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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934.
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934.
FOR THE TRANSITION PERIOD FROM N/A TO N/A
COMMISSION FILE NUMBER 1-10394
CVB FINANCIAL CORP.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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CALIFORNIA 95-3629339
STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION
701 N. HAVEN AVENUE, SUITE 350 91764
ONTARIO, CALIFORNIA (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
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REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (909) 980-4030
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
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TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
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COMMON STOCK AMERICAN STOCK EXCHANGE
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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 __
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. [X]
As of March 5, 1997, the aggregate market value of the common stock held by
non-affiliates of the registrant was approximately $181,654,894.
Number of shares of common stock of the registrant outstanding as of March
5, 1997: 10,022,339.
The following documents are incorporated by reference herein:
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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, 1996
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INTRODUCTION
Certain matters discussed in this Annual Report may constitute
forward-looking statements within the meaning of the Private Securities Reform
Act of 1995 (the "Reform Act") and as such may involve risks and uncertainties.
These forward-looking statements relate to, among other things, expectations of
the business environment in which the Company operates, projections of future
performance, perceived opportunities in the market and statements regarding the
Company's mission and vision. The Company's actual results, performance, or
achievements may differ significantly from the results, performance, or
achievements expressed or implied in such forward-looking statements. For
discussion of the factors that might cause such differences, see "Item 1.
Business -- Factors that May Affect Future Results."
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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. On March 29, 1996, Chino Valley Bank changed
its name to Citizens Business Bank (the "Bank"). The Bank 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, 1996, the Company had $1.2 billion in total consolidated assets,
$576.7 million in total consolidated net loans and $990.6 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.
CITIZENS BUSINESS 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. The Bank is not a member of the Federal Reserve System. At
December 31, 1996, the Bank had $1.2 billion in assets, $579.2 million in net
loans and $991.8 million in deposits.
The Bank currently has 23 banking offices located in San Bernardino County,
Riverside County, the northern portion of Orange County and the eastern portion
of Los Angeles County in Southern California. Of the 23 offices, the Bank opened
seven as de novo branches and acquired the other sixteen in acquisition
transactions. Since 1990, the Bank has added eleven offices, two in 1990, two in
1993, two in 1994, one in 1995, and four in 1996.
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 August 11,1995, the Bank consolidated the branch located at
10602 Rush Street, El Monte.
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 purchased certain assets of Pioneer that included
approximately $12.3 million in loans and $8.2 million in investments and federal
funds sold.
On October 20, 1995, the Bank completed its acquisition of the Victorville
office of Vineyard National Bank for an aggregate cash purchase price of
$200,000. The Bank assumed approximately $4.1 million in deposits and $952,000
in loans.
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On March 29, 1996, the Bank acquired Citizens Commercial Trust and Savings
Bank of Pasadena, California, ("Citizens Bank of Pasadena"). Citizens Bank of
Pasadena had four branch offices, two branches located in Pasadena, one branch
located in La Canada and one branch located in San Marino. The Bank acquired
approximately $59.9 million in loans, and assumed approximately $111.7 million
in deposits. In addition, the Bank acquired a Trust Division that managed assets
of approximately $800 million that are not included on the balance sheet of the
Bank or Company. Concurrent with the acquisition, the Bank changed its name to
"Citizens Business Bank."
Through its network of banking offices, the Bank emphasizes personalized
service combined with offering a full range of banking and trust 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, agribusiness, 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, and on-line account
access. The Bank also makes available investment products to customers,
including mutual funds, a full array of fixed income vehicles and a program to
diversify its customers' funds in federally insured time certificates of deposit
of other institutions.
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 of changes in regulation, changes in
technology and product delivery systems, the accelerating pace of consolidation
among banks, and the growth of nonbank financial services providers. The Bank
competes for loans, 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 may legally provide. 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 may arrange for those services to be provided by its
correspondents. The Bank has 23 branch 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.
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EMPLOYEES
At December 31, 1996, the Company employed 428 persons -- 267 on a
full-time and 161 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 investment securities held in the Bank's portfolio comprises
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 Bank and the Company are subject to the influence of domestic
and foreign economic conditions, including inflation, recession and
unemployment.
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 services providers. Proposals to change the laws and regulations
governing the operations and taxation of banks, bank holding companies and other
financial services provider are frequently made in Congress, in the California
legislature and before various bank regulatory and other professional agencies.
The likelihood of any major legislative changes and the impact such changes
might have on the Company and the Bank are impossible to predict. See "Item 1.
Business -- Supervision and Regulation."
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.
