment and evidence of disparate impact.
ACCOUNTING CHANGES
In February 1992, the Financial Accounting Standards Board ("FASB")
issued SFAS No. 109, "Accounting for Income Taxes," which superseded SFAS
No. 96 of the same title. SFAS No. 109, which became effective for fiscal
years beginning after December 31, 1992, employs an asset and liability
approach in accounting for income taxes payable or refundable at the date
of the financial statements as a result of all events that have been
recognized in the financial statements and as measured by the provisions of
enacted tax laws. The Company adopted SFAS No. 109 in 1992, elected not to
restate prior years and has determined that the cumulative effect of the
implementation was immaterial.
In December 1991, the FASB issued SFAS No. 107, "Disclosures about
Fair Value of Financial Instruments," which is effective for fiscal years
ending after December 15, 1992 (December 15, 1995 in the case of entities
with less than $150 million in total assets). SFAS No. 107 requires
financial intermediaries to disclose, either in the body of their financial
statements or in the accompanying notes, the "fair value" of financial
instruments for which it is "practicable to estimate that value." SFAS
16
<PAGE>
No. 107 defines "fair value" as the amount at which a financial instrument
could be exchanged in a current transaction between willing parties, other
than in a forced or liquidation sale. Quoted market prices, if available,
are deemed the best evidence of the fair value of such instruments. Most
deposit and loan instruments issued by financial intermediaries are subject
to SFAS No. 107, and its effect will be to require financial statement
disclosure of the fair value of most of the assets and liabilities of
financial intermediaries such as the Company and the Bank. The disclosure
required by SFAS No. 107 at December 31, 1994 is presented in Note 15 to
the Company's Consolidated Financial Statements. See "Item 8. Financial
Statements and Supplementary Data." Management is unable to predict what
effect, if any, such disclosure requirements could have on the market price
of the common stock of the Company or its ability to raise funds in the
financial markets.
The FASB has issued Statement of Financial Accounting Standards Number
119, "Disclosure about Derivative Financial Instruments and Fair Value
Instruments" ("SFAS No. 119"), which requires improved disclosures about
derivative financial instruments, such as futures, forwards, options,
swaps, and other financial instruments with similar characteristics. SFAS
No. 119 also amends other existing requirements. At December 31, 1994 the
Company did not hold any financial instruments falling under the provisions
of SFAS No. 119.
In May 1993, the FASB issued SFAS No. 114, "Accounting by Creditors
for Impairment of a Loan". SFAS No. 114 prescribes the recognition
criterion for loan impairment and the measurement methods for certain
impaired loans and loans whose terms are modified in troubled debt
restructurings. SFAS No. 114 states that a loan is impaired when it is
probable that a creditor will be unable to collect all principal and
interest amounts due according to the contracted terms of the loan
agreement. A creditor is required to measure impairment by discounting
expected future cash flows at the loan's effective interest rate, or by
reference to an observable market price, or by determining that foreclosure
is probable. SFAS No. 114 also clarifies the existing accounting for in-
substance foreclosures by stating that a collateral-dependent real estate
loan would be reported as real estate owned only if the lender had taken
possession of collateral.
SFAS No. 118 amended SFAS No. 114, to allow a creditor to use existing
methods for recognizing interest income on an impaired loan. To accomplish
that it eliminated the provisions in SFAS No. 114 that described how a
creditor should report income on an impaired loan. SFAS No. 118 did not
change the provisions in SFAS No. 114 that require a creditor to measure
impairment based on the present value of expected future cash flows
discounted at the loan's effective interest rate, or as a practical
expedient, at the observable market price of the loan or the fair value of
the collateral if the loan is collateral dependent. SFAS No. 118 amends
the disclosure requirements in SFAS No. 114 to require information about
the recorded investments in certain impaired loans and about how a creditor
recognizes interest income related to those impaired loans. SFAS No. 114
is effective for financial statements issued for fiscal years beginning
after December 15, 1994. SFAS No. 118 is effective concurrent with the
effective date of SFAS No. 114. The Company has adopted SFAS No. 114 for
the current year, and the Company does not believe it will have a material
effect on the financial condition and results of operation of the Company.
17
<PAGE>
In December 1990, FASB issued SFAS No. 106, "Employers' Accounting for
Post-Retirement Benefits Other Than Pensions" effective for fiscal years
beginning after December 15, 1992. In November 1992, FASB issued Statement
of Financial Standards No. 112, "Employers' Accounting For Post-Employment
Benefits," effective for fiscal years beginning after December 15, 1993.
SFAS No. 106 and SFAS No. 112 focus primarily on post-retirement health
care benefits. The Company does not provide post-retirement benefits.
In May 1993, the FASB issued SFAS No. 115 "Accounting For Certain
Investments in Debt and Equity Securities" addressing the accounting and
reporting for investments in equity securities that have readily
determinable fair values and for all investments in debt securities. These
investments would be classified in three categories and accounted for as
follows: (i) debt and equity securities that the entity has the positive
intent and ability to hold to maturity would be classified as "held to
maturity" and reported at amortized cost; (ii) debt and equity securities
that are held for current resale would be classified as trading securities
and reported at fair value, with unrealized gains and losses included in
operations; and (iii) debt and equity securities not classified as either
securities held to maturity or trading securities would be classified as
securities available for sale, and reported at fair value, with unrealized
gains and losses excluded from operations and reported as a separate
component of shareholders' equity. The statement is effective for
financial statements for calendar year 1994, but may be applied to an
earlier fiscal year for which annual financial statements have not been
issued. The Company adopted SFAS No. 115 effective as of January 1, 1994.
The cumulative effect of the change in accounting was not material.
POTENTIAL ENFORCEMENT ACTIONS
Commercial banking organizations, such as the Bank, and
their institution-affiliated parties, which include the Company,
may be subject to potential enforcement actions by the Federal
Reserve Board, the FDIC and the Superintendent for unsafe or
unsound practices in conducting their businesses or for
violations of any law, rule, regulation or any condition imposed
in writing by the agency or any written agreement with the
agency. Enforcement actions may include the imposition of a
conservator or receiver, the issuance of a cease-and-desist order
that can be judicially enforced, the termination of insurance of
deposits (in the case of the Bank), the imposition of civil money
penalties, the issuance of directives to increase capital, the
issuance of formal and informal agreements, the issuance of
removal and prohibition orders against institution-affiliated
parties and the imposition of restrictions and sanctions under
the prompt corrective action provisions of the FDIC Improvement
Act. Additionally, a holding company's inability to serve as a
source of strength to its subsidiary banking organizations could
serve as an additional basis for a regulatory action against the
holding company. Neither the Company nor the Bank have been
subject to any such enforcement actions.
ITEM 2. PROPERTIES
The principal executive offices of the Company and the Bank
are located at 701 N. Haven Avenue, Suite 350, Ontario, California. The
office of Community is located at 125 East "H" Street, Colton, California.
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<PAGE>
The Bank occupies the premises for fourteen of its offices under
leases expiring at various dates from 1995 through 2014. The Bank owns the
premises for its six other offices.
The Company's total occupancy expense, exclusive of furniture and
equipment expense, for the year ended December 31, 1994, was $3.2 million.
Management believes that its existing facilities are adequate for its
present purposes. However, management currently intends to increase the
Bank's assets over the next several years and anticipates that a
substantial portion of this growth will be accomplished through acquisition
or de novo opening of additional banking offices. For additional
information concerning properties, see Notes 6 and 9 to the Company's
financial statements included in this report. See "Item 8. Financial
Statements and Supplemental Data."
ITEM 3. LEGAL PROCEEDINGS
From time to time the Company and the Bank are party to claims and
legal proceedings arising in the ordinary course of business. After taking
into consideration information furnished by counsel to the Company and the
Bank management believes that the ultimate aggregate liability represented
thereby, if any, will not have a material adverse effect on the Company's
consolidated financial position or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to shareholders during the fourth
quarter of 1994.
ITEM 4(A). EXECUTIVE OFFICERS OF THE REGISTRANT
As of March 15, 1995, the principal executive officers of
the Company and Chino are:
Name Position Age
George A. Borba Chairman of the Board of 62
the Company and the Bank
D. Linn Wiley President and Chief Executive 56
Officer of the Company and the Bank
Vincent T. Breitenberger Executive Vice President/Senior 61
Loan Officer of the Bank
Jay W. Coleman Executive Vice President of the Bank 52
Robert J. Schurheck Chief Financial Officer of 62
the Company and Executive Vice
President and Chief Financial Officer
of the Bank
Other than George A. Borba, who is the brother of John A.
Borba, a director of the Company and the Bank, there is no family
relationship among any of the above-named officers or any of the
Company's directors.
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<PAGE>
Mr. Borba has served as Chairman of the Board of the Company
since its organization in April 1981 and Chairman of the Board of
the Bank since its organization in December 1973. In addition,
Mr. Borba is the owner of George Borba Dairy.
Mr. Wiley has served as President and Chief Executive
Officer of the Company since October 4, 1991. Mr. Wiley joined
the Company and Bank as a director and as President and Chief
Executive Officer designate on August 21, 1991. Prior to that,
Mr. Wiley served as an Executive Vice President of Wells Fargo
Bank from April 1, 1990 to August 20, 1991. From 1988 to
April 1, 1990 Mr. Wiley served as the President and Chief
Administrative Officer of Central Pacific Corporation, and from
1983 to 1990 he was the President and Chief Executive Officer of
American National Bank.
Mr. Breitenberger has served as Executive Vice President of
the Bank since April 1982, and prior to that time was Senior Vice
President of the Bank from November 1980 to March 1982. He has
been the Senior Loan Officer of the Bank since November 1980.
Mr. Coleman assumed the position of Executive Vice President
of the Bank on December 5, 1988. Prior to that he served as
President and Chief Executive Officer of Southland Bank, N.A.
from March 1983 to April 1988.
Mr. Schurheck assumed the position of Chief Financial
Officer of the Company and Executive Vice President/Chief
Financial Officer of the Bank on March 1, 1990. He served as
Senior Vice President of the Bank from September 11, 1989 to
February 28, 1990. Prior to that he served as Senior Vice
President of General Bank from June 1988 to September 1989. From
July 1987 to June 1988 Mr. Schurheck was a self-employed
consultant; from December 1973 to June 1987 he was Senior Vice
President of Operations and Finance of State Bank in Lake Havasu
City, Arizona.
20
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
MARKET FOR THE COMPANY'S COMMON STOCK
Shares of CVB Financial Corp. common stock price increased from an
average price of $11.09 per share for the first quarter of 1994 to an
average per share price of $12.88 for the fourth quarter of 1994. Fears
regarding the recession, weak California real estate prices, and bank
capital levels continued to dominate investors' perceptions of bank stocks
in the region, regardless of the performance of CVB Financial Corp. This
represented a multiple of book value of approximately 1.68. The following
table presents the high and low sales prices for the Company's common stock
during each quarter for the past three years. The share prices and cash
dividend per share amounts presented for all periods in the table below
have been restated as appropriate to give retroactive effect to the ten
percent stock dividends declared during the period. There were
approximately 1,056 shareholders of record as of December 31, 1994.
Three Year Summary of Common Stock Prices
Quarter
Ended High Low Dividends
03/31/92 9.11 6.67 $.060 Cash Dividend
06/30/92 8.07 7.42 $.060 Cash Dividend
09/30/92 7.60 6.95 $.060 Cash Dividend
12/31/92 7.70 6.20 $.060 Cash Dividend
10% Stock Dividend
03/31/93 11.15 7.75 $.066 Cash Dividend
06/30/93 10.38 9.09 $.066 Cash Dividend
09/30/93 12.19 9.92 $.066 Cash Dividend
12/31/93 12.29 10.64 $.066 Cash Dividend
10% Stock Dividend
03/31/94 12.05 10.34 $.073 Cash Dividend
06/30/94 13.18 10.68 $.073 Cash Dividend
09/30/94 14.55 12.84 $.073 Cash Dividend
12/31/94 14.55 12.27 $.073 Cash Dividend
10% Stock Dividend
The Company lists its common stock on the American
Stock Exchange under the symbol "CVB."
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<PAGE>
ITEM. 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
Net Interest Income $ 42,818,669 $ 35,891,367 $ 32,020,207 $ 29,460,946 $ 29,736,722
Provision for Credit Losses 350,000 1,720,000 1,772,109 604,000 545,000
Other Operating Income 7,586,410 10,744,921 7,897,796 7,038,897 6,400,600
Other Operating Expenses 32,434,624 29,353,759 23,419,389 22,709,783 20,908,041
Earnings Before Income Taxes 17,620,455 15,562,529 14,726,505 13,186,060 14,684,281
Income Taxes 7,185,679 6,040,178 5,711,445 5,217,380 5,837,716
NET EARNINGS $ 10,434,776 $ 9,522,351 $ 9,015,060 $ 7,968,680 $ 8,846,565
Net Earnings Per Common
Share(1) $ 1.24 $ 1.15 $ 1.12 $ 1.00 $ 1.07
Stock Dividends 10% 10% 10% ---- ----
Cash Dividends Declared Per
Share(1) $ 0.29 $ 0.26 $ 0.24 $ 0.22 $ 0.20
Dividend Pay-Out Ratio 23.39% 22.61% 21.43% 22.00% 18.69%
Financial Position:
Assets $836,095,349 $687,407,957 $592,097,857 $560,324,296 $512,360,816
Net Loans 484,617,731 442,083,848 374,661,538 365,573,877 362,757,799
Deposits 762,623,921 595,956,301 526,923,421 499,807,113 462,891,267
Stockholders' Equity 61,939,928 59,957,532 52,038,215 44,188,978 38,365,267
Book Value Per Share(1) 7.69 7.49 6.54 5.68 4.95
Equity-to-Assets Ratio(2) 7.41% 8.72% 8.79% 7.89% 7.49%
Financial Performance:
Return on:
Beginning Equity 17.40% 18.30% 20.40% 20.77% 27.22%
Average Equity 16.84% 17.46% 18.72% 19.45% 24.67%
Return on Average Assets 1.40% 1.52% 1.62% 1.54% 1.81%
Credit Quality:
Allowance for Credit Losses $ 9,470,736 $ 8,849,442 $ 6,461,345 $ 5,262,614 $ 5,091,679
Allowance/Total Loans 1.92% 1.96% 1.70% 1.42% 1.38%
Total Non Performing Loans $ 21,567,108 $ 13,262,357 $ 10,204,442 $ 5,847,393 $ 10,090,000
Non Performing Loans/
Total Loans 4.37% 2.94% 2.68% 1.58% 2.74%
Non Performing Loans/
Allowance 227.72% 149.87% 157.93% 111.11% 198.17%
Net Charge-Offs $ 853,363 $ 918,898 $ 573,378 $ 433,065 $ 490,476
Net Charge-Offs/
Average Loans 0.18% 0.22% 0.16% 0.12% 0.14%
<FN>
<F1>All per share information has been retroactively adjusted to reflect the
10% stock dividend declared December 21, 1994, as to holders of record on
January 9, 1995, and paid January 24, 1995, and 10% stock dividend paid
in 1994 and 1993.
<F2>Stockholders' equity divided by total assets.
</TABLE>
22
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Management's discussion and analysis is written to provide greater
detail of the results of operations and the financial condition of CVB
Financial Corp. and its subsidiaries. This analysis should be read in
conjunction with the audited financial statements contained within this
report including the notes thereto. CVB Financial Corp., (CVB) is a bank
holding company. Its primary subsidiary, Chino Valley Bank, (the Bank) is
a state chartered bank with 19 branch offices located in San Bernardino,
Riverside, east Los Angeles, and north Orange Counties. Community Trust
Deed Services (CTD) is a nonbank subsidiary providing services to the Bank
as well as nonaffiliated persons. For purposes of this analysis, the
consolidated entities are referred to as the "Company".
During 1993 and 1994, the Company acquired two banks through merger
and the Bank purchased assets and assumed deposits of two failed banks from
the FDIC, as receiver of these banks. On March 8, 1993, the Company
acquired through merger Fontana First National Bank with deposits of
approximately $23.7 million and loans of approximately $18.3 million. On
October 21, 1993, the Bank assumed approximately $30.6 million in deposits
and purchased $20.8 million in loans and $4.6 million in investments of the
former Mid City Bank, N.A. from the FDIC.
On June 24, 1994, the Company acquired through merger Western
Industrial National Bank ("WIN") with deposits of approximately $43.5
million, and loans of approximately $34.1 million. On July 8, 1994, the
Bank entered into an Insured Deposit Purchase and Assumption Agreement with
the FDIC in its capacity as receiver for Pioneer Bank ("Pioneer"), assuming
approximately $52.7 million in deposits and purchasing approximately $12.3
million in loans, and $8.2 million in investments and federal funds sold.
As a result of these acquisitions the Bank expanded into five new
branch offices over the past two years; including new branch offices in
Fontana (San Bernardino County) and Brea (north Orange County) in 1993, and
new branch offices in South El Monte (east Los Angeles County) and
Fullerton (north Orange County), in 1994. The acquisitions and mergers
contributed significantly to the growth in the Company's deposits, loans,
and assets for 1993 and 1994.
ANALYSIS OF THE RESULTS OF OPERATIONS
The Company reported net earnings of $10.4 million for the year ended
December 31, 1994. This represented an increase of $912,425, or 9.58%,
over net earnings of $9.5 million for the year ended December 31, 1993.
For the year ended December 31, 1992, net earnings totaled $9.0 million.
Earnings per share, adjusted for the effects of 10% stock dividends
declared each year, increased from $1.12, to $1.15, to $1.24, for the years
ended December 31, 1992, 1993, and 1994, respectively.
The increase in earnings for 1994 compared to 1993 was the result of
an increase in net interest income and a decrease in the provision for
credit losses. The lower provision for credit losses for 1994 reflects
nominal internal loan growth, net of acquired loans. Despite the lower
provision, the allowance for credit losses increased in 1994 compared to
1993, reflecting lower net loans charged to the reserve and an increase in
purchased reserves as a result of acquisitions. The increase in earnings
for 1993 compared to 1992 was the result of increases in net interest
23
<PAGE>
income and an increase in other operating income resulting from gains on
the sale of investment securities. For 1993, the Company realized a $3.7
million gain on the sale of investment securities. The gain resulted from
a restructure of the investment portfolio in anticipation of the adoption
of SFAS 115 in 1994.
Increases in net interest income for both 1994 and 1993 was primarily
the result of increases in the level of earning assets coupled with lower
cost of average deposits. In both 1993 and 1994 the Company incurred
significant costs relating to collection of loans and other real estate
owned.
Despite the increases in net earnings for both 1993 and 1994, the
return on average assets has decreased from 1.62% for 1992, to 1.52% for
1993, and to 1.40% for 1994. The decreases are primarily the result of
decreases in the level of average earning assets in relation to the level
of average total assets. Increases in other real estate owned and goodwill
contributed to the decrease in the ratio of earning assets to total assets
for 1994 and 1993 compared to 1992. Return on average stockholders' equity
decreased from 18.72%, to 17.46%, to 16.84%, for the years ended December
31, 1992, 1993, and 1994, respectively.
NET INTEREST INCOME
Table 1 presents the average yield on each category of earning assets,
the average rate paid for each category of interest bearing liabilities,
and the resulting net interest spread and net interest margin for the years
indicated. Rates for tax preferenced investments are provided on a taxable
equivalent basis using a marginal tax rate of 35.00%.
24
<PAGE>
<TABLE>
TABLE 1 - Distribution of Average Assets, Liabilities, and Stockholders'
Equity; Interest Rates and Interest Differentials
(dollars in thousands)
<CAPTION>
ASSETS 1994 1993 1992
Average Average Average
Balance Interest Rate Balance Interest Rate Balance Interest Rate
<S> <C> <C> <C> <C> <C> <C>
Investment Securities
Taxable (F1) $171,806 $10,084 5.87% $120,288 $ 8,188 6.81% $111,543 $ 8,682 7.78%
Tax preferenced (F2) 7,695 376 6.85% 3,142 131 5.87% 9,941 355 5.03%
Federal Funds Sold 10,297 432 4.20% 14,135 414 2.93% 11,530 414 3.59%
Net Loans (F3) (F4) 457,273 43,156 9.44% 410,097 37,036 9.03% 362,784 34,762 9.58%
Total Earning Assets 647,071 54,048 8.38% 547,662 45,769 8.37% 495,798 44,213 8.95%
Total Non-earning Assets 98,086 79,537 61,397
Total Assets $745,157 $627,199 $557,195
LIABILITIES AND
STOCKHOLDERS' EQUITY
Demand Deposits $236,945 $178,539 $139,354
Savings Deposits (F5) 321,631 $ 6,834 2.12% 287,044 $ 6,478 2.26% 276,904 $ 8,247 2.98%
Time Deposits 108,515 3,939 3.63% 92,472 3,180 3.44% 82,129 3,732 4.54%
Total Deposits 667,091 10,773 1.61% 558,055 9,658 1.73% 498,387 11,979 2.40%
Other Borrowings 9,877 456 4.62% 8,440 220 2.61% 6,548 214 3.27%
Interest Bearing
Liabilities 440,023 11,229 2.55% 387,956 9,878 2.55% 365,581 12,193 3.34%
Other Liabilities 6,216 6,172 4,110
Stockholders' Equity 61,973 54,532 48,150
Total liabilities and
Stockholders' Equity $745,157 $627,199 $557,195
Net interest spread 5.83% 5.82% 5.61%
Net interest margin 6.64% 6.56% 6.49%
Net interest margin
excluding loan fees 6.31% 6.07% 6.02%
<FN>
<F1> Includes certificates of deposit purchased from other institutions
<F2> Yields are calculated on a taxable equivalent basis
<F3> Loan fees are included in total interest income as follows: 1994, $2,138, 1993, $2,694; 1992, $2,321
<F4> Non-performing loans are included in net loans as follows: 1994, $21,567; 1993, $13,262;1992, $10,205
<F5> Includes interest-bearing demand and money market accounts
</TABLE>
The Company's operating results depend primarily on net interest
income, the difference between the interest earned on loans and investments
less the interest paid on deposit accounts and borrowings. Net interest
income was $42.8 million for the year ended December 31, 1994. This
represented an increase of $6.9 million, or 19.30%, from net interest
income of $35.9 million for the year ended December 31, 1993. Net interest
25
<PAGE>
income increased $3.9 million, or 12.09%, for 1993, from net interest
income of $32.0 million for the year ended December 31, 1992. The increases
in net interest income for 1993 and 1994 resulted from increases in the net
interest margin and increases in the level of earning assets.
The net interest margin is net interest income measured as a percent
of average earning assets. It can be affected by both changes in the net
interest spread and changes in level of interest bearing liabilities in
proportion to earning assets. The net interest spread is the difference
between the yield on average earning assets less the rate paid on interest
bearing liabilities.
The Company's net interest margin increased from 6.49% for 1992, to
6.56% for 1993, to 6.64% for 1994. The ability to support greater levels
of earning assets with proportionately lower levels of interest bearing
liabilities contributed to the increases in the net interest margin for
both 1993 and 1994. The increase in the net interest margin for 1993 was
also affected by an increase in the net interest spread from 5.61% for 1992
to 5.82% for 1993. There was little change in the net interest spread for
1994 compared to 1993.
Interest income increased from $45.8 million for the year ended
December 31, 1993 to $54.0 million for the year ended December 31, 1994.
This represented an increase of $8.3 million, or 18.09%. The increase was
primarily the result of an increase of $99.4 million, or 18.15%, in average
earning assets from $547.7 million for 1993 to $647.1 million for 1994.
Interest income increased $1.6 million, or 3.52%, in 1993 from $44.2
million for 1992. The increase in interest income for 1993 resulted
primarily from an increase in the level of average earning assets.
Interest expense increased from $9.9 million for the year ended
December 31, 1993 to $11.2 million for the year ended December 31, 1994.
This represented an increase of $1.3 million, or 13.68%. The increase was
the result of the increase in average interest bearing liabilities from
$388.0 million for 1993, to $440.0 million for 1994. The cost of interest
bearing liabilities remained a constant 2.55% for 1993 and 1994. For
1992, interest expense totaled $12.2 million and the cost of average
interest bearing liabilities was 3.34%.
The Company's cost of average deposits decreased from 2.40% for 1992,
to 1.73% for 1993, to 1.61% for 1994. The decrease in the cost of average
deposits for 1994 compared to 1993 was the result of greater levels of
noninterest bearing demand deposits as a percent of total average deposits.
Average demand deposits increased $58.4 million, or 32.7%, from $178.5
million for 1993 to $236.9 million for 1994. As a percent of total average
deposits, average demand deposits increased from 27.96% for 1992, to 31.99%
for 1993, to 35.52% for 1994. In addition to an increase in the ratio of
demand deposits to total deposits, an overall decrease in the rate paid for
interest bearing deposits contributed to the lower cost of average deposits
for 1993.
Table 2 presents a comparison of interest income and interest expense
resulting from changes in the volumes and rates on average earning assets
and interest bearing liabilities for the years indicated. Changes in
interest income or expense attributable to volume changes are calculated by
multiplying the change in volume by the initial average interest rate. The
change in interest income or expenses attributable to changes in interest
rates are calculated by multiplying the change in interest rate by the
26
<PAGE>
initial volume. The changes attributable to interest rate and volume
changes are calculated by multiplying the change in rate times the change
in volume.
27
<PAGE>
<TABLE>
TABLE 2 - Rate and Volume Analysis for Changes in Interest Income, Interest
Expense, and Net Interest Income
(dollars in thousands)
<CAPTION>
1994 Compared to 1993 1993 Compared to 1992
Increase (decrease) due to Increase (decrease) due to
Rate/ Rate/
Volume Rate Volume Total Volume Rate Volume Total
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest Income:
Taxable investment securities $ 3,506 $(1,127) $ (483) $ 1,896 $ 680 $(1,089) $ (85) $ (494)
Tax preferenced securities 191 22 32 245 (242) 61 (43) (224)
Fed funds (112) 179 (49) 18 94 (77) (17) 0
Loans 4,260 1,668 192 6,120 4,534 (1,999) (261) 2,274
Total earnings assets 7,845 742 (308) 8,279 5,066 (3,104) (406) 1,556
Interest Expense:
Savings deposits 780 (378) (46) 356 302 (1,999) (72) (1,769)
Time deposits 552 176 31 759 470 (907) (115) (552)
Other borrowings 38 169 29 236 62 (43) (13) 6
Total interest bearing liabilites 1,370 (33) 14 1,351 834 (2,949) (200) (2,315)
Net Interest Income $ 6,475 775 (322) 6,928 $4,232 $ (155) $ (206) $3,871
</TABLE>
Income from loans, including interest and fees, is the Company's
primary source of revenue. Income from loans increased from $37.0 million
for the year ended December 31, 1993 to $43.2 million for the year ended
December 31, 1994. This represented an increase of $6.1 million, or
16.52%. For 1993, income from loans increased $2.3 million, or 6.5% from a
total of $34.8 million for 1992.
In general, the Company stops accruing interest on a nonperforming
loan after its principal or interest become 90 days or more past due,
charging to earnings all interest previously accrued but not collected.
For the year ended December 31, 1992, interest income included $115,900 of
interest that was accrued and not collected on loans more than 90 days past
due. Principal and interest on these loans were deemed to be collectable
based on the value of collateral in which the Bank held a security
interest. There was no interest income that was accrued and not reversed
on any noperforming loan at December 31, 1994 or 1993. Had nonperforming
loans for which interest was no longer accruing complied with the original
terms and conditions of their notes, interest income would have been
$944,318 greater in 1994, $1,186,000 greater in 1993, and $698,600 greater
in 1992. Accordingly, yields on loans would have increased by 0.21%,
0.28%, and 0.19%, for the years ended December 31, 1994, 1993, and 1992,
respectively.
Included in Other Real Estate Owned at December 31, 1994 were two
loans totaling $1.2 million which, although performing according to their
original terms, are accounted for as other real estate owned as required
under SFAS 66. As principal and interest payments on these loans were
current at December 31, 1994, the average balance of the loans were
included in total loans, and the yield on total loans was adjusted
accordingly.
28
<PAGE>
Fees collected on loans are an integral part of the loan pricing
decision. Loan fees and the direct costs associated with origination of
loans are deferred and netted against the loan balance. Deferred net loan
fees are recognized in interest income over the term of the loan in a
manner that approximates the level-yield method. For the year ended
December 31, 1994, the Company recognized $2.1 million in loan fees. This
represented a decrease of $556,000, or 20.64%, from fee income of $2.7
million recognized for the year ended December 31, 1993. Fee income for
1993, increased $373,000, or 16.07%, from fee income recognized of $2.3
million for the year ended December 31, 1992. The decrease in loan fee
income recognized for 1994 compared to 1993, was the result of lower direct
costs associated with loan recognition. Fees collected for 1994 of $2.9
million, represented an increase of $463,000, or 19.34%, over collected
loan fees of $2.4 million for 1993.
<TABLE>
Table 3 summarizes loan fee activity for the Bank for the years
indicated.