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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 statutory
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, or acquire shares of
companies engaged in, any 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, 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. In 1996, the Economic Growth and
Regulatory Paperwork Reduction Act of 1996 (the "Budget Act") eliminated the
requirement that bank holding companies seek Federal Reserve Board approval
before engaging de novo in permissible nonbanking activities listed in
Regulation Y, which governs bank holding companies, if the holding company and
its lead depository institution are well-managed and well-capitalized and
certain other criteria specified in the statute are met. For purposes of
determining the capital levels at which a bank holding company shall be
considered "well-capitalized" under this section of the Budget Act and
Regulation Y, the Federal Reserve Board adopted as an interim rule, risk-based
capital ratios (on a consolidated basis) that are, with the exception of the
leverage ratio (which is lower), the same as the levels set for determining that
a state member bank is well capitalized under the provisions established under
the prompt corrective action provisions of federal law. See "Item 1.
Business -- Supervision and Regulation -- Prompt Corrective Action and Other
Enforcement Mechanisms."
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
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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.
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 "Commission").
AVAILABLE INFORMATION
Reports filed with the Commission, including proxy statements and other
information can be inspected and copied at the public reference facilities of
the Commission at Room 1024, 450 Fifth Street, N.W., Washington D.C., 20549; 500
West Madison Street, Suite 1400, Chicago, Illinois 60661-2511; and 7 World Trade
Center, Suite 1300, New York, new York, 10048. Copies of such materials can be
obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington D.C. 20549, at prescribed rates. The Commission
maintains a Web Site that contains reports, proxy and information statements and
other information. The address of the site is ht.//www.sec.gov. In addition,
reports can be inspected at the office of the American Stock Exchange, 86
Trinity Place, New York, New York, 10006.
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,
interest rate sensitivity, 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. The Bank is not currently subject to 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."
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RESTRICTIONS ON TRANSFERS OF FUNDS TO CVB BY THE BANK
CVB Financial Corp. ("CVB") is a legal entity separate and distinct from
the Bank. CVB'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 retained
earnings or the bank's net income for its last three fiscal years (less any
distributions made to shareholders by the Bank or by any majority-owned
subsidiary of the Bank during such period). Notwithstanding this restriction, a
bank may, with the prior approval of the Superintendent, make a distribution to
its shareholders in an amount not exceeding the greatest of the retained
earnings of the bank, net income for such bank's last fiscal year or the net
income of the bank for its current year.
The FDIC and the Superintendent also has authority to prohibit the Bank
from engaging in activities that, in the FDIC's and the Superintendent'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 and the Superintendent could assert that the
payment of dividends or other payments might, under some circumstances, be 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, 1996, the Bank had
$12.4 million in retained earnings available for the payment of cash dividends.
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 CVB or to any other affiliate is limited to
10% of the Bank's capital stock 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 stock 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 US 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. Qualifying capital is the sum of Tier 1 capital and limited
amounts of Tier
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2 capital and Tier 1 capital. Tier 1 capital consists of, among other things,
(i) common stockholders' equity capital (includes common stock and related
surplus, and undivided profits); (ii) noncumulative perpetual preferred stock
(cumulative perpetual preferred stock for bank holding companies), including any
related surplus; and (iii) minority interests in certain subsidiaries, less most
intangible assets. Tier 2 capital may consist of: (i) a limited amount of the
allowance for possible loan and lease losses; (ii) cumulative perpetual
preferred stock; (iii) perpetual preferred stock (and any related surplus); (iv)
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 must
be 3%. For all banking organizations not rated in the highest category, the
minimum leverage ratio must be at least 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. See "Item 7. Management's Discussion and Analysis of
Financial Condition and the Results of Operations -- Capital Resources."
In June 1996, the federal banking agencies adopted a joint agency policy
statement to provide guidance on managing interest rate risk. These agencies
indicated that the adequacy and effectiveness of a bank's interest rate risk
management process and the level of its interest rate exposures are critical
factors in the agencies' evaluation of the bank's capital adequacy. A bank with
material weaknesses in its risk management process or high levels of exposure
relative to its capital will be directed by the agencies to take corrective
action. Such actions may include recommendations or directions to raise
additional capital, strengthen management expertise, improve management
information and measurement systems, reduce levels of exposure, or some
combination thereof depending upon the individual institution's circumstances.
This policy statement augments the August 1995 regulations adopted by the
federal banking agencies which addressed risk-based capital standards for
interest rate risk.
In December 1993, the federal banking agencies issued an interagency policy
statement on the allowance for loan and lease losses (ALLL) 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. This amount is neither a "floor" nor a
"safe harbor" level for an institution's ALLL.
Federally supervised banks and savings associations are currently required
to report deferred tax assets in accordance with SFAS No. 109. The federal
banking agencies issued final rules governing banks and bank holding companies,
which became effective April 1, 1995, which limit the amount of deferred tax
assets that are allowable in computing an institution's regulatory capital.
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, based on projected taxable income for that year or (ii) 10% of Tier
1 Capital. The amount of any deferred tax in excess of 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.
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The following table presents the amounts of regulatory capital and the
capital ratios for the Company and the Bank, compared to the minimum regulatory
capital requirements as of December 31, 1996.