TABLE 3 - Loan Fee Activity
(dollars in thousands)
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Fees Collected $ 2,857 $ 2,394 $ 3,419
Fees and costs deferred (2,624) (1,328) (2,262)
Accretion of deferred fees
and costs 1,905 1,628 1,164
Total fee income reported $ 2,138 $ 2,694 $ 2,321
Deferred net loan
origination fees acquired 180 64
Deferred net loan
origination fees at end
of year $ 2,503 $ 1,604 $ 1,840
</TABLE>
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, the Company's earnings. The
Bank's management monitors the interest rate "sensitivity" to potential changes
in interest rates using a maturity/repricing gap analysis. This analysis
measures, for 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 lower net interest margin during periods of
rising interest rates and a greater net interest margin during periods of
decreasing interest rates.
Table 4 provides the Bank's maturity/repricing gap analysis at December 31,
1994 and 1993. The Bank had a negative one year cumulative gap of $27.0
million at December 31, 1994, compared to a positive one year cumulative gap of
$22.6 million at December 31, 1993. The change from a positive gap to a
negative gap is primarily the result of longer average maturities of the
29
<PAGE>
investment portfolio, greater levels of savings deposits, and shorter average
maturities of time deposits for 1994 compared to 1993.
30
<PAGE>
<TABLE>
TABLE 4 - Asset and Liability Maturity/Repricing Gap
(dollars in thousands)
<CAPTION>
Over 90 Over 180
90 days days to days to Over
or less 180 days 365 days 365 days
<S> <C> <C> <C> <C>
1994
Earning Assets:
Fed Funds $ 15,000 $ 0 $ 0 $ 0
Investment Securities
and debt securities
held for sale 6,864 6,504 16,989 161,909
Deposits with other
financial institutions 99 100 0 0
Total Loans 333,447 16,965 15,479 128,197
Total $355,410 $ 23,569 $ 32,468 $290,106
Interest-Bearing Liabilities
Savings Deposits 317,401 0 0 0
Time Deposits 62,182 26,960 21,697 6,576
Other Borrowings 10,248 0 0 0
Total 389,831 26,960 21,697 6,576
Period GAP $(34,421) $ (3,391) $ 10,771 $283,530
Cumulative GAP $(34,421) $(37,812) $(27,041) $256,489
1993
Earning Assets:
Fed Funds $ 15,000 $ 0 $ 0 $ 0
Investment Securities
and debt securities
held for sale 22,846 4,829 3,429 118,415
Deposits with other
financial institutions 298 0 100 99
Total Loans 335,776 7,109 14,571 93,477
Total $373,920 $ 11,938 $ 18,100 $211,991
Interest-Bearing Liabilities
Savings Deposits 292,550 0 0 0
Time Deposits 39,666 18,315 14,955 8,918
Other Borrowings 15,848 0 0 0
Total 348,064 18,315 14,955 8,918
Period GAP $ 25,856 $ (6,377) $ 3,145 $203,073
Cumulative GAP $ 25,856 $ 19,479 $ 22,624 $225,697
</TABLE>
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 increases or decreases in
the net interest margin solely as a result of the differences between
31
<PAGE>
repricing opportunities of earning assets or interest bearing liabilities.
The fact that the Bank reported a nominal negative gap at December 31,
1994, does not necessarily indicate that changes in interest rates will
have a negative effect on net interest income.
CREDIT RISK
Implicit in lending activities is the risk that losses will be
experienced and that the amount of such losses will vary over time.
Consequently, the Company maintains 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. The Company's
allowance for credit losses is maintained at a level considered by the
Bank's management to be adequate to provide for estimated losses inherent
in the existing portfolio, including commitments under commercial and
standby letters of credit.
In evaluating the adequacy of the allowance for credit losses, the
Bank's management estimates the amount of potential loss for each loan that
has been identified as having greater than standard credit risk, including
loans identified as nonperforming. Loss estimates also consider the
borrowers' financial data and the current valuation of collateral when
appropriate. In addition to the allowance for specific problem credits,
an allowance is further allocated for all loans in the portfolio based on
the risk characteristics of particular categories of loans including
historical loss experience in the portfolio. Additional allowance is
allocated on the basis of credit risk concentrations in the portfolio and
contingent obligations under off-balance sheet commercial and standby
letters of credit.
The Financial Accounting Standards Board ("FASB") has issued SFAS 114,
"Accounting by Creditors for the Impairment of a Loan." The statement
prescribes that a loan is impaired when principal and interest are deemed
uncollectable according to the original contractual terms of the loan.
Impairment is to be measured as either the expected future cash flows
(discounted at each loan's effective interest rate), the fair value of the
loan's collateral, or an observable market price of the loan (if one
exists). The amount of impairment is to be reported as a part of the
Company's provision for credit losses.
The Company has elected to adopt the SFAS 114 effective January 1,
1995. At December 31, 1994, the book value of "impaired" loans, as
prescribed by the standard, totaled $12.1 million, or 2.50% of net loans at
December 31, 1994. Of this total, $8.1 million, or 66.94% were
"collateral-dependent". Impaired collateral-dependent loans, for which the
fair market value of the collateral was less than the principal and
interest due under the original contractual terms of the loan, were
provided for in the Company's allowance for credit losses at December 31,
1994. Loans totaling $4.0 million were determined to be impaired and not
collateral-dependent at December 31, 1994. For these loans, approximately
$683,000, or 17.08% of the aggregate principal amount of such loans, was
specifically reserved for in the allowance for credit losses at December
31, 1994. In addition, these loans were supported by collateral with an
appraised value of $4.5 million. Accordingly, the Company does not
anticipate that the adoption of SFAS 114 for 1995 will have a material
adverse effect on the financial condition or results of operations of the
Company.
32
<PAGE>
Nonperforming loans increased from $13.3 million, or 2.94% of gross
loans, at December 31, 1993, to $21.6 million, or 4.37% of gross loans, at
December 31, 1994. Nonperforming loans include loans for which interest is
no longer accruing in addition to loans that have been renegotiated from
the original contractual terms of the loan. The increase in
nonperforming loans for 1994 was the result of increases in renegotiated
loans. All of these loans were paying in accordance with renegotiated
terms at December 31, 1994. While the Company's management believes that
the allowance was adequate to provide for both recognized potential losses
and estimated inherent losses in the portfolio, no assurances can be given
that future events may not result in increases in the provision for credit
losses.
Table 5 presents a comparison of net credit losses, the provision for
credit losses (including adjustments incident to mergers), and the
resulting allowance for credit losses for each of the years indicated.
<TABLE>
TABLE 5 - Summary of Credit Loss Experience
(dollars in thousands)
<CAPTION>
1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
Amount of Total Loans at End of Period $494,088 $450,933 $381,123 $370,837 $367,849
Average Total Loans Outstanding $466,514 $416,984 $368,452 $362,457 $361,241
Allowance for Credit Losses at
Beginning of Period $ 8,849 $ 6,461 $ 5,263 $ 5,092 $ 5,037
Loans Charged-Off:
Real Estate Loans 402 530 120 154 7
Commercial and Industrial 496 334 452 282 548
Consumer Loans 123 154 115 42 85
Total Loans Charged-Off 1,021 1,018 687 478 640
Recoveries:
Real Estate Loans 47 0 0 0 0
Commercial and Industrial 92 57 94 15 101
Consumer Loans 29 42 19 30 49
Total Loans Recovered 168 99 113 45 150
Net Loans Charged-Off 853 919 574 433 490
Provision Charged to Operating Expense 350 1,720 1,772 604 545
Adjustments Incident to Mergers 1,125 1,587 0 0 0
Allowance for Credit Losses at End
of period $ 9,471 $ 8,849 $ 6,461 $ 5,263 $ 5,092
Net Loans Charged-Off to Average
Total Loans 0.18% 0.22% 0.16% 0.12% 0.14%
Net Loans Charged-Off to Total Loans
at End of Period 0.17% 0.20% 0.15% 0.12% 0.13%
Allowance for Credit Losses to Average
Total Loans 2.03% 2.12% 1.75% 1.45% 1.41%
Allowance for Credit Lossess to Total
Loans at End of Period 1.92% 1.96% 1.70% 1.42% 1.38%
Net Loans Charged-Off to allowance for
Credit Losses 9.01% 10.39% 8.88% 8.23% 9.62%
Net Loans Charged-Off to Provision for
Credit Losses 243.71% 53.43% 32.39% 71.69% 89.91%
</TABLE>
At December 31, 1994, the allowance for credit losses was $9.5
million, representing an increase of $622,000, or 7.02%, over the allowance
for credit losses of $8.8 million at December 31, 1993. As a percent of
33
<PAGE>
total loans at the end of each period, the allowance for credit losses
decreased slightly from 1.96% at December 31, 1993, to 1.92% at December
31, 1994. The increase in the allowance for credit losses at December 31,
1994 resulted as the provision for credit losses of $350,000, plus
adjustments incident to mergers of $1.1 million, exceeded net charge offs
of $853,000 for the year. Adjustments incident to mergers represent the
allowance for credit losses allocated to the loans acquired from Western
Industrial National Bank.
Net loan charge offs totaled $853,000, $919,000, and $574,000, for the
years ended December 31, 1994, 1993, and 1992, respectively. As a percent
of average total loans, net loan charge offs totaled 0.18% for 1994, 0.22%
for 1993, and 0.16% for 1992.
The provision for credit losses totaled $350,000 for the year ended
December 31, 1994. This represented a significant decrease from the
provision for credit losses of $1.7 million, and $1.8 million, for the
years ended December 31, 1993 and 1992, respectively. The decrease in the
provision for credit losses for 1994 reflects a decrease in internal loan
growth (loan growth net of loans purchased through acquisitions). Internal
loan growth for 1994 totaled $1.4 million, compared to internal loan growth
of $35.6 million for 1993 and $23.0 million for 1992. Loans acquired
through acquisition of approximately $46.4 million, were supported by
acquired reserves of $1.1 million.
While the Company's management believes that the allowance was
adequate to provide for both recognized potential losses and estimated
inherent losses in the portfolio, no assurances can be given that future
events may not result in increases in the provision for credit losses.
There is no precise method of predicting specific losses that ultimately
may be charged against the allowance for credit losses, and as such, the
Company's management is unable to reasonably estimate the full amount of
loans to be charged to the reserve in future periods.
Table 6 provides a summary of the allocation of the allowance for
credit losses for specific loan categories at the dates indicated. The
allocations presented should not be interpreted as an indication that loans
charged to the allowance for credit losses will occur in these amounts or
proportions, or that the portion of the allowance allocated to each loan
category represents the total amount available for future losses that may
occur within such categories, since there is a large unallocated portion of
the allowance for credit losses, and the total allowance is applicable to
the entire loan portfolio.
<TABLE>
Table 6 - Allocation of Allowance for Credit Losses
(dollars in thousands)
<CAPTION>
December 31, 1994 1993 1992 1991 1990
Allow- % of Allow- % of Allow- % of Allow- % of Allow- % of
ance for Category ance for Category ance for Category ance for Category ance for Category
Credit to Total Credit to Total Credit to Total Credit to Total Credit to Total
Losses Loans Losses Loans Losses Loans Losses Loans Losses Loans
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Real Estate $ 88 28.7% $ 43 30.1% $ 113 27.5% $ 77 29.5% $ 128 30.1%
Commercial/
Industrial 4,182 63.5% 3,911 62.4% 2,422 68.0% 2,587 66.8% 2,320 65.8%
Consumer 43 3.1% 41 2.8% 164 3.0% 100 3.5% 113 3.8%
Unallocated 5,158 N/A 4,854 N/A 3,762 N/A 2,499 N/A 2,531 N/A
Total $9,471 95.3% $8,849 95.2% $6,461 98.5% $5,263 99.8% $5,092 99.7%
</TABLE>
34
<PAGE>
OTHER OPERATING INCOME
Other operating income for the Company includes service charges and
fees (primarily from deposit accounts), gains (net of losses) from the sale
of investment securities, gross revenue from CTD, and other revenues not
included as interest on earning assets. Other operating income decreased
from $10.7 million for the year ended December 31, 1993 to $7.6 million for
the year ended December 31, 1994. This represented a decrease of $3.2
million, or 29.40%. The decrease was entirely the result of gains on the
sale of investment securities of $3.7 million in 1993 compared to a loss
from the sale of investment securities of $128,000 for 1994. The gain for
1993 was the result of restructuring the investment portfolio in
anticipation of adopting SFAS 115. For 1993, other operating income
increased $2.8 million, or 36.05%, from $7.9 million for the year ended
December 31, 1992. The increase was entirely due to the $3.6 million
increase in the gain on sale of investment securities. Other operating
income for 1992 included gross revenue of $870,000 from Premier Results
(Premier), a subsidiary. Premier was sold to Electronic Data Systems, Inc.
in December of 1992.
Service charges on deposit accounts increased from $5.2 million for
the year ended December 31, 1993 to $5.9 million for the year ended
December 31, 1994. This represented an increase of $756,000, or 14.50%.
For 1993, service charges on deposit accounts increased $168,000, or 3.33%,
from total service charges of $5.0 million for the year ended December 31,
1992. The increases reflect the increased number of deposit
relationships each year and increased service charges.
Other income also includes total revenue from CTD, a subsidiary of the
Company. Total revenue from CTD was approximately $274,000, $271,000 and
$337,000 for the years ended December 31, 1994, 1993, and 1992,
respectively.
OTHER OPERATING EXPENSES
Other operating expenses totaled $32.4 million for the year ended
December 31, 1994. This represented an increase of $3.1 million, or
10.50%, from other operating expenses of $29.4 million for the year ended
December 31, 1993. Other operating expenses for 1993 increased $5.9
million, or 25.34%, over other operating expenses of $23.4 million for the
year ended December 31, 1992. The increases in other operating expenses
for both 1993 and 1994 reflected increases in assets and branch offices
primarily resulting from acquisitions. Other operating expenses were also
affected in 1993 and 1994 by increases in the costs associated with
collection and foreclosure of troubled credits. As a percent of average
assets, other operating expenses were 4.35% for 1994, compared to 4.68% for
1993, and 4.20% for 1992.
The Company charged a provision to earnings for potential losses from
the sale of other real estate owned of $2.4 million for 1994, and $2.8
million for 1993. These charges contributed substantially to the increase
in other operating expenses for both 1994 and 1993. They compare with a
similar provision of $100,000 for 1992. In addition, expenses associated
with the foreclosure, maintenance and disposition of other real estate
35
<PAGE>
owned totaled $908,133 for 1994 and $1.0 million for 1993 compared to
$205,768 for 1992. Other real estate owned is property acquired by the
Bank through foreclosure (See LOANS). Primarily as a result of the current
economic climate in Southern California, real estate values have decreased
significantly over the last two years. In anticipation of a possible
continuation of this declining trend in both commercial and residential
real estate values, the Bank's management has provided an allowance for
potential declining values of real estate .
Salaries and related expenses increased $802,000, or 5.56%, from $14.4
million for the year ended December 31, 1993, to $15.2 million for the year
ended December 31, 1994. Salaries and related expenses for 1993 increased
$962,073, or 7.14%, from $13.5 million for the year ended December 31,
1992. As a percent of average assets, total salaries and related
expenses have decreased from 2.42%, to 2.30%, to 2.05% for the years ended
December 31, 1992, 1993, and 1994, respectively. Full time equivalent
employees increased from 243 for 1992, to 302 for 1993, to 321 for 1994.
The increase in salaries and related expenses (and the increase in the
number of employees) for 1993 and 1994 reflect acquisitions and the
resulting new branch offices.
INCOME TAXES
The Company's effective tax rate for 1994 was 40.80%, compared to
38.80% for 1993, and 38.80% for 1992. These rates are below the nominal
combined Federal and State tax rates as a result of tax preferenced income
for each period. Increases in the Federal tax rate for revenues in excess
of $10.0 million in 1993, and the increase in the State tax rate for 1993
and 1994, resulted in increases in the effective tax rates for 1993 and
1994.
ANALYSIS OF FINANCIAL CONDITION
The Company reported total assets of $836.1 million at December 31,
1994. This represented an increase of $148.7 million, or 21.63%, from
total assets of $687.4 million at December 31, 1993. For 1993, total
assets increased $95.3 million, or 16.10%, from $592.1 million at December
31, 1992. Loan and deposit growth for 1994 and 1993 were significantly
affected by acquisitions. The level of assets at December 31, 1994
included short term deposits of approximately $40.0 million. These funds
are reflected in the level of demand deposits and cash and due from banks
at December 31, 1994.
Net loans increased $42.5 million, or 9.62%, from $442.1 million at
year ended December 31, 1993 to $484.6 million at December 31, 1994. For
1993, net loans increased $67.4 million, or 18.00%, from $374.7 million for
the year ended December 31, 1992. Asset growth was primarily funded by
increased deposit growth, including deposits assumed through acquisitions.
Total deposits increased from $596.0 million at December 31, 1993, to
$762.6 million at December 31, 1994. While short term deposits of
approximately $40.0 million are included in total deposits at December 31,
1994, the increase in average deposits for 1994 was significant. Average
total deposits increased $109.0 million, or 19.54%, from an average balance
of $558.1 million for 1993 to $667.1 million in average deposits for 1994.
36
<PAGE>
INVESTMENT SECURITIES
The Company maintains a portfolio of investment securities to provide
income and serve as a source of liquidity for its ongoing operations. Note
2 of the financial statements sets forth the distribution of the investment
portfolio at December 31, 1994 and 1993.
The Company adopted SFAS 115, "Accounting for Certain Investments in
Debt and Equity Securities" effective January 1, 1994. Under this
standard, securities held as "available for sale" are reported at current
market value for financial reporting purposes. Increases or decreases in
market value compared to amortized costs net of income taxes, are adjusted
directly to the stockholders' equity. At December 31, 1994, securities
held as available for sale totaled $173.2 million. This represented 90.11%
of total investment securities of $192.3 million at December 31, 1994.
At December 31, 1994, gross unrealized losses on investment securities
available for sale and investment securities that were transferred to held
to maturity totaled $11.6 million. This represented an adjustment of 5.69%
from the amortized cost of $202.9 million at December 31, 1994. The
unrealized loss at December 31, 1994, resulted in a net after tax
adjustment to stockholders' equity of $6.6 million.
In 1993, significant changes were made to the structure and maturities
of the Company's portfolio of investment securities. These changes
resulted in a gain on sales of investments of $3.7 million for the year.
The restructuring was in anticipation of the adoption of SFAS 115 and the
outlook for rising interest rates in 1995 and contributed to a decrease in
the average yield on taxable investment securities from 6.81% for 1993, to
5.87% for 1994.
LOANS
At December 31, 1994, the Company reported net loans of $484.6
million. This represented an increase of $42.5 million, or 9.62%, from net
loans of $442.1 million at December 31, 1993. For 1993, net loans
increased $67.4 million, or 18.00%, from a total of $374.7 million at
December 31, 1992. Gross loans acquired through acquisitions totaled
approximately $46.4 million for 1994, and approximately $39.1 million for
1993.
37
<PAGE>
Table 7 presents the distribution of the Company's loan portfolio at
the dates indicated.
<TABLE>
TABLE 7 - Distribution of Loan Portfolio by Type
(dollars in thousands)
<CAPTION>
December 31,
1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
Commercial/Industrial $262,494 $249,648 $260,322 $248,168 $238,533
Real Estate
Construction 26,302 56,358 43,879 40,788 39,775
Mortgage 116,077 79,929 61,619 68,753 75,006
Consumer, net of
unearned discount 15,553 12,517 11,642 13,067 13,948
Lease Finance Receivables 23,246 21,556 5,501 779 1,014
Agribusiness 52,920 32,529 0 0 0
Gross Loans 496,592 452,537 382,963 371,555 368,276
Less:
Allowance for Credit
Losses 9,471 8,849 6,461 5,263 5,092
Deferred Loan Fees 2,503 1,604 1,840 718 426
Total Net Loans $484,618 $442,084 $374,662 $365,574 $362,758
</TABLE>
Table 8 provides the maturity distribution for commercial and
industrial loans as well as real estate construction loans as of December
31, 1994. Amounts are also classified according to repricing opportunities
or rate sensitivity.
38
<PAGE>
<TABLE>
TABLE 8 - Loan Maturities and Interest Rate Sensitivity
(dollars in thousands)
<CAPTION>
December 31, 1994
After One
But
Within Within After
One Year Five Years Five Years Total
<S> <C> <C> <C> <C>
Types of Loans:
Commercial and industrial(1) $ 89,518 $206,543 $60,742 $356,803
Construction 26,302 0 0 26,302
Total $115,820 $206,543 $60,742 $383,105
Amount of Loans based upon:
Fixed Rates $ 41,028 $ 80,095 $44,950 $166,073
Floating or adjustable rates 217,032 0 0 217,032
Total $258,060 $ 80,095 $44,950 $383,105
<FN>
<F1> Includes approximately $94.309 million in fixed rate commercial real estate
loans. These loans are classified as real estate mortgage loans for the
financial statements, but are accounted for as commercial and industrial loans
on the Company's books.
</TABLE>
As a normal practice in extending credit for commercial and industrial
purposes, the Bank may accept trust deeds on real property as collateral.
In some cases, when the primary source of repayment for the loan is
anticipated to come from cash flow from normal operations of the borrower,
the requirement of real property as collateral is an abundance of caution.
In these cases, the real property is considered a secondary source of
repayment for the loan. Since the Bank lends primarily in Southern
California, its real estate loan collateral is concentrated in this region.
At December 31, 1994, approximately 95.00% of the Bank's loans secured by
real estate were collateralized by properties located in Southern
California. This concentration is considered when determining the adequacy
of the Company's allowance for credit losses.
At December 31, 1994, nonperforming assets totaled $31.4 million.
This represented an increase of $8.4 million, or 36.46%, from total
nonperforming assets of $23.0 million at December 31, 1993. Nonperforming
assets include nonperforming loans (see CREDIT RISK) and other real estate
owned, including in substance foreclosures. The increase in nonperforming
loans for 1994 was entirely attributable to renegotiated loans. Although
Management believes that nonperforming loans are generally well secured and
that potential losses are provided for in the Company's allowance for
credit losses, there can be no assurance that continued deterioration in
economic conditions or collateral values will not result in future credit
losses. Table 9 provides information on nonperforming loans and other real
estate owned at the dates indicated.
39
<PAGE>
<TABLE>
TABLE 9 - Non-Performing Assets
(dollars in thousands)
<CAPTION>
December 31,
1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
Non-accrual loans $12,613 $12,492 $ 6,642 $ 3,684 $ 9,164
Loans past due 90 days or more 0 0 272 85 19
Restructured loans 8,954 770 3,291 2,078 907
Other real estate owned (OREO) 9,860 9,768 8,797 3,586 0
Total non-performing
assets $31,427 $23,030 $19,002 $ 9,433 $10,090
Percentage of non-performing
assets to total loans
outstanding & OREO 6.24% 5.00% 4.87% 2.52% 2.74%
Percentage of non-performing
assets to total assets 3.76% 3.35% 3.21% 1.68% 1.97%
</TABLE>
At December 31, 1994, loans for which interest was no longer accruing
totaled $12.6 million. Approximately 95.00% of loans on a nonaccrual
status at December 31, 1994 were secured by real property which has a
current appraisal that is less than one year old. The estimated ratio of
the outstanding loan balances to the fair values of the related collateral
for nonaccrual loans at December 31, 1994, ranged between approximately
50.00% to 93.00%. The Bank has allocated specific reserves included in the
allowance for credit losses for potential losses on these loans.
Except for nonperforming loans as set forth in Table 9, the Bank's
management is not aware of any loans as of December 31, 1994 for which
known credit problems of the borrower would cause the Company to have
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 nonperforming at some future date. The Bank's
management cannot, however, predict the extent to which the current
economic environment may persist or worsen or the full impact this
environment may have on the Company's loan portfolio.
At December 31, 1994, the book value of other real estate owned
totaled $9.9 million. This included two separate parcels of property
acquired through foreclosure, and two loans, secured by real estate, that
were performing but classified as other real estate owned. The Bank is
actively marketing these properties. The Bank's management cannot predict
when these properties will be sold or the terms of those sales when they
occur. While the Bank's management recognizes that the Southern California
real estate market continues to remain weak, the Bank has recent appraisals
on each property that support the carrying costs of those properties at
December 31, 1994. No assurance can be given that if Southern California
real estate values continue to decrease, and the Bank cannot dispose of the
properties held promptly, that further charges to earnings may not occur.
DEPOSITS
The Company reported total deposits of $762.6 million at December 31,
1994. This represented an increase of $166.7 million, or 27.97%, from
total deposits of $596.0 million at December 31, 1993. Total deposits at
December 31, 1994 included approximately $40.0 million in short term demand
40
<PAGE>
deposits. For 1993, total deposits increased $69.0 million, or 13.10%,
from $526.9 million at December 31, 1992.
For 1994, deposits assumed through acquisitions totaled approximately
$96.2 million. This represented 57.75% of the $166.7 million increase in
deposits for 1994. For 1993, deposits assumed through acquisitions totaled
approximately $54.3 million, or 78.70%, of the $69.0 million increase in
deposits for that year.
Average non-interest bearing demand deposits increased from $178.5
million for 1993 to $236.9 million for the year ended December 31, 1994.
This represented an increase of $58.4 million, or 32.71%. Average non-
interest bearing demand deposits increased $39.2 million, or 28.12%, from
$139.4 million at December 31, 1992. The increases in demand deposits for
1993 and 1994 had a significant impact on the Company's net interest
income.
Table 10 provides the remaining maturities of large denomination
($100,000 or more) time deposits, including public funds as of December 31,
1994.
TABLE 10 - Maturity Distribution of Large Denomination Time Deposits
(dollars in thousands)
December 31, 1994
3 months or less $40,935
Over 3 months through 6 months 13,120
Over 6 months through 12 months 11,260
Over 12 months 2,774
Total $68,089
LIQUIDITY
Liquidity is actively managed to ensure sufficient funds are available
to meet the ongoing need of both the Bank and CVB. This includes
projections of future sources and uses of funds, in addition to the
maintenance of sufficient liquid reserves to provide for unanticipated
events.
For the Bank, sources of funds normally include principal payments on
loans and investments, the maturity or sale of investments, and growth in
deposits. Uses of funds include withdrawal of deposits, interest paid on
deposits, advances under approved lines or funding of new loans, purchases
and operating expenses. The Bank maintains funds as overnight federal
funds sold and other short term investment securities to provide for short
term liquidity needs. In addition, the Bank maintains short term unsecured
lines of credit in excess of $50.0 million with correspondent banks to
provide for contingent liquidity needs.
Cash flows from operating activities, primarily representing net
interest income, totaled $9.5 million for 1994, $10.6 million for 1993, and
$9.5 million for 1992. Cash flows from financing activities, primarily
representing increases in deposits, totaled $60.4 million for 1994, $18.1
million for 1993, and $22.2 million for 1992. Cash and cash equivalents
received as a result of acquisitions totaled $22.6 million for 1994 and
$13.3 million for 1993. Net cash used in investing activities, primarily
41
<PAGE>
purchases of investments, totaled $43.6 million for 1994, $52.4 million for
1993, and $32.0 million for 1992.
At December 31, 1994, the Bank reported liquid assets, including cash,
federal funds sold, and unpledged investment securities of $181.7 million.
Liquid assets represented 21.73% of total assets at December 31, 1994.
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 investments and other liquid
resources, the higher the loan to deposit ratio the less liquid are the
Bank's assets. For the year ended December 31, 1994, the Bank's loan to
deposit ratio averaged 69.93%, compared to an average ratio of 74.72% for
1993.
The liquidity ratio provides another measure of the Bank's liquidity.
This ratio is calculated by dividing the difference between short term
liquid assets less short term volatile liabilities by the sum of loans and
long term investments. This ratio measures the percent of illiquid long
term assets that are being funded by short term volatile liabilities. At
December 31, 1994, this ratio was 4.48%, compared to a ratio of 2.72%, at
December 31, 1993.
CVB is a company separate and apart from the Bank that must provide
for its own liquidity. Substantially all of CVB's revenues are obtained
from dividends declared and paid by the Bank. There are statutory and
regulatory provisions that could limit the ability of the Bank to pay
dividends to CVB. At December 31, 1994, approximately $3.9 million of the
Bank's equity was unrestricted and available to be paid as dividends to
CVB. Management of CVB believes that such restrictions will not have an
impact on the ability of CVB to meet its ongoing cash obligations. As of
December 31, 1994, neither the Bank nor CVB had any material commitments
for capital expenditures.
CAPITAL RESOURCES
Historically, the primary source of capital for the Company has been
the retention of operating earnings. The Company conducts an ongoing
assessment of projected sources and uses of capital in conjunction with
projected increases and mixes of assets in order to maintain adequate
levels of capital. Total adjusted capital, stockholders' equity plus
allowance for credit losses, was $71.4 million at December 31, 1994,
representing an increase of $2.6 million, or 3.78%, over total adjusted
capital of $68.8 million at December 31, 1993.
Bank regulators have established minimum capital adequacy guidelines
requiring that qualifying capital be at least 8.0% of risk-based assets, of
which at least 4.0% must be Tier 1 capital (primarily stockholders'
equity). These ratios represent minimum capital standards. Under Prompt
Corrective Action rules, certain levels of capital adequacy have been
established for financial institutions. Depending on an institution's
capital ratios, the established levels can result in restrictions or limits
on permissible activities. In addition to the aforementioned requirements,
the Company and Bank must also meet minimum leverage ratio standards. The
42
<PAGE>
leverage ratio is calculated as Tier 1 capital divided by the most recent
quarterly period's average total assets.
The highest level for capital adequacy under the prompt corrective
action provisions is "Well Capitalized". To qualify for this level of
capital adequacy an institution must maintain a total risk-based capital
ratio of at least 10.00% and a Tier 1 risk-based capital ratio of at least
6.00%.
For purposes of calculating capital ratios, Federal bank regulators
have excluded adjustments to stockholders' equity that result from mark to
market adjustments of available for sale investment securities. The State
of California includes the adjustments to stockholders' equity for purposes
of calculating capital ratios. At December 31, 1994, the Company exceeded
all of the minimum capital ratios required to be considered well
capitalized, both with and without the inclusion of the adjustment to
stockholders' equity resulting from mark to market adjustments to
investment securities.
At December 31, 1994, the Company's total risk-based capital ratio was
12.06% compared to 13.10% on December 31, 1993. The ratio of Tier I
capital to risk weighted assets was 10.81% at December 31, 1994, compared
to a ratio of 11.80% at December 31, 1993. At December 31, 1994, the
Company's leverage ratio was 7.53%, down from a ratio of 8.40% at December
31, 1993. The Company's leverage ratio at December 31, 1992 was 9.20%.
The Company's risk-based capital ratio and leverage ratio were affected by
increases in goodwill of $9.1 million for 1994 and $2.0 million for 1993.
The increased goodwill was the result of acquisitions. The Bank's risk-
based capital ratio, Tier I capital ratio and leverage are slightly below
those of the Company at December 31, 1994. (See NOTE 12)
During 1994, the Board of Directors of the Company declared quarterly
cash dividends that totaled 32 cents per share for the full year (29 cents
per share after retroactive adjustment for the ten percent stock dividend
declared on December 21, 1994. After retroactive adjustment, cash
dividends declared during 1994 were the same as paid for 1993. Management
does not believe that the continued payment of cash dividends will impact
the ability of the Company to exceed the current minimum capital standards.
43
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CVB Financial Corp.
Index to consolidated Financial Statements
and Financial Statement Schedules
Consolidated Financial Statements
Page
Consolidated Balance Sheets --
December 31, 1994 and 1993 45
---
Consolidated Statements of Earnings
Year Ended December 31, 1994,
1993 and 1992 46
---
Consolidated Statements of
Stockholders' Equity Year Ended
December 31, 1994, 1993 and 1992 48
---
Consolidated Statements of Cash Flows
for the Year Ended December 31,
1994, 1993 and 1992 49
---
Notes to Consolidated Financial Statements 52
---
Independent Auditors' Report 68
---
All schedules are omitted because they are not applicable, not
material or because the information is included in the financial statements
or the notes thereto.
44
<PAGE>
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1994 AND 1993
<TABLE>
<CAPTION>
ASSETS 1994 1993
<S> <C> <C>
Federal funds sold $ 15,000,000 $ 15,000,000
Investment securities
held to maturity (Notes 1 and 2) 19,018,218 9,153,916
Investment securities available
for sale (Notes 1 and 2) 173,248,095 140,364,947
Loans and lease finance receivables,
net (Notes 3, 4 and 5) 484,617,731 442,083,848
Total earning assets 691,884,044 606,602,711
Cash and due from banks 94,828,593 45,852,849
Premises and equipment, net (Note 6) 12,801,481 9,065,950
Other real estate owned (Note 5) 9,860,467 9,768,298
Deferred taxes (Note 7) 7,956,906 3,611,374
Goodwill 9,139,391 2,037,150
Other assets 9,624,467 10,469,625
TOTAL $836,095,349 $687,407,957
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Deposits (Note 8):
Noninterest-bearing $327,807,389 $221,552,597
Interest-bearing 434,816,532 374,403,704
762,623,921 595,956,301
Demand note to U.S. Treasury 6,429,970 14,205,027
Other liabilities 5,101,530 17,289,097
Total liabilities 774,155,421 627,450,425
COMMITMENTS AND CONTINGENCIES (Note 9)
STOCKHOLDERS' EQUITY (Notes 11 and 12):
Preferred stock-authorized, 20,000,000
shares without par value; no shares
issued or outstanding Common stock-
authorized, 50,000,000 shares without
par value; issued and outstanding,
8,056,774 (1994) and 7,274,582 (1993) 32,437,767 20,619,439
Retained earnings 36,128,068 39,338,093
Unrealized loss on investment
securities available for sale,
net of tax (Notes 1 and 2) (6,625,907)
Total stockholders' equity 61,939,928 59,957,532
TOTAL $836,095,349 $687,407,957
</TABLE>
See accompanying notes to consolidated financial statements.
45
<PAGE>
CONSOLIDATED STATEMENTS OF EARNINGS
THREE YEARS ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
INTEREST INCOME:
Loans, including fees $ 43,155,882 $ 37,036,068 $ 34,762,460
Investment securities:
Taxable 10,084,324 8,187,804 8,681,623
Tax-advantaged 375,525 131,424 354,587
10,459,849 8,319,228 9,036,210
Federal funds sold 431,699 413,834 414,475
Total interest income 54,047,430 45,769,130 44,213,145
INTEREST EXPENSE:
Deposits (Note 8) 10,773,128 9,657,636 11,979,025
Other borrowings 455,633 220,127 213,913
Total interest expense 11,228,761 9,877,763 12,192,938
NET INTEREST INCOME BEFORE PROVISION
FOR CREDIT LOSSES 42,818,669 35,891,367 32,020,207
PROVISION FOR CREDIT LOSSES
(Note 5) 350,000 1,720,000 1,772,109
NET INTEREST INCOME AFTER PROVISION
FOR CREDIT LOSSES 42,468,669 34,171,367 30,248,098
OTHER OPERATING INCOME:
Service charges on deposit accounts 5,970,972 5,214,765 5,046,780
Investment securities (loss) gains,
net (Note 2) (127,815) 3,721,041 261,531
Other 1,743,253 1,809,115 2,589,485
Total other operating income 7,586,410 10,744,921 7,897,796
OTHER OPERATING EXPENSES:
Salaries, wages and employee benefits
(Notes 10 and 11) 15,241,684 14,439,434 13,477,361
Occupancy (Note 9) 2,805,380 2,169,864 2,039,830
Equipment 1,969,544 1,526,519 1,446,283
Deposit insurance premiums 1,342,976 1,175,710 1,084,848
Stationery and supplies 1,556,527 1,068,657 982,332
Professional services 1,850,000 1,713,993 1,167,465
Data processing 831,049 877,542 819,765
Promotion 1,494,757 1,115,182 741,972
Other real estate owned expense
(Note 5) 3,308,133 3,834,015 305,768
Other 2,034,574 1,432,843 1,353,765
32,434,624 29,353,759 23,419,389
-CONTINUED-
</TABLE>
46
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF EARNINGS - CONTINUED
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
EARNINGS BEFORE INCOME TAXES 17,620,455 15,562,529 14,726,505
INCOME TAXES (Note 7) 7,185,679 6,040,178 5,711,445
NET EARNINGS $ 10,434,776 $ 9,522,351 $ 9,015,060
NET EARNINGS PER COMMON SHARE $ 1.24 $ 1.15 $ 1.12
</TABLE>
See accompanying notes to the consolidated financial statements.
47
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
THREE YEARS ENDED DECEMBER 31, 1994
<CAPTION>
Unrealized
Loss on
Common Securities
Shares Common Retained Available
Outstanding Stock Earnings for Sale
<S> <C> <C>
BALANCE, JANUARY 1, 1992 5,834,985 $ 5,636,058 $38,552,920
Common stock issued under
stock optionplan and deferred
compensation agreements 145,131 477,075
10% stock dividend, declared
on December 16, 1992 and
distributed on January 19,1993 597,749 5,753,334 (5,753,334)
Tax benefit from exercise of
certain stock options 294,926
Cash dividends (1,937,824)
Net earnings 9,015,060
BALANCE, DECEMBER 31, 1992 6,577,865 11,866,467 40,171,748
Common stock issued under
stock option and deferred
compensation agreements 35,753 490,922
10% stock dividend, declared
on December 15, 1993 and
distributed on
January 17, 1994 660,964 8,262,050 (8,262,050)
Tax benefit from exercise of
certain stock options 17,485
Cash dividends (2,111,441)
Net earnings 9,522,351
BALANCE, DECEMBER 31, 1993 7,274,582 20,619,439 39,338,093
Common stock issued under stock
option plan and deferred
compensation agreements 50,084 470,654
10% stock dividend, declared on
December 21, 1994 and
distributed on
January 24, 1995 732,108 11,347,674 (11,347,674)
Tax benefit from exercise
of certain stock options 46,415
Cash dividends (2,343,542)
Net earnings 10,434,776
Unrealized losses on securities
available for sale, net of tax $(6,625,907)
BALANCE, DECEMBER 31, 1994 8,056,774 $32,437,767 $36,128,068 $(6,625,907)
</TABLE>
See accompanying notes to consolidated financial statements.
48
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE YEARS ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Interest received $ 51,205,480 $ 45,518,868 $ 43,876,733
Service charges and other fees
received 7,714,225 7,023,880 7,636,265
Interest paid (10,663,359) (10,246,921) (12,533,022)
Cash paid to suppliers and employees (31,894,127) (25,509,643) (23,574,465)
Income taxes paid (6,818,811) (6,145,842) (5,935,205)
Net cash provided by operating
activities 9,543,408 10,640,342 9,470,306
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of securities
available for sale 53,296,643 63,864,087 27,648,498
Proceeds from maturities of securities
available for sale 62,480,377
Proceeds from maturities of securities
held to maturity 1,119,772 42,248,230 70,400,000
Purchases of securities available
for sale (163,500,011)
Purchases of securities held to
maturity (2,366,781) (117,560,921) (116,737,235)
Net increase in loans (1,448,189) (35,577,319) (23,009,386)
Loan origination fees received 2,857,475 2,394,180 3,418,808
Proceeds from sale of other real
estate owned 4,423,508 2,374,291 6,847,215
Proceeds from sale of premises and
equipment 56,728 24,212 168,442
Purchases of premises and equipment (5,324,476) (2,324,386) (539,484)
Consideration (paid) received in
business combinations 13,324,176 (5,043,323)
Other investing activities (8,496,214) (2,843,235) (192,085)
Net cash used in investing
activities (43,576,992) (52,444,184) (31,995,227)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in noninterest-bearing
deposits and money market and
savings accounts 53,601,842 28,949,459 31,675,700
Net increase (decrease) in time
certificates of deposit 16,821,858 (14,064,629) (4,559,392)
Net (decrease) increase in short-term
borrowings (7,792,948) 5,246,056 (3,489,421)
Cash dividends on common stock (2,343,542) (2,111,441) (1,937,824)
Proceeds from exercise of stock
options 128,829 106,173 477,075
Net cash provided by financing
activities 60,416,039 18,125,618 22,166,138
49
<PAGE> (continued)
</TABLE>
See accompanying notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE YEARS ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS $ 26,382,455 $(23,678,224) $ (358,783)
CASH AND CASH EQUIVALENTS,
BEGINNING OF YEAR 60,852,849 71,229,035 71,587,818
CASH AND CASH EQUIVALENTS BEFORE
ACQUISITIONS 87,235,304 47,550,811 71,229,035
CASH AND CASH EQUIVALENTS RECEIVED
IN ACQUISITIONS 22,593,289 13,302,038
CASH AND CASH EQUIVALENTS, END OF YEAR $109,828,593 $ 60,852,849 $ 71,229,035
RECONCILIATION OF NET EARNINGS TO NET
CASH PROVIDED BY OPERATING ACTIVITIES:
Net earnings $ 10,434,776 $ 9,522,351 $ 9,015,060
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Gain on sales of investment securities (3,333) (3,724,956) (333,000)
Loss on sales of investment securities 131,148 3,915 71,469
Gain on sale of premises and equipment (16,789)
Gain on sale of other real estate owned (6,563) (5,967) (445,844)
Amortization of premiums on investment
securities 336,308 710,718 738,017
Provision for credit losses 350,000 1,720,000 1,772,109
Provision for losses on other real
estate owned 2,400,000 2,830,000 100,000
Accretion of deferred loan fees and
costs (1,905,470) (1,628,527) (1,164,459)
Loan fees and costs deferred (2,624,409) (1,328,458) (2,262,235)
Depreciation and amortization 1,549,006 1,097,152 1,143,873
Change in accrued interest receivable (1,272,788) 667,547 90,030
Change in accrued interest payable 565,402 (369,158) (340,084)
Deferred tax provision (benefit) 308,734 (944,053) (806,201)
Change in other assets and liabilities (702,614) 2,089,778 1,891,571
Total adjustments (891,368) 1,117,991 455,246
NET CASH PROVIDED BY OPERATING
ACTIVITIES $ 9,543,408 $ 10,640,342 $ 9,470,306
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING AND FINANCING ACTIVITIES -
Real estate acquired through foreclosure $ 6,598,432 $ 5,204,093 $ 12,157,502
(concluded)
</TABLE>
50
<PAGE>
See accompanying notes to consolidated financial statements.
51
<PAGE>
CCCVB FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE-YEAR PERIOD ENDED DECEMBER 31, 1994
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of CVB Financial Corp. and
subsidiaries are in accordance with generally accepted accounting
principles and conform to practices within the banking industry. 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, Chino Valley Bank (the "Bank"), Community Trust Deed Services
and Premier Results, Inc. (in 1992 only), after elimination of all material
intercompany transactions and balances.
INVESTMENT SECURITIES - On January 1, 1994, the Company adopted Statement
of Financial Accounting Standards ("SFAS") No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." Under the new standard, the
Company classifies as held to maturity those debt securities that it has
the positive intent and ability to hold to maturity. The Company
classifies all other debt and equity securities in its investment portfolio
as available for sale. The Company holds no securities required to be
classified as trading securities under SFAS No. 115. Prior to adoption of
SFAS No. 115, the Company classified securities as either held for
investment or held for sale. Securities classified as held for investment
in 1993 are presented in the accompanying consolidated balance sheet as
corresponding to the held to maturity classification for 1994, and
securities classified as held for sale in 1993 are presented as
corresponding to the available for sale classification for 1994.
Securities held to maturity in 1994, and securities previously classified
as held for investment, are accounted for at cost, adjusted for
amortization of premiums and accretion of discounts. Securities available
for sale in 1994 are accounted for at fair value, and net unrealized gains
and losses (unless other than temporary) are presented, net of income tax
effects, in a separate component of stockholders' equity. Securities
previously classified as held for sale were recorded at the lower of cost
or market value, and unrealized losses, if any, were recorded in periodic
earnings. The effect of adoption of SFAS No. 115 on January 1, 1994 was an
increase in the carrying amount of available for sale securities and an
increase in stockholders' equity (before considering income tax effects) of
approximately $1,013,000.
Realized gains and losses on sales of securities available for sale are
recognized in earnings at the time of sale and are determined on a specific
identification basis.
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
52
<PAGE>
amount outstanding. Interest income is not recognized on loans and lease
finance receivables when collection of interest is deemed by management to
be doubtful.
The Bank receives collateral to support loans, lease finance receivables
and commitments to extend credit for which collateral is deemed necessary.
The most significant category of collateral is real estate, principally
commercial and industrial income-producing properties.
Nonrefundable fees and direct costs associated with the origination or
purchase of loans are deferred and netted against outstanding loan
balances. The deferred net loan fees and costs are recognized in interest
income over the loan term in a manner that approximates the level-yield
method.
PROVISION AND ALLOWANCE FOR CREDIT LOSSES - The determination of the
balance in the allowance for credit losses is based on an analysis of the
loan and lease finance receivables portfolio and reflects an amount that,
in management's judgment, is adequate to provide for potential credit
losses 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 credit losses. The
provision for credit losses is charged to expense.
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. Property under capital lease
and leasehold improvements are amortized over the shorter of their economic
lives or the initial term of the lease.
OTHER REAL ESTATE OWNED - Other real estate owned, shown net of an
allowance for losses of $1,180,090 and $1,650,903 at December 31, 1994 and
1993, respectively, represents real estate acquired through foreclosure in
satisfaction of commercial and real estate loans and is stated at the lower
of the fair value minus estimated costs to sell or cost (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.
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 a premium on each transaction that has been
determined to be an intangible asset, in the form of goodwill. These
intangible assets are being amortized over a 15-year period on a straight-
line basis.
INCOME TAXES - Deferred income taxes are recognized for the tax
consequences in future years of differences between the tax basis 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.
53
<PAGE>
EARNINGS PER COMMON SHARE - Earnings per common share are computed on the
basis of the weighted average number of common shares outstanding during
the year plus shares issuable upon the assumed exercise of outstanding
common stock options (common stock equivalents). The weighted average
number of common shares outstanding and common stock equivalents was
8,373,776 (1994), 8,263,072 (1993) and 8,092,906 (1992). Earnings per
common share and stock option amounts have been retroactively restated to
give effect to all stock splits and dividends.
STATEMENT OF CASH FLOWS- Cash and cash equivalents as reported in the
statements of cash flows include cash and due from banks and federal funds
sold.
RECENT ACCOUNTING PRONOUNCEMENTS - In May 1993, the FASB issued SFAS
No. 114, "Accounting by Creditors for Impairment of a Loan," which was
subsequently amended by SFAS No. 118, "Accounting by Creditors for
Impairment of a Loan-Income Recognition and Disclosure," in October 1994.
These statements prescribe that a loan is impaired when it is probable that
a creditor will be unable to collect all amounts due (principal and
interest) according to the contractual terms of the loan agreement.
Measurement of the impairment can be based on the expected future cash
flows of an impaired loan, which are to be discounted at the loan's
effective interest rate, or impairment can be measured by reference to an
observable market price, if one exists, or the fair value of the
collateral. Collateral-dependent loans for which foreclosure is probable
must be measured at the fair value of the collateral. Additionally, these
statements prescribe measuring impairment of a restructured loan by
discounting the total expected future cash flows at the loan's effective
rate of interest in the original loan agreement. Finally, the impact of
initially applying the statement is reported as a part of the provision for
credit losses. The Company is required to adopt this standard as of
January 1, 1995. The Company has determined that adoption of this standard
as of December 31, 1994 would not have had a significant impact on the
financial position or results of operations at that date.
RECLASSIFICATIONS - Certain reclassifications have been made to prior year
financial statements to conform to the current-year presentation.
54
<PAGE>
INVESTMENT SECURITIES
The amortized cost and estimated fair value of investment securities are
shown below. All securities held are publicly traded, and estimated fair
value was obtained from an independent pricing service.
<TABLE>
<CAPTION>
1994
Gross Gross
Unrealized Unrealized
Amortized Holding Holding Fair
Cost Gains Losses Value
<S> <C> <C> <C> <C>
Investment securities
held to maturity:
Mortgage-backed
securities $ 10,171,946 $ - $ (336,636) $ 9,835,310
Municipal bonds 8,213,760 (608,227) 7,605,533
Other debt securities 632,512 632,512
$ 19,018,218 $ - $ (944,863) $ 18,073,355
Investment securities
available for sale:
U.S. Treasury
securities $ 59,294,064 $ - $ (1,169,168) $ 58,124,896
Mortgage-backed
securities 15,848,051 (1,034,674) 14,813,377
CMO/REMICs 97,556,299 (7,849,704) 89,706,595
Government agency 10,632,860 (554,733) 10,078,127
FHLB stock 525,100 525,100
$183,856,374 $ - $(10,608,279) $173,248,095
1993
Gross Gross
Unrealized Unrealized
Amortized Holding Holding Fair
Cost Gains Losses Value
Investment securities held
for investment:
Mortgage-backed
securities $ 3,296,842 $ 247,589 $ (2,431) $ 3,542,000
Municipal bonds 5,857,074 106,926 5,964,000
$ 9,153,916 $ 354,515 $ (2,431) $ 9,506,000
Investment securities held
for sale:
U.S. Treasury
securities $ 32,923,410 $1,343,442 $ (4,852) $ 34,262,000
Mortgage-backed
securities 22,579,203 76,253 (13,456) 22,642,000
CMO/REMICs 69,862,334 26,886 (420,220) 69,469,000
Government agency
securities 15,000,000 5,000 15,005,000
$140,364,947 $1,451,581 $ (438,528) $141,378,000
</TABLE>
55
<PAGE>
A mortgage-backed security classified as held to maturity at December 31,
1994 was transferred from the available for sale portfolio in June 1994.
The amortized cost set forth above represents the market price at the date
of transfer, plus the proportional accretion of the loss.
The CMO/REMIC securities noted above represent collateralized mortgage
obligations and real estate mortgage investment conduits. All are issues
of U.S. government agencies that guarantee payment of principal and
interest of the underlying mortgages. All CMO/REMIC securities in the
Bank's investment portfolio have met or surpassed the Federal Financial
Institutions Examination Council's three-part test and are not "high-risk"
securities.
At December 31, 1994 and 1993, investment securities having an amortized
cost of approximately $114,669,000 and $38,780,000, respectively, were
pledged to secure public deposits and for other purposes as required or
permitted by law.
The amortized cost and fair value of debt securities at December 31, 1994,
by contractual maturity, are shown below. Although mortgage-backed
securities and CMO/REMICs have contractual maturities through 2019,
expected maturities will differ from contractual maturities because
borrowers may have the right to prepay such obligations without penalty.
<TABLE>
<CAPTION>
Held to Maturity Available for Sale
Weighted Weighted
Amortized Fair Average Amortized Fair Average
Cost Value Yield Cost Value Yield
<S> <C> <C> <C> <C> <C> <C>
Due in one year
or less $ 80,000 $ 80,000 6.20% $ 22,532,902 $ 22,359,366 5.90%
Due after one year
through five years 331,949 312,366 4.40 47,394,022 45,843,657 5.75
Due after five years
through ten years 3,432,187 3,202,138 4.77
Due after ten years 5,002,136 4,643,541 5.21 525,100 525,100
8,846,272 8,238,045 5.01 70,452,024 68,728,123 5.79
Mortgage-backed
securities and
CMO/REMICs 10,171,946 9,835,310 6.27 113,404,350 104,519,972 5.75
$19,018,218 $18,073,355 5.72% $183,856,374 $173,248,095 5.77%
</TABLE>
Gross realized gains and losses on sales of investment securities
were as follows:
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Gross realized gains $ 3,333 $3,724,956 $333,000
Gross realized losses $(131,148) $ (3,915) $(71,469)
</TABLE>
56
<PAGE>
LOANS AND LEASE FINANCE RECEIVABLES
The Bank grants loans to its customers throughout its primary market in the
San Gabriel Valley and Inland Empire areas of Southern California, which
have recently experienced adverse economic conditions, including declining
real estate values. These factors have adversely affected certain
borrowers' ability to repay loans. Although management believes the level
of allowances for loan losses is adequate to absorb losses inherent in the
loan portfolio, additional declines in the local economy and/or increases
in the interest rate charged on adjustable rate loans may result in
increasing loan losses that cannot be reasonably predicted at December 31,
1994.
The Bank makes loans to borrowers in a number of different industries. No
industry had aggregate loan balances exceeding 10% of the December 31, 1994
or 1993 loan and lease finance receivables balance, with the exception of
loans made to the agribusiness industry. At December 31, 1994, the Bank's
loan portfolio included approximately $321.8 million of loans secured by
commercial and residential real estate properties. At that date the Bank
held approximately $182.5 million of fixed rate loans.
The following is a summary of the components of loan and lease finance
receivables:
<TABLE>
<CAPTION>
1994 1993
<S> <C> <C>
Commercial, financial and industrial $262,494,137 $249,648,356
Real estate:
Construction 26,301,562 56,358,172
Mortgage 116,076,598 79,929,218
Loans to individuals for household, family
and other consumer expenditures 15,552,790 12,516,627
Municipal lease finance receivables 23,246,272 21,555,980
Agribusiness 52,919,802 32,528,926
496,591,161 452,537,279
Allowance for credit losses (Note 5) (9,470,736) (8,849,442)
Deferred net loan origination fees (2,502,694) (1,603,989)
$484,617,731 $442,083,848
</TABLE>
The following is a summary of certain troubled loans at December 31, 1994 and
1993:
<TABLE>
<CAPTION>
1994 1993
<S> <C> <C>
Nonaccrual $ 12,613,000 $ 12,492,000
Troubled debt restructurings 8,954,000 770,000
$ 21,567,000 $ 13,262,000
</TABLE>
57
<PAGE>
Interest foregone on nonaccrual loans and troubled debt restructurings
outstanding during the years ended December 31, 1994, 1993 and 1992
amounted to approximately $1,363,000, $1,186,000, and $698,600,
respectively.
TRANSACTIONS INVOLVING DIRECTORS AND SHAREHOLDERS
In the ordinary course of business, the Bank has granted loans to certain
directors, executive officers and the businesses with which they are
associated. All such loans and commitments to lend were made under terms
that are consistent with the Bank's normal lending policies.
The following is an analysis of the activity of all such loans:
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Outstanding balance,
beginning of year $ 3,073,000 $ 3,415,000 $ 2,971,000
Credit granted, including
renewalS 486,000 3,088,000 802,000
Repayments (216,000) (3,430,000) (358,000)
Outstanding balance,
end of year $ 3,343,000 $ 3,073,000 $ 3,415,000
</TABLE>
ALLOWANCE FOR CREDIT AND OTHER REAL ESTATE OWNED LOSSES
Activity in the allowance for credit losses was as follows:
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Balance, beginning of year $ 8,849,442 $ 6,461,345 $ 5,262,614
Provision charged to operations 350,000 1,720,000 1,772,109
Loans charged off (1,021,230) (1,018,370) (687,360)
Additions to allowance resulting
from acquisitions 1,124,657 1,586,995
Recoveries on loans previously
charged off 167,867 99,472 113,982
Balance, end of year $ 9,470,736 $ 8,849,442 $ 6,461,345
</TABLE>
Activity in the allowance for other real estate owned losses was as follows:
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Balance, beginning of year $ 1,650,903 $ 100,000
Provision charged to operations 2,400,000 2,830,000 $ 100,000
Charge-offs of real estate owned (2,870,813) (1,279,097)
$ 1,180,090 $ 1,650,903 $ 100,000
</TABLE>
58
<PAGE>
PREMISES AND EQUIPMENT
Premises and equipment consist of:
<TABLE>
<CAPTION>
1994 1993
<S> <C> <C>
Land $ 1,205,845 $ 911,845
Bank premises 6,060,974 3,846,426
Furniture and equipment 15,607,727 13,010,578
Leased property under capital lease 649,330 649,330
23,523,876 18,418,179
Accumulated depreciation and
amortization (10,722,395) (9,352,229)
$12,801,481 $ 9,065,950
</TABLE>
INCOME TAXES
Income tax expense (benefit) comprised the following:
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Current provision:
Federal $ 4,995,206 $ 5,088,401 $ 4,792,091
State 1,881,739 1,895,830 1,725,555
6,876,945 6,984,231 6,517,646
Deferred provision (benefit):
Federal 165,756 (728,828) (601,578)
State 142,978 (215,225) (204,623)
308,734 (944,053) (806,201)
$ 7,185,679 $ 6,040,178 $ 5,711,445
</TABLE>
Income tax liability (asset) comprised the following:
<TABLE>
<CAPTION>
1994 1993
<S> <C> <C>
Current:
Federal $ 7,577 $ (348,630)
State 46,938 30,332
54,515 (318,298)
Deferred:
Federal (6,547,639) (2,765,334)
State (1,409,267) (846,040)
(7,956,906) (3,611,374)
$(7,902,391) $(3,929,672)
</TABLE>
The components of the net deferred tax asset are as follows:
59
<PAGE>
<TABLE>
<CAPTION>
Federal 1994 1993
<S> <C> <C>
Deferred tax liabilities:
Depreciation $ 389,835 $ 339,666
Leases 204,023 220,959
Other 65,748 9,605
Gross deferred tax liability 659,606 570,230
Deferred tax assets:
California franchise tax 382,938 367,426
Bad debt and credit loss deduction 2,390,997 2,390,322
Other real estate owned reserves 413,032 577,816
Unrealized loss on securities 3,948,060
Other 72,218
Gross deferred tax asset 7,207,245 3,335,564
Net deferred tax asset - federal $ 6,547,639 $ 2,765,334
STATE
1994 1993
Deferred tax liabilities:
Depreciation $ 153,601 $ 128,818
Other 13,823
Gross deferred tax liability 167,424 128,818
Deferred tax assets:
Bad debt and credit loss deduction 673,418 743,848
Other real estate owned reserves 131,073 183,366
Unrealized loss on securities 706,205
Other 65,995 47,644
Gross deferred tax asset 1,576,691 974,858
Net deferred tax asset - state $ 1,409,267 $ 846,040
</TABLE>
A reconciliation of the statutory income tax rate to the consolidated effective
income tax rate follows:
<TABLE>
<CAPTION> 1994 1993 1992
Amount Percent Amount Percent Amount Percent
<S> <C> <C> <C> <C> <C> <C>
Federal income
tax at
statutory rate $6,167,159 35.0% $5,342,369 34.3% $5,007,012 34.0%
State franchise
taxes, net of
federal income
tax benefit 1,316,067 7.5 1,140,830 7.3 1,069,825 7.3
Other, net (297,547) (1.7) (443,021)(2.8) (365,392)(2.5)
$7,185,679 40.8% $6,040,178 38.8% $5,711,445 38.8%
</TABLE>
60
<PAGE>
DEPOSITS
Time certificates of deposit with balances of $100,000 or more amounted to
approximately $68,089,000 and $45,862,000 at December 31, 1994 and 1993,
respectively. Interest expense on such deposits amounted to approximately
$2,471,000 (1994), $1,804,000 (1993) and $2,044,000 (1992).
COMMITMENTS AND CONTINGENCIES
The Bank leases land and buildings under operating leases for varying
periods extending to 2014, at which time the Bank can exercise options that
could extend the leases to 2027. The future minimum annual rental payments
required, which have initial or remaining noncancelable lease terms in
excess of one year as of December 31, 1994, excluding property taxes and
insurance, are approximately as follows:
1995 $ 1,806,000
1996 1,629,000
1997 1,409,000
1998 1,019,000
1999 1,043,000
Succeeding years 3,838,000
Total minimum payments required $10,744,000
Total rental expense was approximately $1,670,000 (1994), $1,449,000 (1993)
and $1,460,000 (1992).
At December 31, 1994, the Bank had commitments to extend credit of
approximately $76,673,000 and obligations under letters of credit of
$5,678,000. 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 Company uses the
same credit underwriting policies in granting or accepting such commitments
or contingent obligations as it does for on-balance-sheet instruments,
evaluating customers' creditworthiness individually.
Standby letters of credit written are conditional commitments issued by the
Company to guarantee the financial performance of a customer to a third
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 Company holds appropriate collateral
supporting those commitments. Management does not anticipate any material
losses as a result of these transactions.
In the ordinary course of business, the Company becomes involved in
litigation. In the opinion of management and based upon discussions with
legal counsel, the disposition of such litigation will not have a material
effect on the Company's consolidated financial position or results of
operations.
EMPLOYEE PROFIT SHARING PLAN
61
<PAGE>
The Bank sponsors a profit-sharing and 401(k) plan for the benefit of its
employees. Employees are eligible to participate in the plan after 12
months of consecutive service provided they have completed 1,000 service
hours in the plan year. Employees may make contributions to the plan under
the plan's 401(k) component and the Bank may make contributions under the
plan's profit-sharing component, subject to certain limitations. The
Bank's contributions are determined by the Board of Directors, and amounted
to approximately $715,000 (1994), $680,000 (1993) and $639,000 (1992).
STOCK OPTION PLANS
The Company has a plan under which options to purchase shares of the
Company's common stock have been and may be granted to certain officers and
directors. The plan authorizes the issuance of up to 1,131,350 shares.
Option prices under the plan are to be at the fair market value of such
shares on the date of grant, and options are exercisable in such
installments as determined by the Board of Directors. Each option shall
expire no later than ten years from the grant date. Additional options
have been granted to certain officers and directors under a plan that
expired during 1991. Although no more options can be granted under the
expired plan, the options granted thereunder will remain outstanding until
they are exercised or canceled pursuant to their terms.
At December 31, 1994, options for the purchase of 592,622 shares of the
Company's common stock were outstanding, of which options to purchase
387,741 shares were exercisable at prices ranging from $2.20 to $14.09;
593,396 shares of common stock were available for the granting of future
options. Status of all optioned shares is as follows:
<TABLE>
<CAPTION>
SHARES PRICE RANGE
<S> <C> <C>
Outstanding at January 1, 1992 745,784 $ 2.20-$10.43
Granted 421,562 $ 6.20-$ 8.64
Exercised (193,170) $ 2.20-$ 6.20
Canceled (424,057) $ 2.20-$ 8.83
Outstanding at December 31, 1992 550,119 $ 2.20-$10.43
Granted 67,451 $ 8.99-$11.98
Exercised (16,641) $ 6.20-$ 9.67
Canceled (17,037) $ 6.20-$ 9.68
Outstanding at December 31, 1993 583,892 $ 2.20-$11.98
Granted 49,830 $ 10.79-$14.09
Exercised (28,472) $ 3.20-$ 7.50
Canceled (12,628) $ 6.20-$11.98
Outstanding at December 31, 1994 592,622 $ 2.20-$14.09
</TABLE>
In 1994, 1993 and 1992, the Company granted to a key executive 24,200,
22,000 and 10,000 shares, respectively, of the Company's common stock in
accordance with his compensation agreement. The agreement also provides
for the granting of an additional 39,930 shares through 1996 for which the
executive is entitled to receive stock and cash dividends.
62
<PAGE>
REGULATORY MATTERS
Section 23A of the Federal Reserve Act restricts the Bank from making loans
or advances to the Company and other affiliates in excess of 20% of the
Bank's capital stock and surplus.
In addition, California Banking Law limits the amount of dividends that a
bank can pay without obtaining prior approval from bank regulators. Under
this law, the Bank could, as of December 31, 1994, declare and pay
dividends of approximately $3,927,000 to the Company. The remaining amount
of Bank equity of approximately $55,639,000 is restricted with respect to
dividends and represents 93% of the Bank's equity.
As of December 31, 1994, the Company and the Bank 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, which consists primarily of common stock and
retained earnings, less goodwill). Additionally, the regulatory
authorities require the highest rated institutions to maintain a minimum
leverage ratio of 3% as of December 31, 1994. The leverage ratio basically
consists of Tier 1 capital divided by average total assets. Institutions
experiencing or anticipating significant growth or those with high or
inordinate levels of risk are expected to maintain a leverage ratio well
above the minimum level, e.g., 4% or 5%. The leverage ratio operates in
conjunction with the risk-based capital guidelines. The capital ratios of
the Company and Bank at December 31, 1994 are as follows:
<TABLE>
<CAPTION>
Company Bank Minimum
1994
<S> <C> <C> <C>
Risk-Based Capital Ratio:
Tier 1 10.8 % 10.4 % 4.0 %
Total 12.0 % 11.7 % 8.0 %
Leverage Ratio 7.5 % 7.3 % 3.0 %
</TABLE>
Banking regulations require that all banks maintain a percentage of their
deposits as reserves at the Federal Reserve Bank. During the year ended
December 31, 1994, required reserve balances averaged approximately
$13,918,000.
CONDENSED FINANCIAL INFORMATION OF PARENT COMPANY
<TABLE>
BALANCE SHEETS
(In thousands)
<CAPTION>
1994 1993
<S> <C> <C>
Assets:
Investment in Chino Valley Bank $59,566 $59,290
Other assets, net 3,083 782
Total assets $62,649 $60,072
Liabilities $ 709 $ 114
Stockholders' equity 61,940 59,958
Total liabilities and stockholders' equity $62,649 $60,072
</TABLE>
63
<PAGE>
STATEMENTS OF EARNINGS
(In thousands, except per-share amounts)
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Equity in earnings of Chino Valley Bank $10,724 $ 9,935 $ 8,941
Other (expense) income, net (289) (413) 74
Net earnings $10,435 $ 9,522 $ 9,015
</TABLE>
STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 10,435 $ 9,522 $ 9,015
Adjustments to reconcile net earnings
to cash (used in) provided by
operating activities:
Earnings of Chino Valley Bank (10,724) (9,935) (8,941)
Other operating activities, net (1,088) 1,405 (599)
Total adjustments (11,812) (8,530) (9,540)
Net cash (used in) provided
by operating activities (1,377) 992 (525)
CASH FLOWS FROM INVESTING ACTIVITIES:
Dividends received from
Chino Valley Bank 18,619 6,098 956
Investment in subsidiaries (14,797) (4,693)
Net cash provided by
investing activities 3,822 1,405 956
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash dividends on common stock (2,344) (2,111) (1,938)
Proceeds from exercise of
stock options 129 106 477
Net cash used in financing
activities (2,215) (2,005) (1,461)
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 230 392 (1,030)
CASH AND CASH EQUIVALENTS,
BEGINNING OF YEAR 562 170 1,200
CASH AND CASH EQUIVALENTS,
END OF YEAR $ 792 $ 562 $ 170
</TABLE>
64
<PAGE>
QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data follows:
<TABLE>
<CAPTION>
1994 Three Months Ended
March 31 June 30 September 30 December 31
(In thousands, except per-share amounts)
<S> <C> <C> <C> <C>
Net interest income $9,424 $9,923 $11,644 $11,828
Provision for credit losses 50 100 200
Investment securities gains, net (128)
Net earnings 2,221 2,430 2,899 2,885
Earnings per common share 0.26 0.29 0.35 0.34
1993
Net interest income $8,439 $8,791 $ 9,053 $ 9,608
Provision for credit losses 420 375 450 475
Investment securities gains, net 574 1,705 1,411 31
Net earnings 2,171 2,316 2,490 2,545
Earnings per common share 0.26 0.28 0.30 0.31
</TABLE>
FAIR VALUE INFORMATION
The following disclosure of the estimated fair value of financial
instruments is made in accordance with the requirements of SFAS No. 107,
"Disclosures about Fair Value of Financial Instruments." The estimated
fair value amounts have been determined by the Company using available
market information and appropriate valuation methodologies. However,
considerable judgment is required to develop the estimates of fair value.
Accordingly, the estimates presented below are not necessarily indicative
of the amounts the Company could have realized in a current market exchange
as of December 31, 1994 and 1993. The use of different market assumptions
and/or estimation methodologies may have a material effect on the estimated
fair value amounts.
<TABLE>
<CAPTION>
1994
Carrying Estimated
Assets Amount Fair Value
<S> <C> <C>
Cash and due from banks $ 94,828,593 $ 94,828,593
Federal funds sold 15,000,000 15,000,000
Investment securities held to maturity 19,018,218 18,073,355
Investment securities available for sale 173,248,095 173,248,095
Loans and lease finance receivables, net 484,617,731 466,828,000
Liabilities
Deposits:
Noninterest-bearing 327,807,389 327,807,389
Interest-bearing 434,816,532 434,034,000
</TABLE>
65
<PAGE>
<TABLE>
<CAPTION>
1993
Assets
<S> <C>
Cash and due from banks $ 45,852,849 $ 45,852,849
Federal funds sold 15,000,000 15,000,000
Investment securities held for investment 9,153,916 9,506,000
Investment securities for sale 140,364,947 141,378,000
Loans and lease finance receivables, net 442,083,848 447,680,000
Liabilities
Deposits:
Noninterest-bearing 221,552,597 221,552,597
Interest-bearing 374,403,704 375,948,000
</TABLE>
The methods and assumptions used to estimate the fair value of each class
of financial instruments for which it is practicable to estimate that value
are explained below:
For federal funds sold and cash and due from banks, the carrying amount is
considered to be a reasonable estimate of fair value. For investment
securities, fair values are based on quoted market prices, dealer quotes
and prices obtained from an independent pricing service (see Notes 1 and
2).
The carrying amount of loans and lease financing receivables is their
contractual amounts outstanding reduced by deferred net loan origination
fees and the allocable portion of the allowance for credit losses (see
Notes 1 and 3). Variable rate loans are composed primarily of loans whose
interest rates float with changes in the prime interest rate. The carrying
amount of variable rate loans, other than such loans in nonaccrual status,
is considered to be their estimated fair value.
The fair value of fixed rate loans, other than such loans in nonaccrual
status, was estimated by discounting the remaining contractual cash flows
using the estimated current rate at which similar loans would be made to
borrowers with similar credit risk characteristics and for the same
remaining maturities, reduced by deferred net loan origination fees and the
allocable portion of the allowance for credit losses.
Accordingly, in determining the estimated current rate for discounting
purposes, no adjustment has been made for any change in borrowers' credit
risks since the origination of such loans. Rather, the allocable portion
of the allowance for credit losses is considered to provide for such
changes in estimating fair value.
The fair value of loans on nonaccrual status (see Note 3) has not been
specifically estimated because it is not practicable to reasonably assess
the credit risk adjustment that would be applied in the market place for
such loans. As such, the estimated fair value of total loans at December
31, 1994 and 1993 includes the carrying amount of nonaccrual loans at each
respective date.
66
<PAGE>
The amounts payable to depositors for demand, savings, and money market
accounts are considered to be stated at fair value. The fair value of
fixed-maturity certificates of deposit is estimated using the rates
currently offered for deposits of similar remaining maturities.
The fair value estimates presented herein are based on pertinent
information available to management as of December 31, 1994 and 1993.
Although management is not aware of any factors that would significantly
affect the estimated fair value amounts, such amounts have not been
comprehensively revalued for purposes of these financial statements since
that date, and, therefore, current estimates of fair value may differ
significantly from the amounts presented above.
ACQUISITION OF BRANCHES AND PURCHASE OF ASSETS AND LIABILITIES
The Company purchased Western Industrial National Bank (WINB) on June 24,
1994 and Fontana First National Bank (FFNB) on March 8, 1993. The Company
contributed the assets and liabilities to the Bank. In addition, the Bank
assumed deposits and purchased certain assets of two failed institutions,
Pioneer Bank (PB), as of July 8, 1994, and Mid City Bank N.A. (MCB) as of
October 21, 1993 from the Federal Deposit Insurance Corporation. The
results of operations since the dates of these acquisitions are included in
the accompanying consolidated statements of earnings. A summary of the
significant components of these transactions are as follows:
<TABLE>
<CAPTION>
1994 1993
WINB PB FFNB MCB
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 16,594,750 $ 5,998,539 $ 8,235,436 $ 6,580,408
Fair value of other assets 36,375,489 17,505,877 18,622,708 25,466,359
Fair value of liabilities
assumed (44,150,079) (52,925,330) (23,708,377) (79,273,984)
Goodwill 5,976,578 1,300,000 1,893,556 50,000
Consideration paid
(received) $ 14,796,738 $(28,120,914)$ 5,043,323 $(47,177,217)
</TABLE>
The $79,273,984 of liabilities assumed in the Mid City Bank acquisition
includes $62,695,886 of time certificates of deposit, of which $48,691,023
was withdrawn within 30 days of acquisition date and is not reflected in
the consolidated statement of cash flows for 1993.
67
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
CVB Financial Corp.
Ontario, California:
We have audited the accompanying consolidated balance sheets of CVB
Financial Corp. and subsidiaries as of December 31, 1994 and 1993, and the
related consolidated statements of earnings, stockholders' equity, and cash
flows for each of the three years in the period ended December 31, 1994.
These financial statements are the responsibility of CVB Financial Corp.'s
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of CVB Financial Corp. and
subsidiaries as of December 31, 1994 and 1993, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1994, in conformity with generally accepted accounting
principles.
As discussed in Note 2 to the consolidated financial statements, in 1994
CVB Financial Corp. changed its method of accounting for certain investment
securities.
/s/Deloitte & Touche LLP
Deloitte & Touche LLP
Los Angeles, California
January 20, 1995
68
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Except as hereinafter noted, the information concerning directors and
executive officers of the Company is incorporated by reference from the
section entitled "DIRECTORS AND EXECUTIVE OFFICERS - Election of Directors"
and "COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934"
of the Company's definitive Proxy Statement to be filed pursuant to
Regulation 14A within 120 days after the end of the last fiscal year. For
information concerning executive officers of the Company, see "Item 4(A).
EXECUTIVE OFFICERS OF THE REGISTRANT" above.
ITEM 11. EXECUTIVE COMPENSATION
Information concerning management remuneration and transactions is
incorporated by reference from the section entitled "DIRECTORS AND
EXECUTIVE OFFICERS -Compensation of Executive Officers and Directors -
Executive Compensation, - Employment Agreements and Termination of
Employment Arrangements, - Stock Options, - Option Exercises and Holdings
and - Compensation Committee Interlocks and Insider Participation" of the
Company's definitive Proxy Statement to be filed pursuant to Regulation
14A within 120 days after the end of the last fiscal year.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information concerning security ownership of certain beneficial owners
and management is incorporated by reference from the sections entitled
"INTRODUCTION -Principal Shareholders" and "DIRECTORS AND EXECUTIVE
OFFICERS - Election of Directors" of the Company's definitive Proxy
Statement to be filed pursuant to Regulation 14A within 120 days after the
end of the last fiscal year.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information concerning certain relationships and related transactions
with management and others is incorporated by reference from the section
entitled "DIRECTORS AND EXECUTIVE OFFICERS--Certain Transactions" of the
Company's definitive Proxy Statement to be filed pursuant to Regulation
14A within 120 days after the end of the last fiscal year.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K
Financial Statements
Reference is made to the index to Financial Statements at
page 44 for a list of financial statements filed as part of this
Report.
69
<PAGE>
Exhibits
See Index to Exhibits at Page 72 of this Form 10-K.
EXECUTIVE COMPENSATION PLANS AND ARRANGEMENTS
The following compensation plans and arrangements are filed as
exhibits to this Form 10-K: 1981 Stock Option Plan, Exhibit
10.1; Agreement by and among D. Linn Wiley, CVB Financial Corp.
and Chino Valley Bank dated August 8, 1991, Exhibit 10.2; Chino
Valley Bank Profit Sharing Plan, Exhibit 10.3; 1991 Stock Option
Plan, Exhibit 10.17; Severance Agreement between John Cavallucci,
Chino Valley Bank and CVB Financial Corp. dated March 26, 1991
and Waiver Agreement dated October 4, 1991, Exhibit 10.18; Key
Employee Stock Grant Plan, Exhibit 10.19. See Index to Exhibits
at Page 72 to this Form 10-K.
REPORTS ON FORM 8-K
The Company filed a Report on Form 8-K, on July 8, 1994
reporting under Item 2, and a Report on Form 8-K on July 21, 1994 reporting
under item 5.
UNDERTAKING FOR REGISTRATION STATEMENT ON FORM S-8
For the purpose of complying with the amendments to the rules
governing Form S-8 (effective July 13, 1990) under the Securities
Act of 1933, the undersigned registrant hereby undertakes as
follows, which undertaking shall be incorporated by reference
into registrant's Registration Statement on Form S-8 No. 2-76121
(filed February 18, 1982):
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers
and controlling persons of the registrant pursuant to the
foregoing provisions, or otherwise, the registrant has been
advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as
expressed in the Securities Act of 1933 and is, therefore,
unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of
any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities
being registered, the registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question
whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final
adjudication of such issue.
70
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, on the 27th day of March, 1995.
CVB FINANCIAL CORP.
(Registrant)
By
/s/ D. LINN WILEY
D. LINN WILEY
President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the registrant in the capacities and on the dates
indicated.
Signature Title Date
/s/ George A. Borba Chairman of the Board March 27, 1995
George A. Borba
/s/ John A. Borba Director March 27, 1995
John A. Borba
/s/ Ronald O. Kruse Director March 27, 1995
Ronald O. Kruse
/s/ John J. LoPorto Director March 27, 1995
John J. LoPorto
/s/ Charles M. Magistro Director March 27, 1995
Charles M. Magistro
/s/ John Vander Schaaf Director March 27, 1995
John Vander Schaaf
/s/ Robert J. Schurheck Chief Financial Officer March 27, 1995
Robert J. Schurheck (Principal Financial
and Accounting Officer)
/s/ D. Linn Wiley Director, President and March 27, 1995
D. Linn Wiley Chief Executive Officer
(Principal Executive Officer)
71
<PAGE>
INDEX TO EXHIBITS
Exhibit No. Page
3.1 Articles of Company, as amended.(1) *
3.2 Bylaws of Company, as amended.(2) *
10.1 1981 Stock Option Plan, as amended.(1) *
10.2 Agreement by and among D. Linn Wiley, CVB
Financial Corp. and Chino Valley Bank dated
August 8, 1991.(2) *
10.3 Chino Valley Bank Profit Sharing Plan, as amended.(3) *
10.4 Definitive Agreement by and between CVB Financial
Corp. and Huntington Bank dated January 6, 1987.(4) *
10.5 Transam One Shopping Center Lease dated May 20, 1986,
by and between Transam One and Chino Valley Bank for
the East Chino Office.(4) *
10.6 Sublease dated November 1, 1986, by and between
Eldorado Bank and Chino Valley Bank for the East
Highland Office.(4) *
10.7 Lease Assignment, Acceptance and Assumption and
Consent dated December 23, 1986, executed by the
FDIC, Receiver of Independent National Bank, Covina,
California, as Assignor, Chino Valley Bank, as
Assignee, and INB Bancorp, as Landlord under that
certain Ground Lease dated September 30, 1983 by and
between INB Bancorp and Independent National Bank for
the Covina Office.(4) *
10.8 Lease Assignment dated May 15, 1987 and Consent of
Lessor dated April 21, 1987 executed by Huntington
Bank, as Assignor, Chino Valley Bank as Assignee and
Gerald G. Myers and Lynn H. Myers as Lessors under
that certain lease dated March 1, 1979 between
Lessors and Huntington Bank for the Arcadia Office.(5) *
10.9 Lease Assignment dated May 15, 1987 and Consent of
Lessor dated March 18, 1987 executed by Huntington
Bank, as Assignor, Chino Valley Bank as Assignee and
George R. Meeker as Lessor under that certain
Memorandum of Lease dated May 1, 1982 between Lessor
and Huntington Bank for the South Arcadia Office.(5) *
10.10 Lease Assignment dated May 15, 1987 and Consent of
Lessor dated March 17, 1987 executed by Huntington
Bank, as Assignor, Chino Valley Bank as Assignee
and William R. Hayden and Marie Virginia Hayden as
Lessor under that Certain Lease and Sublease, dated
March 1, 1983, as amended, between Lessors and
Huntington Bank for the San Gabriel Office.(5) *
72
<PAGE>
10.11 Lease Assignment dated May 15, 1987 executed by
Huntington Bank as Assignor and Chino Valley
Bank as Assignee under that certain Shopping
Center Lease dated June 1, 1982, between Anita
Associates, a limited partnership and Huntington
Bank for the Santa Anita ATM Branch.(5) *
10.12 Office Building Lease between Havenpointe Partners
Ltd. and CVB Financial Corp. dated April 14, 1987
for the Ontario Airport Office.(5) *
10.13 Form of Indemnification Agreement.(7) *
10.14 Office Building Lease between Chicago Financial
Association I, a California Limited Partnership and
CVB Financial Corp. dated October 17, 1989, as
amended, for the Riverside Branch.(1) *
10.15 Office Building Lease between Lobel Financial
Corporation and Chino Valley Bank dated June 12,
1990, for the Premier Results data processing center.(3) *
10.16 Office Space Lease between Rancon Realty Fund IV
and Chino Valley Bank dated September 6, 1990, for
the Tri-City Business Center Branch.(3) *
10.17 1991 Stock Option Plan.(6) *
10.18 Severance Agreement between John Cavallucci, Chino Valley
Bank and CVB Financial Corp. dated March 26, 1991 and
Waiver Agreement dated October 4, 1991.(2) *
10.19 Key Employee Stock Grant Plan.(8) *
10.20 Lease by and between Allan G. Millew and William F.
Kragness and Chino Valley Bank dated March 5, 1993
for the Fontana Office. (9) *
10.21 Office Lease by and between Mulberry Properties
and Chino Valley Bank dated October 12, 1992. (9) *
10.22 First Amended and Restated Agreement and Plan of
Reorganization by and between CVB Financial Corp.,
Chino Valley Bank and Fontana First National Bank,
dated October 8, 1992 (11) *
10.23 Purchase and Assumption Agreement among FDIC
receiver of Mid City Bank, National Association, FDIC
and Chino Valley Bank, dated October 21, 1993 (10) *
10.24 Agreement and Plan of Reorganization by and between
CVB Financial Corp., Chino Valley Bank and Western
Industrial National Bank, dated November 16, 1993 (11) *
73
<PAGE>
10.24.1 Amendment No. 1 to Agreement and Plan of Reorganization
by and between CVB Financial Corp., Chino Valley Bank
and Western Industrial National Bank dated
February 14, 1994. (12) *
10.24.2 Amendment No. 2 to Agreement and Plan of Reorganization
by and between CVB Financial Corp., Chino Valley Bank
and Western Industrial National Bank dated June 23,
1994.(12) *
10.25 Lease by and between Bank of America and Chino Valley
Bank dated October 15, 1993, for the West Arcadia
Office.(11) *
10.26 Lease be and between RCI Loring and CVB Financial Corp
dated March 11, 1993, for the Riverside Office. (11) *
10.27 Lease by and between 110 Wilshire Building Partners, a
California Partnership and Chino Valley Bank dated
October 21, 1994 for the Fullerton Office 76
22 Subsidiaries of Company. (9) *
23 Consent of Independent Certified Public Accountants. 116
27 Financial Data Schedule 117
__________________________
*Not applicable.
(1) Filed as Exhibits 3.1, 10.1 and 10.14 to Registrant's Annual
Report on Form 10-K for the fiscal year ended
December 31, 1989, Commission file number 1-10394, which
are incorporated herein by this reference.
(2) Filed as Exhibits 3.2, 10.2 and 10.18 to Registrant's Annual
Report on Form 10-K for the fiscal year ended December 31,
1991, Commission file number 1-10394, which are
incorporated herein by this reference.
(3) Filed as Exhibits 10.3, 10.15 and 10.16 to Registrant's Annual
Report on Form 10-K for the fiscal year ended December 31,
1990, Commission file number 1-10394, which are
incorporated herein by this reference.
(4) Filed as Exhibits 10.4, 10.5, 10.6 and 10.7 to Registrant's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1986, Commission file number 1-10394, which
are incorporated herein by this reference.
(5) Filed as Exhibits 10.8, 10.9, 10.10, 10.11 and 10.12 to
Registrant's Annual Report on Form 10-K for the fiscal
year ended December 31, 1987, Commission file number 1-
10394, which are incorporated herein by this reference.
74
<PAGE>
(6) Filed as Exhibit 4.1 to Registrant's Registration Statement on
Form S-8 (33-41318) filed with the Commission on June 21,
1991, which is incorporated herein by this reference.
(7) Filed as Exhibit 10.13 to Registrant's Annual Report on
Form 10-K for the fiscal year ended December 31, 1988,
Commission file number 1-10394, which is incorporated
herein by this reference.
(8) Filed as Exhibit 4.1 to Registrant's Registration Statement on
Form S-8 (33-50442) filed with the Commission on August 1,
1992, which is incorporated herein by this reference.
(9) Filed as Exhibit 10.20, 10.21 and 22 to Registrant's Annual
Report on Form 10-K for the fiscal year ended December 31,
1992, Commission file number 1-10394, which are incorporated
herein by this reference.
(10) Filed as Exhibit 99 to the Registrant's Current Report on
Form 8-K filed with the Commission on November 4, 1993,
which is incorporated herein by this reference.
(11) Filed as Exhibit 10.22, 10.24, 10.25 and 10.26 to Registrant's
Annual Report on Form 10-K for the fiscal year ended December 31,
1993, Commission file number 1-10394, which are incorporated
herein by this reference.
(12) Filed as Exhibit 10.24.1 and 10.24.2 to the Registrant's
current report on Form 8-K filed with the Commission on
July 8, 1994, which are incorporated herein by this reference.
75
<PAGE>
Exhibt 10.27
Tenant: Chino Valley Bank
Owner: 110 Wilshire Building Partners
The Chapman Building Office Lease
PAGE
Table Of Contents Of Lease i
Basic Lease Provisions ii
Article 1. Premises 1
Article 2. Term 1
Article 3. Completion and Acceptance of Premises 1
Article 4. Rent 2
Article 5. Force Majeure 2
Article 6. Security Deposit 2
Article 7. Use Restrictions 3
Article 8. Service and Utilities 3
Article 9. Compliance with Laws and Restrictions 4
Article 10. Alterations, Furniture and Trade Fixtures 5
Article 11. Condition of Premises, During Lease Term and Upon
Surrender of Premises 6
Article 12. Liens 6
Article 13. Assignment and Subletting 7
Article 14. Indemnification and Non-Liability of Owner 9
Article 15. Taxes 11
Article 16. Holding Over 11
Article 17. Rules and Regulations 11
Article 18. Re-Entry By Owner 11
Article 19. Insolvency or Bankruptcy 12
Article 20. Default; Remedies 12
Article 21. Casualty Damage 15
Article 22. Eminent Domain 17
Article 23. Transfer of Owner's Interest 17
Article 24. Owner's Right to Perform Tenant Obligations 18
Article 25. Legal Expenses 18
Article 26. Late Payments: Interest and Late Charges 18
Article 27. Broker 19
Article 28. Waiver 19
Article 29. Rights of Owner 20
Article 30. Substituted Premises 20
Article 31. Waivers of Subrogation 20
Article 32. Estoppel Certificate 21
Article 33. Notices 21
Article 34. Abandonment 22
Article 35. Addenda, Exhibits and Riders 22
Article 36. Invalidity 22
Article 37. Interpretation and Governing Law 22
Article 38. Defined Terms and Captions, Joint and Several
Liability 22
Article 39. Entire Agreement, Amendments 23
Article 40. Time of the Essence 23
Article 41. Execution and Examination Of Lease 23
Article 42. Covenant of Quiet Enjoyment 23
76
<PAGE>
Article 43. Successors and Assigns 23
Article 44. Subordination 23
Article 45. Insurance 24
Article 46. Cumulative Rights 25
Article 47. Accord and Satisfaction, Receipt of Money 25
Article 48. Recording 26
Article 49. Authority 26
Signatures 26
Riders
Exhibits
Lease Agreement
In consideration of the rents and covenants hereinafter set forth, Owner hereby
leases and demises to Tenant, and Tenant hereby leases and takes from owner, the
premises hereinafter described on the terms and conditions set forth in this
Lease Agreement, hereinafter called the "Lease".
Basic Lease Provisions
The words and figures set forth in Paragraph A to R, both inclusive, are part of
this lease and relate to the numbered articles which follow.
A. Date of Lease: As of October 21, 1994
B.Owner: 110 Wilshire Building Partners, a California partnership.
C.Tenant: Chino Valley Bank
State of incorporation (if Tenant a Corporation):
dba (if any:
D.Name of Property: The Chapman Building, 110 Wilshire Avenue, Fullerton,
County of Orange, State of California, herein called the "Property". The
Property shall include one five-story office building and all other improvements
and appurtenances to the Property, as well as the underlying land.
E. Premises: Suite(s) 100, 100M and G3 located on floor(s) See Article I. The
Premises have a total area of approximately 9,631 usable square feet.
F.Permitted Use of Premises: Banking and/or general office. See Article 7.
G.Period of Term: Three (3) years
H.Estimated Commencement Date: November 5, 1994
I.Commencement Date: November 5, 1994. Expiration Date: The last day of the
month of November 4, 1997
I -1. Space Plan Approval Date: Not Applicable
J.Annual Basic Rent: $ 139,878.60, ($11656.55 per month). See Article 4. Rental
Adjustment: See Rider No. 1 for CPI rental adjustments and Rider No. 2 for
rental adjustments and reimbursements on account of increases in owner's
operating costs and property taxes.
K.Broker: See Addendum. See Article 27.
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L.Security Deposit: $11,656.55. (Does not include rent for first full
calendar month). See Article 6.
M.Owner's Address for Notices and Payment: 110 Wilshire Building Partners, 3577
N. Figueroa Street, Los Angeles, California 90065.
N.Tenant's Address for Notices: Chino Valley Bank, Attn.: CFO 701 N. Haven
Avenue, Suite 350, Ontario, CA 91764. Tenant's Telephone Number: 909/980-4030.
Tenant's Address for Notices prior to Tenant's occupancy of Premises. (if above
address is the Premises):
O.Exhibits: The following Exhibits are attached hereto and made a part hereof:
Exhibit "C" Rules and Regulations.
P.Riders: The following Riders are attached hereto and made a part hereof:
Riders 1 and 2 regarding rental adjustment, Addendum to Lease.
Q.Late Charge: Ten (10) percent (10%) of unpaid amounts. Minimum late charge is
$20. See Article 26.
R.Miscellaneous:
Owner's Initials
Tenant's Initials
Article 1. Premises. See Addendum
Owner hereby leases and demises to Tenant, and Tenant hereby leases and takes
from Owner those certain premises (the "Premises") described in Paragraph E of
the Basic Lease Provisions which are located in the building (herein called the
"Building") described in Paragraph E of the Basic Lease Provisions.
This Lease is subject to the terms, covenants and conditions herein set forth,
and Tenant covenant to perform their respective obligations under this Lease.
Article 2. Term.
As used in this Lease, the words set forth in quotes below shall have the
meanings indicated as follows:
A. "Estimated Commencement Date": The date upon which it is presently estimated
that the Premises will be ready for Tenant's use pursuant to this Lease, as set
forth in Paragraph H of the Basic Lease Provisions. Tenant agrees that Owner
shall have no liability, nor shall Tenant be entitled to terminate or cancel
this Lease, if the lease term does not commence by the Estimated Commencement
Date
B. "Commencement Date": If the Commencement Date is known upon the execution
hereof and agreed between the parties, such date and the Expiration Date are as
shown in Paragraph 1 of the Basic Lease Provisions, and upon the occurrence of
the Commencement Date, the term hereof shall commence. If such dates are not
known upon the execution hereof, then the Commencement Date shall be the
earliest of the following three dates:
(1) the seventh day following the Beneficial Occupancy Date as defined in
Section 3B below; or
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(2) the date upon which Tenant takes possession of the whole or any part of
the Premises for occupancy pursuant to this Lease; or
(3) the date which the parties agree shall be the Commencement Date.
If the Commencement Date is determined pursuant to Paragraph (1), (2) or (3)
above, the term shall thereupon commence, and the parties shall promptly execute
such form as shall be required by Owner stating the Commencement Date and the
Expiration Date, which dates shall be deemed part of the Basic Lease Provisions.
C. "Lease term": The Lease term shall be for the number of years set forth in
Paragraph G of the Basic Lease Provisions from and after the Commencement Date,
plus any period of less than one month between the Commencement Date and the
first day of the next succeeding calendar month.
Article 4. Rent.See Addendum
Tenant shall pay to Owner annual basic rent for the Premises in the amount set
forth in Paragraph J of the Basic Lease Provisions, subject to adjustment as
provided in Rider(s) attached hereto. Said annual basic rent shall be paid in
advance on or before the first day of each and every calendar month during the
term hereof in the amount per month set forth in Paragraph J of the Basic Lease
Provisions. If the Commencement Date is other than the first day of a calendar
month, the rent payable hereunder shall be prorated and the rent for the partial
month following the Commencement Date shall be payable on the first day of the
first full calendar month of the term, together with the regular monthly payment
then due. All subsequent monthly rental payments shall be paid in advance on the
first day of each calendar month. All payments requiring proration shall be
prorated on the basis of a 30 day month.
Any amounts payable by Tenant to Owner under this Lease in addition to the above
described basic rent shall be deemed additional rent, regardless of whether any
such additional amounts are specifically designated as "additional rent".
However, any such additional amounts shall be deemed additional rent solely for
the purpose of clarifying that if Tenant fails to timely pay any such additional
amounts to Owner, then Owner shall have the rights with respect to such failure
as it has with respect to any failure by Tenant to timely pay basic rent.
Said rent shall be paid to Owner without reduction or set off, in lawful money
of the United States of America, to Owner or its agent at the address set forth
in Paragraph M of the Basic Lease Provisions, or to such other person or at such
other place as Owner may from time to time designate in writing.
Article 5. Force Majeure
If either party, except as otherwise herein specifically provided, shall be
delayed or hindered in or prevented from the performance of any act required
hereunder by reason of strikes, lockouts, labor troubles, inability to procure
materials, failure of power, restrictive governmental laws or regulations,
riots, insurrection, war or other reason of a like nature not the fault of the
party delayed in performing work or doing acts required under the terms of this
Lease, then performance of such act shall be excused for the period of delay and
the period for the performance of any such act shall be extended for a period
equivalent to the period of such delay. The provisions of this Article shall
not operate to excuse Tenant from the prompt payment of basic rent, additional
rent or any other payments required by the terms of this Lease.
Article 6. Security Deposit.
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Concurrently with the execution of this Lease, or prior to the commencement of
the Lease Term, Tenant shall deposit with Owner the sum stated in Paragraph L of
the Basic Lease Provisions, asconsideration for owner entering into this Lease,
and as security for the full faithful performance of every provision of this
Lease to be performed by Tenant. If Tenant defaults with respect to any
provision of this Lease, including but not limited to the provisions relating to
the payment of rent, owner may (but shall not be obligated to) use, apply or
retain all or any part of this security deposit for the payment of any rent or
any other amount which Owner may spend or become obligated to spend by reason of
Tenant's default, or to compensate Owner for any other loss of damage which
Owner may suffer by reason of Tenant's default. The fact that Owner is holding
or applying such deposit shall not affect Owner's remedies upon any breach of
this Lease by Tenant. If any portion of said deposit is so used or applied, said
application of funds shall not constitute liquidated damages for such default by
Tenant, and Tenant shall, within five days after written demand therefor,
deposit cash with Owner in an amount sufficient to restore the security deposit
to its original amount, and Tenant's failure to do so shall be a breach of this
Lease. Owner shall not be required to keep this security deposit separate from
its general funds, and Tenant shall not be entitled to interest on such deposit.
If Tenant shall fully and faithfully perform every provision of this Lease to be
performed by it, the security deposit or any balance thereof shall be returned
to Tenant within two weeks following the date on which Owner receives possession
of the Premises. However, if owner elects to apply said security deposit toward
the cost of cleaning and/or repairing the Premises (on account of Tenant having
failed to comply with its obligations under Article 11) following the expiration
or earlier termination of this Lease, Owner shall promptly notify Tenant of such
election, and the portion (if any) of said security deposit which remains after
such cleaning and/or repair has been completed shall be refunded to Tenant
within 30 days after the date on which Owner receives possession of the
Premises.
Upon any termination of Owner's interest in the Building of which the Premises
are part, whether by sale, assignment, or otherwise, Owner or its agent shall,
within a reasonable time after the date on which Owner's interest in the
Building is terminated, do one of the following acts, either of which shall
relieve Owner of further liability with respect to the above-described security
deposit:
(a) Transfer the portion of such security deposit remaining (after any
deductions made hereunder) to owner's successor in interest, and thereafter
notify Tenant of such transfer, of any claims made against the security deposit,
and of the transferee's name and address. If the notice to Tenant is made by
personal delivery, Tenant shall acknowledge receipt of such notice and sign his
name on the Owner's copy of such notice; or
(b) Return to Tenant the portion of such payment or deposit remaining after any
deductions made hereunder.
Article 7. Use Restrictions.
The Premises shall be occupied and used by Tenant solely for the purpose of
conducting therein the business stated in Paragraph F of the Basic Lease
Provisions and for no other purpose without the prior written consent of Owner.
Tenant shall not do or permit anything to be done in or about the Premises nor
bring or keep anything therein which will in any way increase the existing rate
of (or adversely affect the coverage under) any policy of fire or other
insurance upon the Building, the Property and/or any personal property therein
or thereon, nor shall Tenant obstruct or interfere in any way with the rights of
other tenants or occupants of the Property or injure or annoy them, nor shall
Tenant use or allow the Premises to be used for any improper, immoral, unlawful
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or objectionable purpose. Tenant shall not cause, maintain or permit any
nuisance in, on or about the Premises, nor shall Tenant, commit allow or suffer
to be committed any waste in, on or about the Premise. Tenant shall conduct its
business or profession in the manner approved by the generally accepted written
code of ethics thereof.
Article 8. Service And Utilities.
Owner agrees to furnish to the premises, on generally accepted business days
from 8a.m. to 6 p.m., and on Saturdays from 8 a.m. to 12 noon, subject to the
rules and regulations of the Property, water and electricity suitable for the
intended use of the Premises, heat, ventilation and air-conditioning required
for the comfortable use and occupation of the Premises during such days and
hours (subject to any governmental requirements or standards relating to, among
other things, energy conservation), janitorial services and elevator service.
Owner shall also maintain the plumbing, air-conditioning and electrical systems
and elevators in the building, as well as the common areas in the Building and
elsewhere on the Property.
Owner may impose a reasonable charge for any utilities and services, including,
without limitation, air-conditioning, electric current and water, required to be
provided by owner by reason of any substantial recurrent use of the Premises at
any time other than the hours of 8:00 a.m. to 6:00 p.m. Monday through Friday
and 8:00 a.m. to 12 noon on Saturday, or any use beyond what Owner agrees to
furnish as described above, or special electrical, cooling and ventilating needs
created in certain areas by hybrid telephone equipment, computers and other
similar equipment or uses. At Owner's option, separate meters for such utilities
and services may be installed for the Premises, and Tenant, upon demand
therefor, shall pay owner for the installation, maintenance and repair of such
meters. Tenant agrees to cooperate fully at all times with Owner and to abide by
all regulations and requirements which Owner may prescribe for the use of the
above utilities and services. Any failure to pay any excess costs as described
above shall constitute a breach of the obligation to pay rent under this Lease
and shall entitle owner to the rights granted in this Lease for such breach.
Owner shall not be in breach of its obligations unclear this Article unless
owner fails to make repairs or perform maintenance which it is obligated to
perform hereunder and such failure persists for an unreasonable time after
written notice of the need for such repairs or maintenance is given to Owner by
Tenant. Nor shall owner be liable for injury to persons or loss of or damage to
fixtures, equipment or other personal property, however occurring, resulting
from a failure to repair or maintain, unless caused by such failure having
persisted for an unreasonable time (after written notice of the need for such
repairs or maintenance is given to Owner by Tenant) and through no fault of
Tenant. In no event shall any such failure to repair or maintain on the part of
Owner be construed as a constructive or actual eviction of Tenant or entitle
Tenant to any abatement or reduction of rent. Owner shall not be liable for
(and Tenant shall not be entitled to any abatement or reduction of rent by
reason of) Owner's failure to furnish any of the foregoing when such failure is
caused by shortages, black-outs, accidents, breakage, repairs, strikes, lockouts
or other labor disturbances or labor disputes of any character, or by any other
cause, similar or dissimilar, beyond the reasonable control of Owner, nor shall
failure under such circumstances be construed as a constructive or actual
eviction of Tenant.
Tenant shall not, without the prior written consent of Owner, use any apparatus
or devise in the Premises (including but not limited to electronic data
processing machines, punch card machines and machines using current in excess of
110 volts) which will in any way increase the amount of electricity, water or
compressed air (if compressed air is furnished by Owner) normally furnished or
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supplied for use of the Premises as general office space, nor shall Tenant
connect with electric current (except through existing electrical outlets in the
Premises, or water pipes or air pipes, if there are any) any apparatus or devise
for the purpose of using electric current or water or air. If Tenant shall
require water or electric current in excess of that usually furnished or
supplied for use of the Premises as general office space, Tenant shall first
procure the written consent of Owner to the use thereof, and Owner may cause a
water meter or electric current meter to be installed, so as to measure the
amount of water and electric current consumed for any such other use. The cost
of any such meters and of installation, maintenance and repair thereof shall be
paid for by Tenant, and Tenant agrees to pay Owner, promptly upon demand, for
all such water and electric current consumed as shown by said meters, at the
rates charged for such services by the jurisdiction in which the Building is
located or by the local public utility furnishing the same, whichever the case
may be, plus any additional expense incurred in keeping account of the water and
electric current so consumed.
Notwithstanding anything hereinabove to contrary, Owner reserves the right from
time to time to make reasonable and nondiscriminatory modifications to the above
standards for utilities and services.
Article 9. Compliance With Laws And Restrictions See Addendum
Tenant shall not use the Premises in any way (or permit or suffer anything to be
done on or about the Premises) which will conflict with any law, statute,
ordinance or governmental rule or regulation or any covenant, condition or
restriction (whether or not of public record) affecting the Property, now in
force or which may hereafter be enacted or promulgated. Tenant shall, at it its
sole cost and expense, promptly comply with (a) all laws, statutes, ordinances
and governmental rules and regulations, now in force or which my hereafter be in
force, (b) all requirements, covenants, conditions and restrictions, now in
force or which may hereafter be in force, and (c) all requirements (now in force
or which may hereafter be in force) of any board of fire underwriters or other
similar body now or hereafter constituted relating to or affecting the
condition, use or occupancy of the Premises, excluding structural changes to the
Premises not related to or affected by Tenant's improvements, acts or use of the
Premises. The judgment of any court of competent jurisdiction or the admission
by Tenant in any action against Tenant, whether Owner be a party thereto or not,
that Tenant has violated any law, statute, ordinance, governmental rule or
regulation or any requirement, covenant, condition, or restriction shall be
conclusive of that fact as between Owner and Tenant. Tenant agrees to fully
indemnify Owner against any liability, claims or damages arising as a result of
a breach of the provisions of this Article by Tenant, and against all costs,
expenses, fines or other charges arising therefrom, including, without
limitation, attorney's fees and related costs incurred by Owner in connection
therewith, which indemnity shall survive the expiration or earlier termination
of this Lease.
Article 10. Alterations, Furniture And Trade Fixtures.
See addendum
Tenant shall not make (or allow to be made) any alterations, additions or
improvements to or of the Premises or any part thereof without the prior written
consent of Owner, which shall not be unreasonably withheld, and any alterations,
additions or improvements to or of the Premises, except for movable furniture
and other movable personal property, shall at once belong to Owner. Any
alterations, additions or improvements to or of the Premises by Tenant shall be
made at Tenant's sole cost and expense and (at the option of Owner) under
Owner's direction. The plans, specifications and contractor(s) being used for
such alterations, additions or improvements must first be approved in writing by
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Owner. Nothing contained in this Article shall be interpreted as requiring
Tenant to make any alterations, additions or improvements to or of the Premises,
or as rendering Tenant as agent of Owner in making any such alterations,
additions, or improvements. Tenant shall give Owner at least ten business days'
prior written notice of the date of commencement of any construction on the
Premises.
Before commencement of any such work, Tenant shall obtain (or have its
contractor obtain) public liability insurance for personal injury and property
damage (with owner as an additional insured) and worker's compensation
insurance. The liability policy coverage shall not be less than $500,000
combined single limit, and the worker's compensation coverage shall not be less
than that required by the State of California. Each such policy (and certificate
thereof) shall be in full compliance with the provisions of Sections 45D and 45E
of this Lease.
Upon the expiration or earlier termination of the Lease term, Tenant shall
remove from the Premises all movable furniture and other movable personal
property, and shall promptly repair any damage to the Premises or the Building
caused by such removal. All of such removal and repair shall be entirely at
Tenant's expense. Tenant shall not remove any shelving, cabinet units (whether
same are for storage or library purposes or for any other purpose), fixtures or
other improvements to the Premises unless requested to do so by Owner as
hereinafter provided. At any time within the 15 days prior to the scheduled
expiration of the Lease term, or immediately upon any termination of this Lease,
Owner may demand that Tenant remove from the Premises any alterations,
additions, improvements, fixtures, equipment shelving, cabinet units or moveable
furniture (and other personal property) installed by Tenant designated by Owner
to be removed. In such event, Tenant shall complete such removal (including the
repair of any damage caused thereby) entirely at its own expense and within 15
days of Owner's demand. All repairs required of Tenant in this paragraph shall
be performed in a manner satisfactory to the owner, and shall include, but not
be limited to, the following: cap all plumbing, cap all electrical wiring,
repair all holes in walls, restore damaged floor and/or ceiling, repair any
other cosmetic damage, and clean the Premises.
If Tenant fails to remove from the Premises any of its movable furniture or
other movable personal property (or any items requested by Owner to be removed
pursuant to the above paragraph) by the expiration or earlier termination of
this Lease, then Owner my, at its sole option, (i) treat Tenant as a holdover,
in which event the provisions of Article 16 of this Lease shall apply; or (ii)
handle such items as provided in Paragraph 20B(2) and 2OB(3) of this Lease.
Article 11. Condition Of Premises, During Lease Term And Upon Surrender Of
Premises See Addendum
As part of the consideration for the leasing of the Premises, Tenant covenants
and agrees, at Tenant's sole cost and expense, to keep the Premises as clean and
sanitary as the condition of the Premises permits, and to properly use and
operate all electrical, gas and plumbing fixtures and keep them as clean and
sanitary as their condition permits. Neither Tenant nor any subtenant, agent,
employee, or servant of Tenant shall destroy, deface, damage impair or remove
any part of the Building or the facilities, equipment or apputenances of the
Building or the Property, nor shall Tenant permit any person to do any such
thing. Tenant shall, at its sole cost and expense, make all repairs to the
Premises, the Building or the Property which are required, in the opinion of
Owner, as a result of any misuse or neglect committed or permitted by Tenant or
by any Subtenant, agent, employee, or servant of Tenant. In addition, Tenant
shall, at its sole cost and expense, repair any damage to the Premises which is
caused by any invitee of Tenant. If Tenant does not make repairs promptly and
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adequately or fails to maintain the Premises in good order and repair, then,
following written notification (except in the case of an emergency, in which
case no prior notification shall be required) to Tenant, Owner may, but need
not, perform such repairs and/or maintenance, and any amounts paid by owner
(pursuant to Article 25 hereof) in connection with such repairs and/or
maintenance shall be reimbursable (plus 20%, for overhead) by Tenant to Owner
upon demand. If Owner performs any such repairs and/or maintenance on behalf of
Tenant, Owner shall not he liable to Tenant for any loss or damage that may
accrue to Tenant's merchandise, fixtures, equipment, furniture or other property
or to Tenant's business by reason thereof, nor shall any such activity be deemed
a constructive or actual eviction or entitle Tenant to any abatement or
reduction of rent.
Except as specifically set forth to the contrary in this Lease, Owner has no
obligation to alter, remodel, repair, improve, maintain, renovate or paint the
Premises or any part thereof, and no representations or warranties respecting
the condition of the Premises, the Building or the Property (or the suitability
of any of same for the conduct of Tenant's business) have been made by Owner or
by any of Owner's agents or employees.
Unless owner demands otherwise pursuant to Article 10 above, Tenant shall, upon
the expiration or earlier termination of the tenancy hereby created, surrender
to Owner the Premises in the same condition as the Premises were in upon
delivery of possession thereto under this Lease, broom clean, reasonable wear
and tear excepted, shall surrender all keys for the Premises to Owner at the
place then fixed for the payment of rent, and shall inform Owner of all
combinations of locks, safes and vaults, in any, on the Premises. Tenant shall
perform all removal and repair obligations referred to in Article 10 prior to
surrendering the Premises to Owner. If the Premises are not surrendered upon the
expiration or earlier termination of the Lease term, either due to the failure
by Tenant to timely perform its aforementioned removal and repair obligations
under Article 10 or for any other reason, Tenant shall fully indemnify owner
against all loss or liability resulting from delay by Tenant in so surrendering
the Premises, including, without limitation, any claims made by any succeeding
tenant founded on such delay. Promptly following the expiration or earlier
termination of the term of this Lease, if requested by Owner, Tenant shall
execute, acknowledge and deliver to Owner a recordable written instrument
releasing and quitclaiming to Owner all right, title and interest of Tenant in
the Premises by reason of this Lease or otherwise.
Article 12. Liens.
Tenant shall keep the Property free from any mechanics' or materialmen's liens
and any other liens of a similar nature placed upon the Property by reason of or
in connection with any repairs, additions, alterations or improvements
contracted for or initiated by Tenant, shall be solely responsible for making
payments for such work and discharging liens for such work. Tenant agrees to
fully indemnify Owner with respect to all liability for all such liens, claims
and demands, together with reasonable attorneys' fees and all costs and expenses
in connection therewith. Owner shall have the right at all times to post on the
Premises notices of non responsibility (and to record verified copies thereof)
in order to place contractors and materialmen on notice that Owner is not to be
held financially responsible for any such work. Tenant shall, at the request of
owner, provide Owner with notarized full and unconditional lien releases and
paid receipts from any general contractor, subcontractor, materialman or other
person furnishing labor and/or materials in connection with such work, as well
as any other evidence required by Owner to demonstrate that there shall be no
liens affecting Owner or the Property by reason of such work. Any amount paid by
Owner (pursuant to Article 24 hereof) to discharge or bond around any such liens
shall be payable by Tenant to Owner upon demand.
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Notwithstanding anything to the contrary hereinabove contained, if Tenant shall
in faith contest the validity of any such lien, claim, or demand, then Tenant
shall, at its sole expense, defend itself and Owner (with counsel reasonably
satisfactory to Owner)against the same, and shall pay and satisfy any adverse
judgment that way be rendered thereon for the enforcement thereof against Owner,
upon the condition that if owner shall require, Tenant shall procure and record
a bond (in accordance with Section 3143 of the California Civil Code or any
comparable statute hereafter enacted) freeing Owner and the Property from the
effect of such lien or claim or action thereon.
Article 13. Assignment And Subletting. See Addendum
A. Tenant may not transfer or assign this Lease or any right or interest
hereunder, or sublet the Premises or any part thereof without first obtaining
Owners prior written consent, which shall not be unreasonably withheld, Tenant's
sole remedy shall be to have the proposed assignment, subletting or other
transfer declared as valid as if owner's consent had been given, although Tenant
shall be entitled to reasonable attorney's fees if it is the prevailing party in
such litigation. Owner shall have a reasonable time (i.e. at least 30 days)
after Owner's receipt of all items required under Section 13F, within which to
(ii) consent to the proposed subletting or assignment, or (iii) reasonably
disapprove of the proposed subletting or assignment, in which case Owner shall
set forth in writing its grounds for such disapproval. It shall not be
unreasonably for Owner to withhold such consent because, or for Owner to
condition such consent upon Owner's determination that (1) Tenant is current
with respect to all of its monetary obligations under this Lease and is not in
default with respect to any non-monetary obligations; (2) the proposed assignee
is as financially responsible as Tenant; (3) the subtenant or assignee is not
likely to significantly increase the use of the parking areas or other common
areas on the Property and/or significantly increase the demands upon utilities
and services provided by Owner to tenants of the Building; and (4) evidence has
been furnished to Owner which shows (to Owner's satisfaction) that the proposed
assignee or subtenant is likely to conduct on the Premises a business of a
quality substantially equal to that conducted by Tenant. No transfer or
assignment (whether voluntary or involuntary, by operation of law, under legal
process or proceedings, by receivership, in bankruptcy, or otherwise) or
subletting shall be valid or effective without such prior written consent.
Accordingly, no inferences shall be drawn from any conduct or inaction on the
part of Owner that such consent has been given. Should Tenant attempt to make
or allow to be made any such transfer, assignment or subletting, except as
aforesaid, or should any of Tenant's rights under this Lease be sold or
otherwise transferred by or under court order or legal process or otherwise,
then, and in any of the foregoing events, Owner may, it is option, treat such
act as a non-curable default by Tenant under the provisions of this Lease.
Should Owner consent to any such transfer, assignment or subletting, such
consent shall not constitute a waiver of any of the restrictions of this
Article, and the same shall apply to each successive transfer, assignment or
subletting hereunder, if any.
B.If Tenant hereunder is a corporation, a division or subsidiary of a parent
corporation, an unincorporated association, or a partnership, then the Transfer,
assignment or hypothecation of any stock or interest in such corporation, parent
corporation, association or partnership in the aggregate of 50% or more shall be
deemed as assignment within the meaning and provisions of this Article, and any
devise which can reasonably be inferred to have been designed to circumvent this
section 13B also shall be deemed an assignment. Notwithstanding the foregoing,
this Section 13B does not apply to: (i) a transfer or assignment of any such
stock or interest by a shareholder or member to his spouse, children of
grandchildren, or (ii) any corporation which, under the then current guidelines
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published by the California Commissioner of Corporation, is deemed a public
corporation.
C.If Owner consents to an assignment, sublease or other transfer by Tenant of
all or a portion of Tenant's interest under this Lease, Tenant shall pay, or
cause to be paid, a transfer fee of $100.00 to cover administrative, accounting
and other related expenses.
D.If Owner consents to Tenant assigning its interest under this Lease or
subletting all or any portion of the Premises, Tenant shall pay to Owner (in
addition to rent and all other amounts payable by Tenant under this Lease) one-
half of the rents and other considerations payable by such assignee or subtenant
in excess of the rent payable by Tenant at the time of such subletting or
assignment. For the purpose of this computation, the additional amount payable
by Tenant shall be determined by application of the rental rate per square foot
for the Premises or portion thereof sublet. Said additional amounts shall be
paid to Owner immediately upon receipt by Tenant of such rent or other
considerations from the assignee or subtenant. Any assignment or sublease
entered into by Tenant in connection with the Premises shall contain a
representation by Tenant and the assignee or subtenant (whichever the case may
be) which states the amount of any excess rents and/or other considerations
payable by such assignee or subtenant. If such representation understates the
amount of such excess rents and/or other considerations or is false or
misleading in any other material respect, Owner shall have the right to treat
any such misrepresentation as a non-curable default and terminate this Lease (as
to Tenant and the proposed assignee or subtenant) pursuant to Article 20 hereof.
See Addendum
E.Owner may collect rent from the assignee, subtenant, occupant, or other
transferee, and apply the amount so collected, first to the basic rent herein
reserved, then to any additional rent due and payable, and refund the balance
(if any to the Tenant, but no such assignment, subletting, occupancy, transfer
or collection shall be deemed a waiver of Owner's rights under this Article or
the acceptance of the proposed assignee, subtenant occupant or transferee, or a
release of Tenant from the further performance of the covenants obligating
Tenant under this Lease. Notwithstanding any assignments, sublease or other
transfer, Tenant shall remain fully liable (i.e. jointly and severally liable
with any assignee, and primarily liable in the event of a subletting of all or
part of the Premises) under this Lease and shall not be released from performing
any of the terms, convenants and conditions of this Lease.
F. If Tenant desires at any time to assign this Lease or sublet the Premises or
any portion thereof, it shall, at least 30 days prior to the proposed effective
date of the sublease or assignment, notify Owner of its desire to do so and
shall submit in writing to Owner (1) the name of the proposed subtenant or
assignee; (2) the nature of the proposed subtenant's or assignee's business to
be carried on in the Premises; (3) the terms and provisions of the proposed
sublease or assignment; (4) such financial information as Owner may reasonably
request concerning the proposed assignee, including, but not limited to, a bank
reference and financial statements of the proposed assignee or subtenant for the
two most recently completed fiscal years; and (5) such supplemental information
as Owner may reasonably request concerning the proposed assignee or subtenant.
The information required in items 1-4 (inclusive) hereof shall be submitted to
Owner with the aforementioned 30 day notice, and any supplemental information
required pursuant to item 5 hereof shall be submitted to Owner within ten days
after Owner's request therefor.
H. Tenant may thereafter enter into a valid assignment or sublease with respect
to the Premises, provided that Owner consents thereto pursuant to this Article,
and provided further that (1) the effective date of such sublease or assignment
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is as set forth in the information submitted by Tenant to Owner pursuant to
Section13F, (2) Tenant pays (or causes to be paid) all amounts owed to Owner
under Sections 13C and 13D of this Lease, (3) Tenant is, as of the effective
date of the assignment or sublease, current with respect to all of its monetary
obligations, (4) there have been no material changes (since the date on which
Owner's consent was given) with respect to the financial condition of the
proposed subtenant of assignee or the business which said party plans to conduct
on the premises, (5) any assignee expressly assumes all obligations of Tenant
under this Lease, (6) any subtenant or assignee agrees to be bound by all of the
terms, convenants and conditions of this Lease, (7) any subtenant agrees that
although Tenant shall continue to be primarily liable to Owner for all monetary
and non-monetary obligations under this Lease for the entire Premises if all or
part of the Premises are sublet, the subtenant shall be liable (as a guarantor)
for all monetary obligations relating to the portion of the Premises which has
been sublet, (8) the sublease or assignment agreement expressly provided that it
may not be terminated (other ) than in accordance with its terms) or modified
without Owner's prior written consent, and (9) an executed (by Tenant and the
assignee or subtenant, whichever the cause may be) original of such assignment
or sublease is delivered to Owner promptly after execution, and in no event
after the effective date of such assignment or sublease.
I. Tenant agrees to fully defend and indemnify Owner with respect to shall cost
(including) attorney's fees expended by Owner in connection with any such claim)
and liability for compensation claimed by any broker or agent employed by tenant
in connection with any assignment, subletting or other transfer of Tenant's
interest under this Lease.
J. The voluntary or other surrender of this Lease by Tenant or a mutual
termination hereof shall not work a merger, and shall, at Owner's option, either
(i) terminate all or any existing subleases or subtenancies (notwithstanding any
subtenant's obligations under Section 13F as a guarantor, even if the subtenant
fulfills such obligations) or(ii) operate as an assignment to Owner of Tenant's
interest under such subleases or subtenancies.
K. Any subtenant or assignee at any tier shall be subject to all provisions in
this Article if it wishes to sub-sublet or sub-assign.
L. All rights or Owner under this Article as well as any obligations hereunder
on the part of the Tenant (or any subtenant or assignee of Tenant) shall prevail
over any inconsistent language in the documentation for any sublease or
assignment to which Owner has consented, unless such inconsistent language is in
a document which has been signed by Owner.
Article 14. Indemnification's And Non-Liability Of Owner.
See Addendum
As used in this Article 14, the following terms shall include the following
unless the context clearly requires otherwise: (i) the word "Owner" shall
include all officers, directors, employees, agents, servants and authorized
representatives of Owner, (ii) the words "claim" and "claims" shall included
damages, losses, liabilities and expenses, including attorney's feed and related
costs, and (iii) the words "Tenant" and "subtenant herein shall include all
employees, agents, servants and authorized representatives of same (as well as
officer said directors of Tenant or subtenant if either such party is a
corporation, and all general partners of Tenant of subtenant if either party is
a partnership).
A. Tenant shall fully indemnify Owner against all claims, however caused,
arising in whole or in part from Tenant's use of the Premises and the Property,
from the conduct of Tenant's business, or from any activity, work, or thing
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done, permitted or suffered by Tenant (or by any licensee, concessionaire or
subtenant of Tenant) anywhere on the Property, and shall further indemnify Owner
against all claims arising in whole or in part form any breach or default in the
performance of any obligation to Tenant's part to be performed under the terms
of this Lease or arising whole or part from any act, neglect, fault or omission
by Tenant (or by any licensee, concessionaire or subtenant or Tenant) anywhere
on the Property.
B. Tenant and any subtenant, as a material part of the consideration to Owner,
hereby assume all risk of damage to property, injury and death to persons, and
all claims of any other nature resulting from their use of the Premises, and
Tenant and any subtenant and tenant hereby waive all claims in respect thereof
against Owner. Owner shall not be liable for any damage to property of Tenant
(or of any subtenant of Tenant) entrusted to any employee or agent of Owner, nor
shall Owner be liable for loss of or damage to any property of Tenant (or of any
subtenant of Tenant) by theft or otherwise. Owner shall not be liable to Tenant
or to any subtenant of tenant for any damage to property, or injury or death to
persons, resulting from any cause, including but not limited to fire, explosion,
falling plaster, steam, gas, electricity, or water (which may leak into the
Premises from any part of the Building, from the pipes, appliances or plumbing
works therein or from the roof thereof), or dampness within said Building,
unless caused by or due to the failure of Owner to repair such condition(s)
within a reasonable time (after written notice of the need for such repair is
given to Owner by Tenant) and through no fault of Tenant (or of any subtenant,
licensee, concessionaire or invitee of Tenant). Nor shall Owner be liable to
Tenant or to any subtenant of Tenant for any latent defect in the Premises or
the Building. Nor shall Owner be liable for the negligence or misconduct,
including but not limited to criminal acts, by maintenance or other personnel or
contractors serving the Property, unless Owner is grossly negligent in
contracting for the services of such maintenance or other personnel or
contractors. All property of Tenant (or any subtenant of Tenant) kept or stored
anywhere on the Property shall be so kept or stored at their own risk, and
Tenant and any subtenant of Tenant hereby waive any claim against Owner arising
out of damage to the same, including subrogation claims by insurance carriers of
Tenant (or of any subtenant of Tenant), unless such damage shall be caused by
the willful misconduct or gross neglect of Owner and through no fault of Tenant
(or of any subtenant, licensee, concessionaire or invitee of Tenant. Nor shall
any of the events or conditions set forth in this paragraph be deemed a
constructive or actual eviction of entitle Tenant (or any subtenant of Tenant)
to any abatement or reduction of rent. In addition, Tenant shall fully
indemnify Owner with respect to (i) any claim against Owner (based on any of the
events of conditions set forth in this paragraph) made by any licensee,
concessionaire or invitee of Tenant, and (ii) any such claim made by any
subtenant of Tenant (to the extent that any of the waivers in this paragraph are
unenforceable against any subtenant of Tenant). As used in the immediately
preceding sentence, the word "claim" shall include subrogation claims by the
respective insurer(s) of any of the parties referred to in such sentence.
C. If any action of preceding is brought against Owner by reason of any claim
which Tenant is obligated to indemnify Owner under this Article, Tenant (upon
notice from Owner) shall defend Owner against claim, solely at Tenant's expense,
by counsel reasonably satisfactory to Owner. Tenant's indemnification
obligations under this Article shall not require payment as a condition
precedent to recovery, shall survive the expiration or earlier termination of
this Lease with respect to claims arising from facts or omissions which occurred
prior to such expiration or earlier termination, and shall not be diminished on
account of any claim being based upon any alleged act or omission of Owner,
unless it is that such claim is the result of the sole negligence or sole
willful misconduct of Owner.
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D. Tenant shall give prompt notice to Owner with the respect to any defects,
fires or accidents which Tenant observes anywhere on the Property.
Article 15. Taxes. See Addendum
Tenant shall be liable for tax (now or hereafter imposed by any governmental
entity) applicable to or measured by or on the rents or any other charges
payable by Tenant under this Lease, including (but not limited to) any gross
income tax, gross receipts tax or excise tax with respect to the receipt of such
rent or other charges or the possession, leasing or operation, use or occupancy
of the Premises, but not including any net income, franchise, capital stock,
estate or inheritance taxes. If any such tax is required to be paid to the
governmental taxing entity directly by Owner, the Owner shall pay the amount due
and, upon demand, shall be fully reimbursed by Tenant for such payment. If such
reimbursement is prohibited by law, the Owner shall have the option to terminate
this Lease in its entirety without having any liability to Tenant.
Tenant shall also be liable for all taxes levied against the leasehold held by
Tenant or against any personal property, leasehold improvements, additions,
alterations and fixtures place by or for Tenant in, on or about the Premises or
constructed by Owner for Tenant in the Premises; and if any such taxes a levied
against Owner or Owner's property, or if the assessed value of the Property is
increased (whether by special assessment or otherwise) by the inclusion therein
of value placed on such leasehold, personal property, leasehold improvements,
additions, alterations and fixtures, and Owner pays any such taxes (which Owner
shall have the right to do regardless of the validity thereof), Tenant, upon
demand, shall fully reimburse Owner for the taxes so paid by Owner or for the
proportion of such taxes resulting from such increase in any assessment.
Article 16. Holding Over.
If, with Owner's written consent, Tenant holds possession of the Premises after
the expiration of the term of this Lease, Tenant shall become a tenant from
month to month upon the terms herein specified but at a monthly rental
equivalent to the higher of (a) rent computed at Owner's then prevailing monthly
rental rate per square foot for the next most comparable space or (b) the then
rental (including escalation) paid by Tenant at the expiration of the term of
this Lease, payable in advance on or before the first of each month, and Tenant
shall continue in possession and shall remain subject to the terms hereof until
such be terminated by Owner, or until 30 days after Tenant shall have given to
Owner a written notice of its intention to terminate such tenancy.
If Tenant holds over after the expiration or earlier termination of the term
hereof without the expense written consent of Owner, Tenant shall become a
tenant at sufferance only at 125% percent of the then prevailing market rate (as
reasonably determined by Owner) for the premises in effect upon the date of such
expiration or earlier termination, to be prorated and paid on a daily basis, and
otherwise upon the terms, convenants and conditions specified in this Lease, so
far as applicable. Acceptance by Owner of rent after such expiration or earlier
termination shall not constitute to a holdover hereunder or result in a renewal
or extension of this Lease. The foregoing provisions of this paragraph are in
addition to and do not affect Owner's right of re-entry or any other rights of
Owner under this Lease or as other wise provided by law.
Article 17. Rules And Regulations.
Tenant shall faithfully observe and comply with the rules and regulations
printed on Exhibit "C" to this Lease as well as all modifications thereof and
additions thereto from time to time put into effect by Owner, upon reasonable
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notice to Tenant. Owner shall not be responsible to Tenant for the violation or
nonperformance by any other tenant or occupant on the Property with respect to
any such rules and regulations.
Article 18. Re-Entry By Owner.
Owner and its agents shall at any and all times have the right to enter the
Premises to inspect the same, to determine whether Tenant is complying with its
obligations hereunder, to supply janitorial service and any other service to be
provided by Owner to Tenant hereunder, to post notices of non-responsibility, to
exhibit the Premises to prospective purchasers, lenders or ground lessees of the
Building or the Property, or to prospective lessees of space in the Building,
and to alter, improve or repair the Premises and any portion of the Building or
the Property, without abatement of rent, and may (in connection with any such
work) erect scaffolding and other necessary structures where reasonably required
by the character of the work to be performed. Tenant hereby waives any claim
for damages for any injury to, inconvenience to, or interference with Tenant's
business, any loss of occupancy or quite enjoyment of the Premises, and other
loss occasioned thereby. For each of the aforesaid purposes, Owner shall at all
times have and retain a key with which to unlock all of the doors in, upon and
about the Premises, excluding Tenant's vaults and safes, and Owner shall have
the right to use any and all means which Owner may deem proper to open said
doors in an emergency, in order to obtain entry to the Premises and/or
otherwise, and such entry shall not under any circumstances be construed as
forcible or unlawful entry into, or a detainer of, the Premises, or an actual or
constructive eviction of Tenant from the Premises or any portion thereof, or
grounds for any abatement or reduction of rent. Nothing in this Article shall
be construed as obligating Owner to perform any repairs, alterations or
maintenance except as otherwise expressly required elsewhere in this Lease to be
performed by Owner.
Article 19. Insolvency Or Bankruptcy.
Tenant agrees that if all or substantially all of the Tenant's assets are placed
in the hands of a receiver or trustee, and such receivership or trusteeship
continues for a period of 30 days, or if Tenant makes an assignment for the
benefit of creditors or is adjudicated a bankrupt, or if Tenant institutes any
proceedings under the Bankruptcy Reform Act of 1978 ( as heretofore or hereafter
amended) or under any other act relating to the subject of bankruptcy wherein
Tenant seeks to (i) be adjudicated a bankrupt, (ii) be discharged of its debts,
or (iii) effects a plan of liquidation, composition, arrangement or reorganized,
or if any involuntary proceeding is filed against Tenant under any such
bankruptcy laws (and Tenant consents thereto or acquiesces therein by pleading
of default), then any such act shall be deemed a breach of this Lease, and
neither this Lease nor any interest in and to the Premises shall become an asset
of any such proceedings and, in any such event (and in addition to any and all
rights or remedies of Owner hereunder or provided by law), this Lease shall
terminate automatically as of the date on which any one or more of the above-
described occurrences takes place. In such event, it shall be lawful for Owner
to re-enter the Premises and take possession thereof and remove all persons (and
all of Tenant's personal; property, fixtures, equipment, alterations,
improvements and utility installations in accordance with Paragraphs 20B(2) and
20B(3) hereof) therefrom, and Tenant shall have no further claim to the Premises
or under this Lease. However, the foregoing provisions in this Article shall be
subject to the Bankruptcy Reform Act of 1978, as heretofore and hereafter
amended.
Article 20. Default; Remedies.
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A. Default. The occurrence of any one or more of the following events shall
constitute a default under this Lease by Tenant:
1. Non-curable defaults:
(a) The abandonment of the Premises by Tenant. See Paragraph 20B(1) for the
procedure by which it is established that the Premises have been abandoned. See
Addendum.
(b) Any involuntary transfer of Tenant's interest in this Lease or any
voluntary transfer (attempted or actual) of the Tenant's interests in this
Lease, without Owner's prior written consent, as set forth more specifically in
Section 13A.
(c) If the Leasehold interest if Tenant is levied upon under execution or is
attached by process of law and said levy or attachment is not promptly released.
(d) If any lease (other than this Lease) made by Tenant for any other space on
the Property is terminated or terminable after the commencement of the term of
this Lease due to any default by Tenant under such other lease.
(e) If Tenant makes(or has made) of furnishes (or has furnished) any warranty,
representation of statement to Owner in connection with this Lease (or any
assignment of this Lease of subletting of all or part of the Premises) or any
other agreement to which Owner and Tenant are parties, which is or was false or
misleading in any material respect when made or furnished.
(f) Any breach under Article 19.
2. Curable defaults:
(a) The failure by Tenant to make any payment of rent, additional rent of any
other payment required to be made by Tenant hereunder as and when due. If
Tenant does not fully cure such default within three days after Tenant has been
given (as provided in Article 33 hereof) notice of such default, this Lease
shall be terminable at Owner's option.
(b) The failure by Tenant to observe or perform any non-monetary covenant,
conditions or provisions of this Lease to be observed or performed by Tenant,
other than the aforementioned non-curable defaults. If Tenant does not fully
cure any such non-monetary default within 20 days after Tenant has been given
(as provided in Article 33 hereof) notice of such default, this Lease shall be
terminable at Owner's option.
B. Remedies.
1. In addition to all other rights or remedies it might have, Owner shall have
the right to terminate this Lease and Tenant's right to possession of the
Premises in the event of any non-curable default set forth in Paragraph 20A(1)
hereof or if a curable default is not fully cured within the cure period
designated in Paragraph 20A(2) for such default. Termination of Tenant's right
to possession of the Premises shall terminate this Lease, and vice-versa.
However, if Tenant has abandoned or vacated the Premises, the mere taking of
possession of same by Owner in order to perform acts of maintenance or
preservation or to attempt to relet the Premises, or the appointment of a
receiver in order to protect Owner's interest under this Lease, shall not be
deemed a termination of Tenant's rights to possession of the Premises or a
termination of this Lease unless Owner has notified Tenant in writing that the
Lease is terminated. The notification in Paragraph 20A(2) for curable defaults
shall be in lieu of, and not in addition to, any notice required under Section
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1161, et. seq., of the California Code of Civil Procedure. If Owner terminates
this Lease and Tenant's right to possession of the Premises pursuant to this
Paragraph 20B(1), Owner may recover the following from Tenant:
(a) the worth at the time of payment (whether pursuant to a judgment or a
mutually agreed upon settlement) of the rent which was due, owing and unpaid by
Tenant to Owner at the time of termination; plus
(b) the worth at the time of such payment (whether pursuant to a judgment or a
mutually agreed upon settlement) or the rent which would have come due after
termination until the time of such payment exceeds the amount of rental loss
that Tenant proves could have been reasonable avoided during such period; plus
(c) the worth at the time of such payment of the amount by which the unpaid
rent for the balance of the Lease term after the time of such payment exceeds
the amount of rental loss which Tenant proves could be reasonably avoided during
such period; plus
(d) all other amounts necessary to compensate Owner for all of the detriment
proximately caused by Tenant's failure to perform its obligations under this
Lease or not limited to, the Unreimbursed Leasehold Improvement Cost (hereunder
defined), any attorneys' fees, brokers' commissions or finders' fees (not only
in connection with the reletting of the Premises, but also that portion of any
leasing commission paid by Owner in connection with this Lease which is
applicable to that portion of the Lease term which is unexpired as of the date
on which this Lease is terminated), any cost for repairs, clean-up,
refurbishing, removal (including the repair of any damage caused by such
removal) and storage (or disposal) or Tenant's personal property, equipment,
fixtures, and anything else that Tenant is required (under this Lease) to
remove but does not remove, any cost for alterations, additions and renovations
(and any other costs and expenses) incurred by Owner in regaining possession or
and reletting (or attempting to relet) the Premises. As used herein, the term
"Unreimbursed Leasehold Improvement Cost" shall mean the product resulting when
multiplying Owner's cost (of installing all leasehold improvements installed on
the Premises by Owner pursuant to this Lease prior to the beginning of the Lease
term) by a fraction, the numerator of which is the number of months of the Lease
term not yet elapsed as of the date on which the Lease is terminated, and the
denominator of which is the total number of months of the Lease term. For
example, if the total cost of the Owner of installing such leasehold
improvements was $10,000, the Lease term was 24 months and the Lease was
terminated of Tenant's default at the end of six months, the Unreimbursed
Leasehold Improvement Cost would be determined as follows: $10,000 x 18/24 =
$7,500
(e) at Owner's election, such other amounts in addition to or in lieu of the
foregoing as may be permitted from time to time by applicable California law.
All computations of the "worth at the time of payment" of amounts recoverable by
Owner under sub-paragraphs (a) and (b) hereof shall be computed by allowing
interest at the higher of 18% per annum (or such lower rate, if any, as is the
maximum permitted by applicable usury laws) from the date of termination until
payment, in addition to any interest and late charges which have accumulated
under Article 26 hereof from the date such payment is due until the date of
termination. The "worth at the time of payment" recoverable by Owner under sub-
paragraph (c) hereof shall be computed by discounting the amount otherwise
recoverable by Owner (less the Unreimbursed Leasehold Improvement Cost) at the
discount rate of the Federal Reserve Bank of San Francisco at the time of
payment plus 1%.
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2. Upon Termination of this Lease, whether by lapse of time or otherwise,
Tenant shall immediately vacate the Premises and deliver possession thereof to
Owner. If Tenant has vacated the Premises and Owner or any of its agents has
reason to believe that Tenant does not intend to reoccupy the Premises, and
current or past rent has been due and unpaid for at least 14 consecutive days,
Owner shall have the right to send Tenant a Notice of Belief of Abandonment
pursuant to section 1951.3 of the California Civil Code. Such notice shall be
served in accordance with the notice requirements set forth in Article 33 of
this Lease. The Premises will be deemed abandoned, and Tenant's right to
possession of the Premises will terminate, on the date set forth in such notice,
unless Owner receives (at its address for notices set forth in Paragraph M of
the Basic Lease Provisions) before such date a notice from Tenant stating (i)
Tenant's intent not to abandon the Premises and (ii) and address at which Tenant
may be served in any action for unlawful detainer of the Premises. If the
Premises are deemed abandoned (either through the aforementioned procedure or
due to any statement(s) by Tenant to that effect), or if Owner or any of its
agents acts pursuant to a court order, then Owner or any of its agents shall
have the right, with or without terminating this Lease, to re-enter the Premises
and remove all persons therefrom and any or all of Tenant's fixtures, equipment,
furniture and other personal property (herein collectively referred to as
"property") from the Premises, without being deeded in any manner liable for
trespass, eviction of forcible entry of detainer, or conversion of property, and
without relinquishing any right given to Owner in this Lease or by operation of
law. If Owner re-enters the Premises in such a situation, all property removed
from the Premises by Owner or any of its agents and not claimed by Owner may be
handled, removed or stored in a commercial warehouse or otherwise by Owner at
Tenant's risk and expense, and Owner shall in no event be responsible for the
value, preservation or safekeeping thereof. Before retaking any such property
from storage, Tenant shall pay to Owner, upon demand, all expenses incurred in
such removal and all storage charges against such property. Any such property
of Tenant not so retaken from storage by Tenant within 30 days after such
property has been removed from the Premises shall be deemed abandoned and may be
either disposed of by Owner pursuant to Section 1988 of the California Civil
Code or retained by Owner as its own property.
3. Notwithstanding Owner's right to terminate this Lease pursuant to Paragraph
20B(1), owner may, at its option, enforce all of its rights and remedies under
this Lease (including the right to recover the rent as it becomes due
hereunder), provided that Owner does not terminate Tenant's right to possession
of the Premises. In such event, Owner shall be entitled to recover from Tenant
all costs of maintenance and preservation of the Premises, and all costs,
including attorneys' fees and receivers' fees, incurred in connection with the
appointment of and performance by a receiver to protect the Premises and Owner's
interest under this Lease. No re-entry or taking possession of the Premises by
Owner pursuant to this Paragraph 20B(3) shall be construed as an election to
terminate this Lease unless a written notice (signed by a duly authorized
representative of Owner) of such intention is given to Tenant of unless it is
decreed by a court of competent jurisdiction that Owner has terminated this
Lease. Notwithstanding any reletting by Owner without a termination of this
Lease, Owner may at any time after such reletting elect to terminate this Lease
pursuant to Paragraph 20B(1). Upon and after entry into possession of Premises
without termination of this Lease, Owner may, but need not, relet the Premises
of any part thereof for the account of Tenant to any person, firm, partnership,
corporation or other business entity other than Tenant for such rent, for such
time and upon such terms as Owner, in Owner's sole, discretion, shall determine.
Owner shall not be required to accept any substitute tenant offered by Tenant or
to observe any instructions given by Tenant regarding such reletting. In any
such case, Owner may remove (and repair any damage caused by such removal) and
store (or dispose of) any of Tenant's personal property, equipment, fixtures,
and anything else that Tenant is required (under this Lease) to remove but does
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not remove, and Owner may also make repairs, renovations, alterations and/or
additions to the Premises to the extent deemed by Owner necessary or desirable
in connection with such attempt to relet. Tenant shall, upon demand, pay the
cost of such repairs, alterations, additions, removal, storage and renovations,
together with any attorneys' fees, brokers' commissions (or finders' fees) and
any other expenses incurred by Owner in regaining portion of the term of this
Lease and if consideration collected by Owner from any reletting is not
sufficient to pay monthly the full amount of the rent payable by Tenant under
this Lease, together with any attorneys' fees, brokers' commissions (or finders'
fees), any costs for repairs, alterations, additions, removal, storage and
renovations, and any other costs and expenses incurred by Owner in regaining
possession of and reletting the Premises, Tenant shall pay Owner the amount of
each monthly deficiency upon demand. Any rentals received by Owner from any
such reletting shall be applied as follows: first, to the payment of any
indebtedness other than rent due hereunder from Tenant to Owner; second, to the
payment of any costs of regaining possession of and reletting the Premises;
third, to the payment of the costs of any such alterations, repairs, additions,
removal, storage and renovations to the Premises; fourth, to the payment of rent
due and unpaid under this Lease; and the residue, if any shall be held by Owner
and applied as payment of future rent as the same may become due and payable
hereunder.
4. If Tenant violates any of the terms or provisions of this Lease or defaults
in any of its obligations hereunder, other than the payment of rent or other
sums payable hereunder, such violation may be restrained or such obligation
enforced by injunction.
5. No act or thing done by Owner or its agents during the term hereof shall be
deemed an acceptance of a surrender of the Premises, and no agreement to accept
a surrender of the Premises shall be valid unless made in writing and signed
Owner. Neither the reference in this Lease to any particular remedy nor the
pursuit of any particular remedy shall prelude Owner from any other remedy Owner
might have, either at law or in equity.
6. Nothing herein shall be deemed to affect the right of the Owner under
Article 14 of this Lease to indemnification for any liability, attorneys' fees
and related expense.
Article 21. Casualty Damage.
In the event of any visible damage to the Premises, Tenant shall promptly notify
Owner or its agents in writing. If the Premises or any other part of the
Building or the Property are damaged by fire or other casualty, the damage shall
be repaired by and at the expense of Owner, unless this Lease is terminated as
provided in this Article. Until such repairs are completed, the rent shall be
abated in proportion to the part of the Premises which is unusable by Tenant in
the conduct of its business and the length of time that such condition persists;
however, there shall be no abatement of rent by reason of the Premises (or any
portion thereof) being unusable for a period of five days or less. If the
damage is due to the fault or neglect of Tenant or any subtenant of Tenant, or
any of their agents, employees, servants, or invitees, there shall be no
abatement of rent. Nor shall there be any abatement of rent on account of
damage to the Building or any other part of the Property unless it includes
damage to the Premises or prevents access to the Premises. Access to the
Premises shall not be deemed prevented if Tenant is precluded from using any
portion of the parking areas on the Property on account of damage to the same.
In the event of any casualty damage to the Premises or the Building, Owner of
Tenant may, by written notice to the other within 30 days after the damage,
elect to terminate this Lease as of the date of occurrence of such damage, in
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any one of the following three situations: (i) if the Building (even if the
damaged portion of the Building does not include the Premises) is damaged to the
extent of more than one-third of (what Owner in good faith determines to be) its
then replacement cost, (ii) if Owner has determined in good faith that any
repairs to the Premises required to be made by owner cannot be completed within
120 days after the occurrence of such damage without the payment of overtime or
other premiums, or (iii) if the casualty damage results from an uninsured risk.
If Owner exercises its right to terminate this Lease pursuant to item (ii) in
the immediately preceding sentence, Owner's notice of termination shall be
accompanied by a statement from the appropriate insurer(s) of Owner, supporting
Owner's good faith determination that the required repairs cannot be completed
within 120 days after the Occurrence of such damage without the payment of
overtime or other premiums. If the Premises have been rendered inaccessible or
untenantable by such damage and (in Tenant's reasonable judgment) the Premises
cannot be made accessible tenantable within 120 days after the date on which the
damage has occurred, Tenant may, by written notice to Owner within 30 days after
the damage, elect to terminate this Lease as of the date of occurrence of such
damage. If Tenant exercises its right to terminate this Lease pursuant to the
immediately preceding sentence, Tenant's notice of termination shall be
accompanied by a report from a contractor licensed to do business in the state
of California, which report shall include the contractor's license number and
shall state the reason(s) why the contractor does not think that the Premises
can be made tenantable and accessible within 120 days after the date on which
the damage has occurred. If neither Owner or Tenant terminates this Lease as
provided above, Owner shall, at its own expense, make such repair and
restoration, and while such repair and restoration is being performed, the rent
shall be abated as provided above.
Nothing in this Article shall be construed as a limitation of Tenant's liability
for any damage to the Premises, to the Building, or to any other part of the
Property, should such liability otherwise exist.
A total destruction of the Building shall automatically terminate this Lease as
of the date of such destruction.
Upon any termination of this Lease under any of the provisions of this Article,
the parties shall be released thereby, without further obligation to the other,
simultaneously with the surrender of possession of the Premises to the Owner,
except for items which have theretofore accrued and are then unpaid, and
Tenant's security deposit shall be returned by owner, subject to the provisions
of Article 6 in this Lease.
Article 22. Eminent Domain
If the whole of the Premises shall be taken under power of eminent domain, or by
conveyance in lieu thereof, this Lease shall automatically terminate as of the
date on which actual physical possession is taken by the condemnor. If a large
enough portion of the Premises has been taken so as to render the balance
unusable, as reasonably determined by Tenant, then Tenant may elect to terminate
this Lease, which right must be exercised, if at all, by giving owner written
notice of such election within 30 days after Tenant has become aware of the
extent of the taking, or such right will be deemed to have been waived. If
Tenant timely exercises such right of termination, the Lease shall be deemed to
have terminated as of either (i) the date on which Tenant has ceased conducting
business at the Premises on account of such partial taking or (ii) the date on
which actual physical possession is taken by the condemnor, whichever date is
later. No award for any partial or entire taking shall be apportioned, and
Tenant hereby assigns to Owner any award which may be made in such taking or
condemnation, together with any and all rights of Tenant now or hereafter
arising in or to the same or any part thereof; no portion of any such award
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shall be allowed to or paid to Tenant for any so-called bonus or excess value of
this Lease by reason of the relationship between the rental payable under this
Lease. and may at the time be fair rental for the Premises. Although all damages
in the event of any condemnation are to belong to owner whether such damages are
awarded as compensation for diminution in value of the leasehold or to the fee
of the Premises, Tenant shall have the right to claim and recover from the
condemnor, but not from Owner, such compensation as may be separately awarded or
recoverable by Tenant in Tenant's own right on account of damage to Tenant's
business by reason of the condemnation and for or on account of any cost or loss
to which Tenant might be put in removing Tenant's merchandise, furniture and
other personal property, fixtures, and equipment. In the event of a partial
taking which does not result in a termination of this Lease, the rent shall be
reduced according to the part of the Premises remaining after the taking, and
Owner shall, within a reasonable time, make a functional unit out of such
remaining portion of the Premises. The rent reduction for the month in which the
taking (of actual physical possession) by the condemnor occurs shall be
prorated.
If any portion of the Property other than the Premises shall be so taken or
appropriated and Owner does not terminate this Lease as hereinafter provided,
then there shall be no reduction in rent on account of such taking, nor shall
such taking entitle Tenant to terminate this Lease. Regardless of whether or
not Owner terminates this Lease in such a situation, Owner shall be entitled to
the entire award. If any part of the Building (whether or not such part
includes the Premises) shall be so taken or appropriated, and the cost of
repairing the Building is ten percent or more of the then replacement cost of
the Building, Owner shall have the right, at its option, to terminate this
Lease. Such right must be exercised, if at all, within (i) 90 days after the
date of the taking or (ii) 45 days after the date on which Owner has received
both a contractor's written estimate of the cost of repairing the Building and a
appraisal of the then replacement cost of the Building, whichever of the two
aforementioned time periods expires earlier.
If the Premises include space in more than on building on the Property and
either Owner or Tenant exercises its right under this Article to terminate this
Lease as to the portion of the Premises which is in one building, the Lease
shall not be deemed terminated with respect to the portion(s) of the Premises in
the other building(s) on the Property unless the Lease is also terminable (and
terminated) under this Article with respect to the portion(s) of the Premises in
such other building(s).
If this Lease is terminated, in whole or in part, pursuant to any of the
provisions of this Article, all rentals and other charges payable by Tenant to
owner hereunder and attributable to the Premises taken shall be paid up to the
date upon which actual physical possession shall be taken by the condemnor, and
(depending on whether this Lease is terminated as to all or only part of the
Premises) either all or a prorated portion of Tenant's security deposit shall be
returned by Owner, subject to the provisions of Article 6 hereof.
Article 23. Transfer Of Owner's Interest
In the event of any transfer(s) of Owner's interest in the Property, other than
a transfer for security purposes only, the transferor shall be automatically
relieved of any covenant of quiet enjoyment and any other obligations and
liabilities on the part of Owner accruing from and after the date of such
transfer, and Tenant agrees to attorn to the transferee. Upon receipt of a Non-
Disturbance Agreement.
Article 24. Owner's Right To Perform Tenant Obligations.
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All covenants and agreements to be performed by Tenant under any of the terms of
this Lease shall be performed by Tenant at Tenant's sole cost and expense and
without any abatement of rent. If Tenant shall fail to pay any sum of money,
other than rent, required to be paid by it hereunder or shall fail to perform
any other act on its part to be performed hereunder, and such failure shall
continue for ten days (20 days with respect to non-monetary obligations) after
notice thereof by Owner, Owner may (but shall not be obligated so to do),
without waiving or releasing Tenant from any of Tenant's obligations, make any
such payment or perform any such other act on behalf of Tenant. All sums so paid
by Owner and all necessary incidental costs, together with interest thereon at
the rate of 15% per annum (or such lower rate, if any, as is the maximum
permitted under applicable usury laws) from the date of such payment by Owner
until reimbursement in full by Tenant, Shall be payable to Owner with the next
due monthly installment of rent, and Tenant covenants to pay any such sums.
Owner shall have (in addition to any other right or remedy of owner) the same
rights and remedies in the event of the nonpayment of sums due under this
Article as in the case of default by Tenant in the payment of rent, except that
payments made by Owner hereunder shall not subject Tenant to a late charge
unless reimbursement by Tenant is not made when due.
Article 25. Legal Expenses.
Tenant shall pay to Owner all amounts for costs (including reasonable attorneys'
fees) incurred by Owner in connection with any breach or default by Tenant under
this Lease or incurred in order to enforce or interpret the terms or provisions
of this Lease. Such amounts shall be payable upon demand. In addition, if any
action shall be instituted by either of the parties hereto for the enforcement
or interpretation of any of its rights or remedies in or under this Lease, the
prevailing party shall be entitled to recover from the losing party all cost
incurred by the prevailing party in said action and any appeal therefrom,
including reasonable attorneys' fees to be fixed by the court therein. Said
costs and attorneys' fees shall be included as part of the judgment in any such
action. For purposes of this provision, in any unlawful detainer or other action
or proceeding instituted by Owner based upon any default or alleged default by
Tenant hereunder, Owner shall be deemed the prevailing party if (a) judgment is
entered in favor of Owner, or (b) prior to trial or judgment Tenant pays all or
any portion of the rent and charges claimed by Owner, eliminates the
condition(s), ceases the act(s) or otherwise cures the act(s), condition(s) or
omission(s) claimed by Owner to constitute a default by Tenant hereunder.
Further, should Owner be made a party to any litigation between Tenant and any
third party, then Tenant shall pay all costs and attorneys' fees incurred by or
imposed upon Owner in connection with such litigation.
Article 26. Late Payments: Interest And Late Charges
A. Any amount due from Tenant to Owner which is not paid when due shall bear
interest at the rate of 15% per annum (or such lower rate, if any, as is the
maximum permitted under applicable usury laws) from the date such payment is due
until paid, except that amounts spent by Owner on behalf of Tenant (e.g.,
pursuant to Article 24 hereof) shall bear interest at such rate from the date of
disbursement by Owner. However, if owner has terminated this Lease, the interest
rate for any overdue amounts shall be provided in Paragraph 20B(e) hereof from
the date of termination until payment.
B. Tenant hereby acknowledges that in addition to lost interest, the late
payment by Tenant to Owner of rent or any additional rent or other sums due
hereunder will cause Owner to incur other costs not contemplated in this Lease,
the exact amount of which will be extremely difficult to ascertain. Such other
costs include, but are not limited to, processing, administrative and accounting
costs. Accordingly, if any installment of rent or any additional rent or any
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other sum due from Tenant shall not be received by Owner within ten days after
such amount shall be due, Tenant shall pay to Owner a late charge equal to the
percentage (of such overdue amount) set forth in Paragraph Q of the Basic Lease
Provisions, subject to the limitations set forth in said Paragraph Q. If any
installment or rent or any additional rent or any other sum due from Tenant
shall not be received within 30 days after such amount shall be due, Owner shall
incur additional processing, administrative and accounting. In order to
compensate Owner therefor, Tenant shall pay to Owner an additional late charge,
computed as set forth above. The parties hereby agree that (i) such late charges
represent a fair and reasonable estimate of the costs Owner will incur in
processing each delinquent payment by Tenant, (ii) such late charges shall be
paid to Owner as liquidated damages for each delinquent payment pursuant to
California Civil Code Section 1671, and (iii) the payment of late charges and
the payment of interest are distinct and separate from one another in that the
payment of interest is to compensate Owner for the use of Owner's money by
Tenant, while the payment of late charges is to compensate Owner for the
additional administrative expense incurred by Owner in handling and processing
delinquent payments.
C. Neither assessment nor acceptance of interest or late charges by Owner shall
constitute a waiver of Tenant's default with respect to such overdue amount, nor
prevent Owner from exercising any of its rights and remedies under this Lease.
Nothing contained in this Article shall be deemed to condone, authorize,
sanction or grant to Tenant an option for the late payment of rent, additional
rent or other sums due hereunder, and Tenant shall be deemed in default with
regard to any such payments should the same not be paid by the date on which
they are due.
Article 28. Waiver.
The waiver by Owner of any breach of any term, covenant or condition herein
contained shall not be deemed to be a waiver of any subsequent breach of the
same term(s), covenant(s) or condition(s), nor shall any custom or practice
which may become established between the parties in the administration of this
Lease be construed to waive or lessen Owner's right to insist upon performance
by Tenant in strict accordance with such term(s), covenant(s) or condition(s).
The subsequent acceptance of rent hereunder by Owner shall not he deemed to be a
waiver of any preceding breach by Tenant of any term, covenant or condition of
this Lease, other than the failure of Tenant to pay the particular rental so
accepted, regardless of Owner's knowledge of such preceding breach at the time
of acceptance of such rent. No covenant, term or condition of this Lease shall
be deemed to have been waived by Owner, unless such waiver is in writing by
Owner. The fact that Owner performs an act which it is not (by law or under this
Lease obligated to perform shall under no circumstances be deemed a waiver of
its right to perform such act(s) or any similar act(s) in the future. If Tenant
fails to perform any of its affirmative obligations under this Lease, such
unperformed obligation(s) shall survive the expiration or sooner termination of
this Lease. In addition, Owner's consent to or approval of any act by Tenant
requiring owner's consent or approval shall not be deemed to render unnecessary
the obtaining of Owner's consent to or approval of any subsequent act of Tenant,
whether similar or dissimilar to the act which was consented to or approved by
Owner.
Tenant hereby expressly waives any and all rights of redemption granted by or
under any present or future laws in the event of Tenant being evicted or
dispossessed for any cause, or in the event of Owner obtaining possession of the
Premises, by reason of the violation by Tenant of any of the convenants or
conditions of this Lease, or otherwise.
Article 29. Rights Of Owner.
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Owner shall have the right to change the name, number or designation of the
Building or the Property without notice or liability to Tenant. In addition,
Tenant shall not, without Owner's prior written consent, use the name of the
Building or the Property for any purpose other than as the address of the
business to be conducted by Tenant in the Premises, and in no event shall Tenant
acquire any rights in or to such name (s) .
Owner shall have the right at any time to change the arrangement and/or location
of entrances or passageways, doors and doorways, and corridors, elevators,
stairs, toilets, or other public parts of the Building, and Owner hereby
reserves the right at any time to make alterations or additions to and to build
additional stories on the Building and to build adjoining the same. Owner also
reserves the right to construct other buildings or improvements in the vicinity
of the Building from time to time, to make alterations thereof or additions
thereto, and to build additional stories on any such building(s) and to build
adjoining same. Owner further reserves the exclusive right to the roof of the
Building.
No easement for lights, or view is included in the leasing of the Premises to
Tenant. Accordingly, any diminution or shutting off of light, air or view by any
structure which may be erected on lands in the vicinity of the Building
(regardless of whether or not such structure is on the Property) shall in no way
affect this Lease or impose any liability upon Owner.
Article 31. Waiver Of Subrogation
Owner and Tenant hereby waive their rights against each other and against any
other tenant of space on the Property (as well is the officers, employees,
agents and authorized representatives of Owner, Tenant and such other tenants)
with respect to any claims (including, but not limited to, claims for bodily
injury to any person(s), and/or damage to the Premises or any other part of the
Property, and/or any fixtures, equipment, personal property, furniture,
improvements and/or alterations in or to the Premises or the Property) which are
caused by or result from (i) risks insured against under any valid and
collectible insurance contract or policy carried by Owner or Tenant (whichever
the case may be) and in force at the time of any such injury and/or damage, or
(ii) risks which would be covered under any insurance required to be obtained
and maintained by Owner or Tenant (whichever tile case may be) under Article 10
or Article 45 of this Lease, even if such required insurance is not in fact
obtained or maintained. Said mutual waivers shall be in addition to, and not in
limitation or derogation of, any other waiver or release contained in this Lease
with respect to any bodily injury or any loss or damage to property of the
parties hereto.
Each party shall cause each insurance policy obtained by it with respect to this
lease to provide that the insurer waives all rights of recovery by way of
subrogation against either Owner or Tenant (whichever the case my be) and
against any other tenant of space on the Property, (as well as against the
officers, employees, agents and authorized representatives of Owner, Tenant and
such other tenants) in connection with any claim for bodily injury or property
damage covered by such policy, and such waiver shall be indicated in any
insurance certificate to be provided pursuant to this Lease. If any insurance
policy required under this Lease is obtainable only by the payment of an
additional premium charge (i.e., above that charged by the insurer for such
policy without a waiver of subrogation), the party undertaking to obtain the
insurance shall have the option to either pay the additional premium for a
waiver of subrogation from such insurer or to place the insurance with another
insurance company that meets the requirements set forth in Section 45D of this
Lease and will issue the aforementioned waiver of subrogation free of charge. If
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any insurer (with respect to any insurance required under this Lease) will not
waive its right of subrogation, not even with payment of an additional premium,
the party undertaking to obtain the insurance shall place the insurance with
another insurance company that meets the minimum requirements set forth in
Section 45D of this Lease and will issue the aforementioned waiver of
subrogation, and said insured party shall pay any additional premium charge
required by its insurer for Issuing a waiver of subrogation. Notwithstanding the
foregoing, no waiver of subrogation shall be required from the insurance company
carrying Tenant's Worker's Compensation insurance. If all or any portion of the
Premises is sublet during the term of this Lease, the foregoing waivers, rights
and obligations with respect to subrogation shall apply to any subtenant of
Tenant.
Article 32. Estoppel Certificate.
A. Tenant shall, within ten days after any written request from Owner, execute,
acknowledge and deliver to owner a statement in writing certifying (i) that this
lease is unmodified and in full force and effect (or, if modified, stating the
nature of such modification and certifying that this Lease, as so modified, is
in full force and effect); (ii) the dates to which the rental and other charges
are paid in advance, if any; (iii) that there are not, to Tenant's knowledge,
any uncured defaults on the part of Owner hereunder, or specifying such defaults
if any are claimed; and (v) that Tenant has paid to Owner the security deposit
as set forth in this Lease. In addition, such statement shall provide whatever
other information and facts Owner way reasonably require. Any such statement may
be relied upon by any prospective purchaser, ground lessee or encumbrance of all
or any portion of the Property, as well as by any of their assignees.
B. Tenant's failure to deliver such statement within such time shall be
conclusive upon Tenant (i) that this Lease is in full force and effect, without
modification except as may be represented by Owner (ii) that there are no
uncured defaults in Owner's performance; (ii) that Tenant has paid to Owner the
security deposit set forth in this Lease; and (iv) that not more than one
month's rental has been paid in advance.
C. Tenant shall fully indemnify Owner from and against any and all claims,
damages, losses, liability and expenses (including attorneys, fees and related
costs) attributable to any failure by Tenant to timely comply with the
requirements of Section 32A above.
Article 33. Notice.
Whenever Owner or Tenant is required to or shall desire to give the other any
notice, demand, request or other communication with respect to this Lease or the
Premises, each such notice, demand, request or other communication shall be in
writing and shall not be effective for any purpose unless the same shall be
given as follows:
A. By personally delivering such notice, demand, request or other communication
on Tenant (or an employee or agent of Tenant) at the Premises or by mailing the
same to Tenant by United States registered or certified mail, postage prepaid,
return receipt requested, addressed to Tenant at the address set forth in
Paragraph N of the Basic Lease Provisions or at such other address(es) as Tenant
may from time to time designate by notice given in accordance with this Article.
B. By mailing such notice, demand, request or other action to Owner by United
States registered or certified mail, postage prepaid, return receipt requested,
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addressed to Owner at the address set forth in Paragraph M of the Basic Lease
Provisions or at such other address(es) as Owner may from time to time designate
by notice given in accordance with this Article.
Every notice, demand, request or other communication mailed in accordance with
the provisions hereof shall be deemed to have been given as of the date of
receipt or the third business day following the date of such mailing, whichever
date is earlier.
Article 34. Abandonment. See Addendum
Tenant shall not vacate or abandon the Premises at any tine during the term of
this Lease, and if Tenant shall abandon, vacate or surrender the Premises, or be
dispossessed by process of law or otherwise, such shall be a non-curable default
under this Lease, and any personal property belonging to Tenant and left on the
Premises shall be deemed to be abandoned and may be removed from the Premises in
accordance with Paragraph 20B(2) hereof. No act or thing done by Owner or by any
agent or employee of Owner during the term of this Lease shall be deemed an
acceptance of a surrender of the Premises, unless such acceptance is expressed
in writing and duly executed by Owner. The delivery of the key (to the Premises)
to any employee or agent of Owner shall not operate as a termination of this
Lease or a surrender a the Premises.
Article 35. Addenda, Exhibits, And Riders.
Those exhibits set forth in Paragraph O of the Basic Lease Provisions and those
riders and addenda, if any, set forth in Paragraph P and R, respectively of the
Basic Lease Provisions, are made a part hereof by this reference. Any addenda,
exhibits and riders to this Lease shall be attached hereto and shall be signed
or initialed by Owner and Tenant.
Article 36. Invalidity.
The parties hereto agree and state that the terms and provisions of this Lease
express the intent of their agreement as fully as possible; however, the
invalidity or unenforceability of any term or provision hereof (except for
Tenant's obligation to pay basic rent under Article 4 hereof) shall not affect
or impair any other term or provision hereof, and the remainder of this Lease
shall be valid and enforceable to the fullest extent permitted by law.
Article 37. Interpretation And Governing Law
In all cases the language in all parts of this Lease shall be construed simply,
according to its fair meaning and not strictly for or against Owner or Tenant.
This Lease shall be governed by the laws of the State of California.
Article 38. Defined Terms And Captions, Joint And Several Liability
The word "Tenant" shall be deemed and taken to mean each and every person or
party mentioned as a Tenant herein, be the same one or more; and if there shall
be more than one Tenant, any notice required or permitted by the terms of this
Lease may be given by or to any one thereof, and shall have the same force and
effect as if given by or to all thereof. If Tenant consists of more than one
person or entity, they and each thereof shall be bound jointly and severally by
the terms, convenants and agents of this Lease.
The word "Owner" as used herein shall mean only the owner or owners at the tine
in question of the fee title to (or lessee's interest in a ground lease of) the
Property.
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The use of the neuter singular pronoun to refer to Owner or Tenant shall be
deemed proper reference even though owner or Tenant may be an individual, a
partnership, an association, a corporation, or a group of two or more
individuals, partnerships, associations or corporations. The necessary
grammatical changes required to make the provisions of this Lease apply in the
plural sense where there is more than one Owner or Tenant and to either
corporations, associations, partnerships, or individuals, males or females,
shall in all instances be assumed as though in each case fully expressed.
The captions, section numbers, article numbers and table of contents appearing
in this Lease are inserted only as a matter of convenience and in way define,
limit, construe or describe the scope or intent of such sections or articles of
this Lease nor in any way affect this Lease.
Article 39. Entire Agreement, Amendments
This Lease and the exhibits (and Riders and Addenda, if any) attached hereto and
forming a part hereof, set forth all the covenants, promises, agreements,
conditions and understandings between Owner and Tenant concerning the Premises,
and there are no covenants, promises, agreements, conditions or understandings,
either oral or written, between them other than are herein set forth. Except as
otherwise provided in this Lease, no subsequent alteration, amendment, change or
addition to this Lease shall be binding unless it is in writing and signed by
Owner and Tenant.
Article 40. Time Of The Essence.
Time is of the essence of this Lease and each and every provision hereof.
Article 41. Execution And Examination Of Lease
This Lease way be executed in to or more counterparts , each of which shall be
deemed an original but all of which together shall constitute one and the same
instrument. Submission by Owner of this instrument for examination or signature
by Tenant does not constitute a reservation of the Premises or an option to
lease same from Owner, and this instrument is not effective as a lease or
otherwise until execution and delivery by both Owner and Tenant.
Article 42. Covenant Of Quite Enjoyment.
Upon payment by Tenant of the rents herein provided, and upon the observance and
performance of all the covenants, terms and conditions on Tenant's part to be
observed and performed, Tenant shall peaceably hold the Premises for the term
hereby demised without hindrance or interruption by Owner or any other person or
persons lawfully or equitably claiming by, through or under the owner, subject,
nevertheless, to the terms and conditions of this Lease.
Article 43. Successor And Assigns.
All rights and liabilities herein given to, or imposed upon, the respective
parties hereto shall extend to and bind the several respective heirs, executors,
administrators, successors, and assigns of the said parties; provided, however,
that the obligations contained in this Lease to be performed by owner shall be
binding on Owner and Owner's successors and assigns only during their respective
periods of Ownership. No rights, however, shall inure to the benefit of any
assignee or subtenant of Tenant unless the assignment or subletting to such
assignment or subtenant has been approved by owner in writing as provided in
Article 13 hereof.
Article 44. Subordination. See addendum
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At Owner's request, Tenant shall subordinate its interest under this Lease to
any and all now effective or hereafter executed deed of trust or ground lease
which may now or hereafter affect Owner's estate in the Property, and to all
renewals, modifications, replacements or extensions thereof. The term "deed of
trust" as used herein is defined to include mortgages, security agreements,
deeds of trust and any other instruments providing security for the payment of
debts or for the performance of other obligations. Tenant, upon request of any
party in interest, shall execute promptly such instruments or certificates to
carry out the intent of this Article as shall be requested by Owner. If Tenant
shall not have executed such instruments or certificates and delivered same to
Owner within 15 days after the date of a written request by Owner for Tenant to
execute same, Tenant hereby irrevocably appoints Owner as Tenant's attorney in
fact, with full power and authority to execute and deliver in the name of Tenant
any such instruments or certificates. The execution by and the recording in the
Office of the Los Angeles County Recorder of a declaration that this Lease and
leasehold estate are subject, subordinate and inferior to any lien or
encumbrance, lease or sublease, placed by Owner upon or against the leased
premises, and/or the building of which the leased premises is a part and/or the
land on which the leased premises may be located, shall, of and by itself and
without further not-ice to or act or agreement of Tenant, make this Lease and
the estate created hereby subject, subordinate and inferior thereto. in the
event any proceedings are brought for foreclosure, or in the event of the
exercise of the power of sale under any such mortgage or deed of trust, Tenant
shall attorn to the purchaser upon any such foreclosure or sale or to such other
as Owner under this Lease. The provisions of this paragraph notwithstanding, so
long as Tenant is not in default hereunder, this lease shall remain in force and
effect for the full term hereof.
Article 45. Insurance See Addendum
A. Liability Insurance. Tenant shall, during the term hereof, keep in full force
and effect a policy or policies of comprehensive general liability insurance for
bodily injury (including wrongful death) and damage to property covering (i) any
occurrence on the Premises not caused by Owner, (ii) any act or omission by
Tenant, by any subtenant of Tenant, or by any of their agents, servants or
employees anywhere on the Property, (iii) the business(es) operated by Tenant
and by any subtenant of Tenant on the Premises, and (iv) any indemnification
obligations of Tenant under Article 14 hereof, in which the coverage shall not
be less than $1,000,000 combined single limit per occurrence. The liability
policy or policies shall contain an endorsement naming Owner, and any persons,
firms or corporations designated by owner (hereinafter called Owner's
designee(s)"), as additional insured, as per insurance industry form #G*-109
(edition July 1966) or any replacement thereof, or an additional insured lessor
endorsement form similar in content thereto. Any additional insured lessor
endorsement shall expressly provide that the interest of owner therein shall not
be affected by Tenant's breach of any policy provision.
B. Insurance of improvements and contents. Tenant shall, during the term hereof,
keep in full force and effect a policy or policies of insurance against damage
(by fire, theft, vandalism, malicious mischief, all risks normally insured
against by extended coverage, and, if the Building is sprinklered, the added
perils of sprinkler leakage and earthquake sprinkler leakage) to Tenant's stock
in trade, furniture, personal property, fixtures and equipment on the Premises,
as well as any improvements or alterations to the Premises other than those
installed by or for Owner (at Owner's expense) prior to the commencement of the
term of this Lease, with coverage in an amount equal to the actual cash value
thereof. Such coverage shall not have a deductible in excess of $100.
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C. Worker's Compensation Insurance. Tenant shall, during the term hereof keep in
full force and effect a policy or policies of Worker's Compensation insurance,
with coverage as required by the State of California.
D. Each insurance policy (and certificate thereof) obtained by Tenant pursuant
to this lease shall contain a clause that the insurer will provide Owner and
Owner's designee(s) with at least 30 clays prior written notice of any material
change, nonrenewal or cancellation of the policy. Each such insurance policy
shall be with an insurance company authorized to do business in the State of
California and rated not less than Best's Financial Class X and Best's
Policyholder Rating B+. A certificate (on the standard Accord form and issued
by an authorized representative of the insurer) evidencing the coverage under
each such policy, as well as a certified copy of the aforementioned additional
insured lessor endorsement with respect to Tenant's liability insurance, shall
be delivered to Owner and Owner's designee(s) prior to commencement of the Lease
term. Except for Worker's Compensation insurance, it shall be indicated on each
such certificate (and also in a separate endorsement) that the insurer waives
its rights of subrogation, as provided more specifically in Article 31 hereof.
Each such policy shall provide that any loss payable thereunder shall be payable
notwithstanding:
(1) any act, omission or neglect by owner, by Tenant, or by any subtenant of
Tenant, or
(2) any occupancy of the Premises or use of the Property (or any portion
thereof) by Tenant, or by any subtenant of Tenant, for purposes more hazardous
than permitted by the terms of such policy, or
(3) any foreclosure or other action or proceeding taken by any mortgages(s) or
trustee(s) pursuant to any provision of any mortgage(s) or deed(s) of trust
covering the Property, or
(4) any change in title or ownership of the Property, or
(5) any termination of this Lease or any expiration or cancellation of such
policy, after the (insured against) occurrence but before any claim has been
filled with the insurer.
E. Any insurance policies required hereunder shall be written as primary
policies, not contributing with or in excess of any coverage which Owner or
Owner's designee(s) may carry, with loss payable clauses satisfactory to Owner
and in favor of Owner, or at Owner's option, in favor of Owner and Owner's
designee(s). Tenant shall procure and maintain all policies (that it is required
to obtain hereunder) entirely at its own expense and shall, at lease 20 days
prior to the expiration of any such policies, furnish Owner with renewals or
"binders" thereof, or Owner shall have the right (but not the obligation, which
shall be solely Tenant's) to order such insurance and charge the cost thereof to
Tenant. No such payment by Owner shall constitute a waiver of any other of
Owner's rights under this Lease. Tenant shall not do or permit to be done
anything which shall invalidate the insurance policies referred to herein or the
coverage thereunder. If Tenant (or any subtenant of Tenant) does or permits to
be done anything which shall increase the cost of any insurance policies
maintained by Owner with respect to the Building and/or the Property, then
Tenant shall reimburse Owner for any additional premiums attributable to any act
or omission or operation of Tenant (or any subtenant of Tenant) causing such
increase in the cost of insurance. Any amount owed by Tenant under this
Paragraph shall be payable to Owner with the next installment of rent which is
due (i.e., with the rent for the month immediately succeeding the month in which
Tenant receives a bill from Owner for any such additional premiums).
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F. If, on account of the failure of Tenant to comply with the provisions of
this Article, Owner is deemed a co-insurer by its insurance carrier, than any
loss or damage which Owner shall sustain by reason thereof shall be borne by
Tenant and shall be immediately paid by Tenant upon receipt of a bill therefor
and evidence of such loss.
G. Owner makes no representation that the limits of liability required to be
carried by Tenant under the terms of this Lease are adequate to protect Tenant
against Tenant's indemnification obligations under this Lease, and if Tenant
believes that any such insurance coverage called for under this Lease is
insufficient, Tenant shall provide, at its own expense, such additional
insurance as Tenant deems adequate, because the limits of any insurance coverage
required under this Article shall not limit the liability of Tenant under this
Lease.
H. If the Lease term is more than five years, then (not more frequently than
each five years) if in owner's opinion the amount of any insurance coverage
maintained by Tenant at that time is not adequate, Tenant shall increase the
insurance coverage as reasonably required by Owner.
Article 46. Cumulative rights.
All rights, options and remedies of owner contained in this Lease shall be
construed and held to be cumulative, and no one of them shall be exclusive of
the other, and Owner shall have the right to pursue any one or all of such
remedies or any other remedy or relief which way be provided by law or equity,
whether or not stated in this Lease.
Article 47. Accord And Satisfaction, Receipt Of Money.
No payment by Tenant or receipt by Owner of a lesser amount than the basic rent
and additional rent (jointly called "rent" in this Article) herein stipulated
shall be deemed to be other than on account of the earliest stipulated rent due
and not yet paid, nor shall any endorsement or statement on any check or any
letter accompanying any check or payment as rent be deemed an accord and
satisfaction, and Owner may accept such check or payment without prejudice to
Owner's right to recover the balance of such rent or pursue any other remedy in
this Lease.
No receipt of money by Owner from Tenant after the termination of this Lease,
after the service of any notice relating to the termination of this Lease, after
the commencement of any suit, or after final judgment for possession of the
Premises, shall reinstate, continue or extend the term of this Lease or affect
any such notice, demand, suit or judgment.
Article 48. Recording.
Neither Tenant nor Owner shall record this Lease or any memorandum or short form
thereof without the prior written consent of the other party.
Article 49. Authority
A. If Tenant executes this Lease as a partnership, each individual executing
this Lease on behalf of said partnership represents and warrants that he or she
is a general partner of said partnership, and that this Lease is binding upon
said partnership in accordance with its terms.
B. If Tenants executes this Lease as a division of a corporation:
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1) Each of the persons executing this Lease on behalf of Tenant does hereby
covenant and warrant that its parent corporation is a duly authorized and
existing corporation, that Tenant or the parent corporations (and is qualified
to do) business in California, that Tenant has full right and authority to enter
into this Lease on behalf of the parent corporation as well as on its own
behalf, that each person signing this Lease on behalf of Tenant is authorized to
do so on behalf of the parent corporation (as well as on behalf of Tenant), and
that the terms of this Lease are binding upon the parent corporation as well as
upon Tenant; and
2) Tenant shall, within 30 days after request by Owner, deliver to Owner a
certified copy of a resolution of the Board of directors of the parent
corporation authorizing or ratifying the execution of this Lease.
C. If Tenant executes this Lease as a corporation are a subsidiary of a
corporation, each of the persons executing this Lease on behalf of Tenant does
hereby covenant and warrant that Tenant is a duly authorized, adequately
capitalized and existing corporation, that Tenant has (and is qualified to do)
business in California, that Tenant has full right and authority to enter into
this Lease, and that each person signing this Lease on behalf of Tenant is
authorized to do so.
In Witness Whereof, Owner And Tenant have executed this Lease as of the day and
year reflected in Paragraph A of the Basic Lease Provisions.
The Chapman Building
By Edward Illig
Title Managing General Partner
By
Title
Owner
Witness: Chino Valley Bank
Date: By: Jay Coleman
Name Title: Executive Vice President
Address By
Title
TENANT
Exhibit "C"
The Chapman Building
Rules and Regulations
1. Tenant will refer all contractors, contractors' representatives and
installation technicians rendering any service for Tenant, to Owner for Owner's
supervision and/or approval before performance of any such contractual services.
This shall apply t o all work performed in the Building, including, but not
limited to, installations of telephones, telegraph equipment, electrical devices
and attachments, and installations of any and every nature affecting floors,
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walls, woodwork, trim, windows, ceilings, equipment or any other physical
portion of the Buildings. None of such work will be done by Tenant without
Owner's prior written approval.
2. The work of janitorial or cleaning personnel shall not be hindered by Tenant
after 5:30 p.m. and such work may be done at any time when the premises are
vacant; the windows, doors and fixtures in the premises may be cleaned at any
time. Tenant shall provide whatever waste and rubbish receptacles, cabinets, and
book cases, etc., are necessary in order to prevent unreasonable hardship to
Owner in discharging its obligation regarding cleaning service.
3. Movement in or out of the building of furniture or office equipment, or
dispatch or receipt by Tenant of any merchandise or materials which requires the
use of a elevator or stairways, or movement through the building entrances or
lobby, shall be restricted to the hours designated by Owner from time to time
and only the elevator and entrance designated by owner are to be used for any
such movement. All such movement shall be as directed by Owner in a manner to
be agreed upon between Tenant and Owner by prearrangement before performance.
Such prearrangement, to be initiated by Tenant, shall include determination by
Owner (and shall be subject to Owner's decision and control) of the time,
method, routing of movement, and limitations imposed by safety or other concerns
which may prohibit any article, equipment or any other item from being brought
into the building. Tenant expressly assumes all risk of damage to any and all
articles so moved, as well as all risk of injury to any person(s) or the public
engaged or not engaged in such movement, including equipment, property, and
personnel of Owner if damaged or injured as a result of any acts in connection
with carrying out this service of tenant, from time of entering the property
until completion of the work; and owner shall not be liable for any act or
omission of any person engaged in (or for damage to or loss of any property or
injury to any person resulting directly or indirectly f rom any act or omission
in connection with) such service performed by or for tenant. Tenant hereby
agrees to defend and indemnify owner with respect to any such damage, injury or
loss, including all reasonable attorneys' fees and related costs.
4. No sign(s) of tenant will be allowed in any form on the exterior of the
building or on any window inside or outside of the building, and no sign(s),
except in uniform location and uniform style fixed by Owner, will be permitted
in the public corridors or on corridor doors or entrances to the Premises.
Written consent from owner is an absolute prerequisite for any such sign(s)
which tenant may be permitted to use.
5. Tenant shall not place, install or operate on the premises or in any part of
the building, any engine, stove, or machinery, or conduct mechanical operations
or cook thereon or therein, except that the preparation of coffee, tea, hot
chocolate and similar items for tenants and their employees shall be permitted.
Nor shall tenant place or use in or about the premises any explosives, gasoline,
kerosene, oil, acids, caustics, or any other inflammable, explosive or hazardous
material without the prior written consent or owner.
6. Owner will not be responsible for any lost or stolen personal property,
equipment, money or jewelry from the premises or from public rooms, regardless
or whether such loss occurs when the area is locked against entry.
7. No birds or animals shall be brought onto the property. Any bicycles or
vehicles brought onto the property shall be parked only in areas designated by
owner for such purpose, and shall under no circumstances be brought into the
building.
8. Owner may permit entrance to the premises (by use of pass keys controlled by
owner) by employees, contractors, or service personnel supervised or employed by
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owner, or by anyone authorized to enter the premises pursuant to Article 18
hereof. No additional locks shall be placed upon any doors of the premises, and
tenant shall not permit any duplicate keys toe be made; all necessary keys will
be furnished by owner, it being understood that a deposit of $5.00 is to be made
to the owner by the tenant for each key furnished under this lease. Upon
termination of this lease, tenant shall surrender and deliver to owner all keys
to the premises which are in tenant's possessions or in the possession of
tenant's agents, employees or others permitted by tenant to occupy the premises,
as well as the receipts for the amount of deposits tenant has made for such
keys, and owners shall thereupon return to tenant $5.00 for each such key and
receipt so returned.
9. No sidewalks, entrances, passages, courts, elevators, vestibules, stairways,
corridors or halls to any structures on the property shall be obstructed or used
for any purpose other than ingress and egress, nor shall any rubbish, litter,
trash or material of any nature be placed, emptied or thrown into these areas.
The halls, passages, entrances, elevators, stairways, balconies and roof of each
such structure are not for the use of the general public, and owner shall in all
cases retain the right to control or prevent access thereto by all persons whose
presence (in the judgment of owner) shall be prejudicial to the safety,
character, reputation or interest of the property and its tenants, provided that
nothing herein contained shall be construed to prevent such access by persons
with tenants of the property normally deal in the ordinary course of their
business, unless such persons are engaged in illegal activities. No tenant (or
subtenant, invitee, agent or employee of any tenant) shall go upon the roof of
any structure on the property without the prior written consent of owner.
10. Owner shall have the right to determine and prescribe the weight and proper
position of any unusually heavy equipment (including safes, large files, etc.)
that is to be placed in the building, and only those which in the opinion of
owner might not with reasonable probability do damage to the floors, structure
and/or freight elevator, may be moved into the building. Any damage occasioned
in connection with the moving or installing of such aforementioned articles in
the building or the existence of same in the building shall be repaired promptly
by tenant at its own expense.
11. Owner shall have the right to prohibit the use of the name of the property
or any other publicity by tenant which in owner's opinion tends to impair the
reputation of the property or its desirability for the executive offices of
owner or other tenants, and upon written notice from owner, tenant will refrain
from or discontinue such publicity.
12. The premises shall not be used for lodging, sleeping or cooking or for any
immoral or illegal purpose, or for any purpose that will damage property or the
reputation thereof, or for any purpose other than that specified in this lease.
13. See addendum.
14. Employees of owner shall not receive or carry messages for or to any tenant
or other occupant on the property, nor shall the contract to render free or paid
services to any tenant or any tenant's agents, employees or invitees; of any of
owner's employees perform any such services, such employee(s) shall be deemed
the agent of the tenant fro whom the services are being performed, regardless of
whether or how payment is arranged for services, and owner is expressly relieved
from any and all liability for any injury to persons or damage to property (and
any other damages) in connection with any such services.
15. Tenant and its employees, agents and invitees shall observe and comply with
the driving and parking signs and markers on the property.
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16. See addendum
17. Directories will be placed by owner, at is own expense, in conspicuous
places in the building. No other directories shall be permitted unless
previously consented to by owner in writing. The total number of
identification strips for each tenant shall be reasonably determined by owner.
18. Plumbing fixtures and appliances shall be used only for purposes for which
constructed, and no sweepings, rubbish, rags or other unsuitable material shall
be thrown or placed therein. Damage resulting to any such fixture or appliances
from misuse by Tenant (or by any subtenant, employee, agent or invitee of
tenant) shall be promptly repaired by tenant, entirely at tenants own expense.
19. No tenant shall make (or permit to be made) and loud or otherwise
disturbing noises, sounds or vibrations, or disturb or interfere with other
occupants of the property or of buildings on neighboring property, or those
having business with them, whether by the use of any musical instrument, radio,
phonograph, unusual noise, or in any other way.
20. No tenant shall purchase (or otherwise obtain for use in the premises) any
water, ice, towel, vending machine, janitorial, maintenance or other similar
services, or accept barbering or shoe shining services, except from persons
authorized in writing by owner, and at hours and under regulations fixed by
owner.
21. Owner reserves the right to exclude from the property between the hours of
7:00 p.m. and 7:00 a.m. (and at all hours on Sundays and legal holidays) all
persons who do not present a pass to the property signed by owner. Owner shall
furnish passes to persons for whom any tenant requests the same in writing.
Each tenant shall be responsible for all persons for whom he requests passes and
shall be liable to owner for all acts of such persons. Owner shall in no case
be liable for any error with regard to the admission to or exclusion from the
property of any person.
22. All doors opening into public corridors in any structure on the property
shall be kept closed, except when in use for ingress and egress.
23. Owner reserves the right to make such other and future rules and
regulations as in its judgment may from time to time be needful for the safety,
care and cleanliness of the property, and for the preservation of good order
thereon.
Rider No 2.
Rental adjustment and property tax reimbursement The Chapman Building
1) The basic rent set forth in Paragraph J of the Basic Lease Provisions is
predicated, in part, upon an original estimate of annual operating costs for The
Chapman Building and the common facilities of the Property. Prior to the end of
the first calendar year of the Lease, Owner shall furnish Tenant with an
estimate of the per square foot operating costs for the following year. Prior to
the first day of each subsequent calendar year, Owner shall furnish Tenant with
an estimate of the per square foot operating costs for such subsequent calendar
year. Commencing with the first month of the calendar year to which such
estimate applies, the basic rent set forth in Paragraph J of the Basic Lease
Provisions (or such other figure as is the revise basic rent if same is
subsequently increased or decreased) shall be increased, if adjusted at all, for
each month during such calendar year or portion thereof, by 1/12th of the
product of the square footage of the Premises, as set forth in Paragraph E of
the Basic Lease Provisions (or such other figure as is the revised square
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footage of the Premises if the size of same is subsequently increased or
decreased), multiplied by the difference, if any, between such estimate and the
actual annual operating costs for the calendar year in which this Lease is
signed. Within 120 days after the expiration of each calendar year during the
Lease term, Owner shall furnish Tenant with a statement of the actual per square
foot operating costs for such calendar year, and if the actual per square foot
operating costs for such calendar year are more or less than the estimate, a
proper adjustment shall be made. Any excess paid by Tenant shall be refunded to
Tenant with such statement, or, at Owner's option, may be applied to any amounts
then due by Tenant to Owner or the next maturing installment of basic rent or
additional rent. Any deficiency between the estimated and actual per square foot
operating costs shall be paid by Tenant to Owner, concurrently with the regular
monthly rent payment next due following the date on which the aforementioned
statement is either personally delivered or mailed to-Tenant. Any fractional
calendar year in the final year of the term of this Lease shall be treated
proportionately on a 360 day year basis.
For the purpose of this Rider 2, "operating costs" shall be the sum of building
operating costs and common facilities costs; "building operating costs" shall be
all direct costs of managing, operating, maintaining and repairing the Building,
including all real and personal property taxes and "common facilities costs"
shall be all direct costs incurred by Owner in connection with managing,
operating, maintaining and repairing the facilities of the Property. Operating
costs shall consist of (a) all expenses and charges which, in accordance with
generally accepted accounting and management principles, would be considered a
cost of maintaining, operating, managing or repairing the Building or the
facilities of the Property, and shall include, by way of illustration but not
limitation, all expenses paid or incurred for water and sewer charges, insurance
premiums, utilities, heating and cooling, labor and supplies, license, permit
and inspection fees, all assessments and special assessments due to deed
restrictions, declarations and/or owners' associations which accrue against the
Building or the facilities of the Property, all real and personal property
taxes, the cost of compensation (including employment taxes, similar
governmental charges, and fringe benefits) with respect to all persons who
perform duties in connection with landscaping, janitorial and general cleaning
services, security services and any other services directly relating to the
operation, maintenance or repair of the Building or the common facilities of the
Property (as well as the Cost of all equipment used in conjunction therewith),
customary management fees, legal expenses, and accounting expenses, as well as
(b) administration fee of 5% of Owner's operating costs.
Per square foot building operating costs shall be determined by dividing the
annual building operating costs (building operating and common facilities costs)
by the Usable Area in the Building.
Any reference in this Rider to the ratios "per square foot" or "per square feet"
shall mean per square foot/feet of Usable Area of the Building. For purpose of
this Rider, the term "Usable Area" shall not include elevator lobbies, public
corridors, public restrooms, mechanical rooms, elevator rooms, telephone
closets, or other common areas, nor shall it include vertical penetrations which
are not included for the special use of Tenant.
The "commons facilities" shall consist of all areas, space, equipment and
special services provided by Owner for the purpose or joint use and benefit of
the tenants of The Chapman Building, their employees, agents, servants,
suppliers, customers and other invitees, including, by way of illustration but
not limitation, retaining walls, fences, landscaped areas, curbs, sidewalks and
other paved areas which are not part of the parking facilities.
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Operating costs shall not include depreciation, or capital expenditures in
connection with, the Building, the common facilities or any equipment therein or
thereon, payments of principal and interest on any mortgage or other encumbrance
upon the Building or any common facilities, commissions paid for leasing, or the
cost of alterations to the Building or any common facilities. However, operating
costs shall include amortization and payments of interest with respect to any
capital improvements made to the Building, the common facilities or any part
thereof for the purpose of reducing operating costs or pursuant to the
requirements of any governmental entity. Charges for any services, goods or
materials furnished by Owner at Tenant's request, all other sums payable by
Tenant under this lease, shall not be deemed operating costs, but rather shall
be payable by Tenant pursuant to the provisions of this Lease or (if not
provided for in this Lease) within ten days after owner renders a statement
thereof. Notwithstanding anything to the contrary elsewhere in this Rider, with
respect to each specific category of operating costs which one or more tenants
of The Chapman Building either pays directly to third parties or specifically
reimburses to Owner (e.g. separately metered utilities and separately contracted
janitorial service), such direct payments and reimbursements shall not be
included in operating costs for purpose of this Rider, but when Tenant's per
square foot operating costs for each such category of expense are determined,
the Usable Area of this space occupied by all such tenants paying such category
of expense directly to third par-ties or reimbursing same to Owner shall be
excluded from such computation.
Notwithstanding anything to the contrary in the notice provision(s) of the
Lease, any statements from Owner to Tenant regarding operating costs or property
taxes shall be, at owner's sole option, either personally delivered to Tenant,
mailed to Tenant by regular mil (i.e., not certified or registered mail), or
mailed to Tenant by certified or registered mail, -return receipt requested. Any
time period commencing when any such statement is mailed shall commence when
same is deposited in the mail by Owner.
Owner's Initials
Addendum To The Chapman Building Office Lease Agreement
Dated October 21, 1994
By And Between
110 Wilshire Building Partners, A California Partnership, ("owner")
And
Chino Valley Bank, ("Tenant")
Not withstanding anything to the contrary contained in the Lease Agreement, the
following terms and conditions shall prevail:
Article 1. Premises
Suite 100 Ground Floor 6,838 Usable Square Feet
Suite 100M Mezzanine 2,205 Usable Square Feet
Suite G3 Basement 588 Usable Square Feet
TOTAL 9,631 Usable Square Feet
Tenant shall have the right to remeasure the Premises through a licensed
architect using BOMA standards. Should said Premises be found to be less-than
that stipulated in Article 1, Tenant shall have the right to request that the
usable square footage be adjusted accordingly. Owner shall have the right to
hire a licensed architect to remeasure the Premises, also using BOMA standards.
Should the usable square footage of both licensed architects differ, a third,
mutually agreeable licensed architect shall be selected to remeasure the
Premises through BOMA standards. The average of the three remeasurements shall
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be the new usable square footage, provided however, that no one remeasurement is
more or less than five (5%) of another.
Article 4. Rent
Base Rent for the Premises during the initial term shall be as follows:
Ground Floor: $1.25 NNN per usable square foot
Mezzanine: $1.25 NNN per usable square foot
Basement: $0.60 NNN per usable square foot
Article 9. Compliance With Laws And Restrictions
Owner represents that to the best of its knowledge, the Premises is currently in
compliance with all applicable laws, statues, ordinances, or governmental rules
and warrants that there will be no costs passed back to the Tenant in
conjunction therewith.
Article 10. Alterations, Furniture And Trade Fixtures
Tenant shall have the right to paint and carpet the Premises without owner's
prior written consent.
Article 11 Condition Of Premises, During Lease Term And Upon Surrender Of
Premises
Owner represents that it is currently making good faith efforts to bring the
common areas into compliance with the requirements of Title III of the Americans
With Disability Act (the "ADAI) and warrants that there will be no costs passed
back to the Tenant in conjunction therewith. Tenant represents and covenants
that it shall conduct its occupancy and use of the Premises in accordance with
the ADA (including, but not limited to modifying its policies, practices and
procedures, and providing auxiliary aids and services to disabled persons). If
the Lease provides that the Tenant is to complete certain alterations and
improvements to the Premises in conjunction with the Tenant taking occupancy of
the Premises, Tenant agrees that all such work shall comply with the ADA.
Furthermore, Tenant covenants and agrees that any and all future alterations or
improvements made by Tenant to the Premises shall comply with the ADA.
Article 13.D. Assignment And Subletting
Tenant shall have the right to sublease or assign any portion of the entire
space to any related entity, parent company, subsidiary or affiliate without
Owner's consent. Owner shall have no right to recapture said space and all
proceeds attributable to any such assignment or sublease shall inure to the
benefit of Tenant.
Tenant shall have the right to sublease or assign any portion of the space to
any other subtenant with Owner's prior written consent, which shall not be
unreasonably withheld or delayed. owner and Tenant shall share all profits
attributable to any such assignment or sublease on a fifty percent/fifty percent
(50%/50%) basis. Said profits shall be defined as all money received after
Tenant has recouped all commissions, tenant improvements, free rent and any
other concessions which was granted to the subtenant.
Article 14. Indemnification And Non-Liability Of Owner
Owner shall fully indemnify Tenant against all claims, however caused, arising
in whole or part from owner's use of the Premises and the Property, from the
conduct of Owner's business, or from any activity, work, or thing done,
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permitted or suffered by Owner (or by any licensee, concessionaire or subtenant
of Owner) anywhere on the Property, and shall further indemnity Tenant against
all claims arising in whole or in part form any breach or default in the
performance of any obligation on owner's part to be performed under the terms of
this Lease or arising in whole or part from any act, neglect, fault or omission
by owner (or by any licensee, concessionaire or subtenant or Owner) anywhere on
the Property.
Article 15. Taxes
Tenant shall pay monthly its prorata share of 23.2% of all Real Estate Taxes
applicable to the Premises. Tenant shall not be responsible for any current or
future tax penalties or interest associated with the late payment of said taxes.
Tenant shall be exempted from any increases in Real Estate Taxes which the
Building may incur as a result of a sale, refinance, transfer of ownership or
any other "triggering" event during the initial Lease term.
Article 20. Default; Remedies
The Premises will not be considered as abandoned if, Tenant, after vacating the
Premises has listed the Premises with a licensed Broker for sublease and
appropriate signage has been posted on the Premises stating the availability of
the Premises for sublease.
Article 27. Broker
The parties recognize Langdon Rieder Corporation as the broker for Tenant and
agree that Tenant shall be solely responsible for the payment of brokerage
commissions to said broker and that Owner shall have no responsibility therefor.
The parties recognize Morlin Management Corporation as the broker for Owner and
agree that Owner shall be solely responsible for the payment of brokerage
commissions to said broker and that Tenant shall have no responsibility thereof.
Tenant represents and warrants that it has not dealt with or employed any broker
or agent as its representative in the negotiation for or the obtaining of this
Lease other than Langdon Rieder Corporation, and agrees to indemnify and hold
harmless owner against all costs or liability for compensation claimed by any
broker or agent (other than Langdon Rieder Corporation) and all attorneys, fees
expended in connection therewith.
Article 34. Abandonment
The Premises will not be considered as abandoned if, Tenant, after vacating the
Premises has listed the Premises with a licensed Broker for sublease and
appropriate signage has been posted on the Premises stating the availability of
the Premises for sublease.
Article 44. Subordination
Owner shall attempt to secure and deliver a Non-Disturbance Agreement from and
executed by owner's mortgagee for the benefit of Tenant.
Should owner's mortgagee fail to deliver a Non-Disturbance Agreement for the
benefit of Tenant, Tenant shall have the right to refuse to subordinate its
interest under this Lease to any and all now effective or hereafter executed
Deed of Trust or ground lease which may now or hereafter affect Owner's estate
in the Property, and to all renewals, modifications, replacements or extensions
thereof.
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Article 45. Insurance
Tenant shall pay monthly to Owner its prorata share of 23.2% of all Insurance
applicable to the Premises.
Article 50. Arbitration
Owner and Tenant hereby waive their respective rights to trial by jury of any
cause of action, claim, counterclaim or cross-complaint in any action,
proceeding and/or hearing brought by either Owner against Tenant or Tenant
against Owner on any matter whatsoever arising out of, or in any way connected
with this Lease. Owner and Tenant hereby agree to settle any disputes or claims
through arbitration and the judgment or the award rendered in any such
arbitration may be entered in any court having jurisdiction and shall be final
and binding upon the parties. The arbitration shall be conducted and determined
in the City of Fullerton in accordance with the then prevailing rules of the
American Arbitration Association or its successor for arbitration of commercial
disputes, and the provisions of California Code of Civil Procedure Section
1283.05, or any successor or amended statute or law containing similar
provisions, shall apply.
ARTICLE 51 Options To Extend
Tenant shall have the right, at its option to extend the Term of the Lease under
the same terms and conditions for two (2) periods of three (3) years each
("Option Term") immediately following the expiration of the Term of the Lease or
extended Term of the Lease; such right shall be referred to in this Addendum as
the "Option". Tenant shall exercise each option by delivery of written notice to
Owner at least six (6) months prior to the then scheduled expiration date
("Expiration Date") of the Term of the Lease or extended Term of the Lease. The
rate payable under each Option shall not exceed the then prevailing market rate,
terms and conditions for comparable space. All other terms, covenants and
conditions (including without limitation, defined terms) contained in the Lease
shall be applicable to each Option Term in the event of the Exercise of the
Option by Tenant. If Tenant is in default pursuant to the Lease or any event or
condition has occurred which after notice or passage of time or both shall
constitute a default pursuant to the Lease during the time period when Tenant
may exercise each Option, then any attempt to exercise each option shall be
null, void and of no force or effect.
Exhibit "C" Paragraph 4
Owner shall permit Tenant, at Tenant's sole cost and expense to install Tenant's
name/logo on the existing bank signage, subject to Owner's prior written
consent, which consent shall not be unreasonably withheld. Tenant shall, at
Tenant's sole cost and expense, obtain all necessary permits from the City of
Fullerton.
Exhibit "C" Paragraph 13
Except for owner's Building Standards for blinds, draperies, shutters or window
coverings, Tenant shall obtain Owner's prior written consent before installation
of any blinds, draperies, shutters or window coverings. The existing electrical
ceiling fixtures shall not be removed from the Premises without Owner's prior
written consent. All electrical ceiling fixtures hung in offices or spaces along
the perimeter of the Building must be fluorescent and of a quality, type design
and bulb color approved by owner.
Exhibit "C" Paragraph 16
114
<PAGE>
Upon vacating the Premises, Tenant shall remove all nails, hooks, or screws
driven or inserted into any part of the Premises and repair any damage caused by
said removal. No nails, hook's or screws shall be driven or inserted into any
other part of the Property, or the exterior of the Premises, except with Owner's
prior written consent.
Rider No. 2 Rental Adjustment And Property Tax Reimbursement
In addition to any amounts payable by Tenant to owner per the provisions of this
Rider, Tenant shall pay for its own janitorial service and security
systems/personnel and its separately metered utilities to its Premises.
The following items shall be excluded from the operating expenses pass throughs
to the Tenant.
A) Any expenses associated with the elevators, including but not limited to
maintenance, replacement or repair.
B) Any cost associated with any other floor in the Building except the portion
of the ground floor, which the Bank occupies, and the main lobby of the
Building.
C) The cost of items for which Owner is reimbursed by insurance or otherwise
compensated by parties other than tenants of the Building.
D) Any cost directly related to any other tenant in the Building.
E) Any management fees in excess of five percent (5%) of the revenue of the
Building.
F) Any cost associated with the bathrooms in the Building other than those in
Tenant's Premises.
Tenant shall have the continuous right, at its sole cost and expense, to audit
Owner's, or its agent's, books for the accuracy of determining operating
expenses and increases in operating expenses.
The Chapman Building
By Edward Illig
Title Managing General Partner
By
Title
Owner
Witness: Chino Valley Bank
By: Jay W. Coleman
Date:
Title: Executive Vice President
Address:
By
Title
115
<PAGE>
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in the 1981 Stock Option Plan
Registration Statement No. 2-76121 on Form S-8, the 1991 Stock Option Plan
Registration Statement No. 33-41318 on Form S-8, and the Key Employee Stock
Grant Plan Registration Statement No. 33-50442 on From S-8 of our report
dated January 20, 1995, appearing on page 68 in this Annual Report on
From 10-K for the fiscal year ended December 31, 1994.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
Los Angeles, California
March 27, 1995
116
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE DECEMBER
31, 1994 CONSOLIDATED BALANCE SHEET AND STATEMENT OF EARNINGS AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<CASH> 94,630
<INT-BEARING-DEPOSITS> 199
<FED-FUNDS-SOLD> 15,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 173,248
<INVESTMENTS-CARRYING> 19,018
<INVESTMENTS-MARKET> 18,073
<LOANS> 494,088
<ALLOWANCE> 9,471
<TOTAL-ASSETS> 836,095
<DEPOSITS> 762,624
<SHORT-TERM> 6,430
<LIABILITIES-OTHER> 4,607
<LONG-TERM> 494
<COMMON> 32,438
0
0
<OTHER-SE> 29,502
<TOTAL-LIABILITIES-AND-EQUITY> 836,095
<INTEREST-LOAN> 43,156
<INTEREST-INVEST> 10,460
<INTEREST-OTHER> 432
<INTEREST-TOTAL> 54,047
<INTEREST-DEPOSIT> 10,773
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<INTEREST-INCOME-NET> 42,818
<LOAN-LOSSES> 350
<SECURITIES-GAINS> (128)
<EXPENSE-OTHER> 32,435
<INCOME-PRETAX> 17,620
<INCOME-PRE-EXTRAORDINARY> 17,620
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,435
<EPS-PRIMARY> 1.24
<EPS-DILUTED> 1.24
<YIELD-ACTUAL> 6.64
<LOANS-NON> 12,613
<LOANS-PAST> 0
<LOANS-TROUBLED> 8,954
<LOANS-PROBLEM> 2,011
<ALLOWANCE-OPEN> 8,849
<CHARGE-OFFS> 1,021
<RECOVERIES> 168
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</TABLE>