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<CAPTION>
COMPANY ACTUAL BANK ACTUAL
(IN THOUSANDS) (IN THOUSANDS) MINIMUM
----------------- ----------------- CAPITAL
AMOUNT RATIO AMOUNT RATIO REQUIREMENT
------- ----- ------- ----- -----------
<S> <C> <C> <C> <C> <C>
Leverage ratio............................. $77,591 7.21% $74,832 6.96% 4.00%
Tier 1 risk-based ratio.................... 77,591 11.03 74,832 10.67 4.00
Total risk-based ratio..................... 86,561 12.30 83,769 11.95 8.00
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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. In accordance with federal law, each federal banking agency has
promulgated 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. An insured
depository institution will be classified in the following categories based, in
part, on the capital measures indicated below:
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"WELL CAPITALIZED" "ADEQUATELY CAPITALIZED"
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Total risk-based capital of 10%; Total risk-based capital of 8%;
Tier 1 risk-based capital of 6%; and Tier 1 risk-based capital of 4%; and
Leverage ration of 5%. Leverage ratio of 4%.
"UNDERCAPITALIZED" "SIGNIFICANTLY UNDERCAPITALIZED"
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Total risk-based capital less than 8%; Total risk-based capital less than 6%
or Tier 1 risk-based capital less than 4%, or Tier 1 risk-based capital less than 3%;
or Leverage ratio less than 4%. or Leverage ratio less than 3%.
</TABLE>
"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 a significantly undercapitalized 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 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
receiving notice, or is deemed to have notice, that the institution is
undercapitalized. The appropriate federal banking agency cannot accept a capital
plan unless, among other things, it determines that the plan: (i) specifies: (a)
the steps the institution will take to become adequately capitalized; (b) the
levels of capital to be attained during each year in which the plan will be in
effect; (c) how the institution will comply with the restrictions or
requirements then in effect under Section 38 of the FDIA; and (d) the types and
levels of activities in which the institution will engage; (ii) is based on
realistic assumptions and is likely to succeed in restoring the depository
institution's capital; and (iii) would not appreciably increase the risk
(including credit risk, interest-rate risk, and other types of risk) to which
the institution is exposed. In
9
<PAGE> 11
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 average during each of
four consecutive calendar quarters and must otherwise provide appropriate
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: (i) force a sale of shares
or obligations of the bank, or require the bank to be acquired by or combine
with another institution; (ii) impose restrictions on affiliate transactions and
(iii) 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 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
Effective July 1995, the federal banking agencies adopted final guidelines
establishing standards for safety and soundness, as required by the Federal
Deposit Insurance Corporation Improvement Act, (the "FDICIA"). These standards
are designed to identify potential safety-and-soundness concerns and ensure that
action is taken to address those concerns before they pose a risk to the deposit
insurance funds. The standards relate to (i) internal controls, information
systems and internal audit systems; (ii) loan documentation; (iii) credit
underwriting; (iv) asset growth; (v) earnings; and (vi) compensation, fees and
benefits. If a
10
<PAGE> 12
federal banking agency determines that an institution fails to meet any of these
standards, the agency may require the institution to submit to the agency an
acceptable plan to achieve compliance with the standard. In the event the
institution fails to submit an acceptable plan within the time allowed by the
agency or fails in any material respect to implement an accepted plan, the
agency must, by order, require the institution to correct the deficiency.
Effective October 1, 1996, the federal banking agencies promulgated safety and
soundness regulations and accompanying interagency compliance guidelines on
asset quality and earnings standards. These new guidelines provide six standards
for establishing and maintaining a system to identify problem assets and prevent
those assets from deteriorating. The institution should: (i) conduct periodic
asset quality reviews to identify problem assets; (ii) estimate the inherent
losses in those assets and establish reserves that are sufficient to absorb
estimated losses; (iii) compare problem asset totals to capital; (iv) take
appropriate corrective action to resolve problem assets; (v) consider the size
and potential risks of material asset concentrations; and (vi) provide periodic
asset reports with adequate information for management and the board of
directors to assess the level of asset risk. These new guidelines also set forth
standards for evaluating and monitoring earnings and for ensuring that earnings
are sufficient for the maintenance of adequate capital and reserves. If an
institution fails to comply with a safety and soundness standard, the
appropriate federal banking agency may require the institution to submit a
compliance plan. Failure to submit a compliance plan or to implement an accepted
plan may result in enforcement action.
PREMIUMS FOR DEPOSIT INSURANCE
The FDIC has adopted final regulations implementing a risk-based premium
system required by federal law. On November 14, 1995, the FDIC issued
regulations that establish a new assessment rate schedule ranging from 0 cents
per $100 of deposits to 27 cents per $100 of deposits applicable to members of
BIF. 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 using the same standards used by
the FDIC for its prompt corrective action regulations. See "Item 1.
Business -- Capital Standards -- Prompt Corrective Action and Other Enforcement
Mechanisms." 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. The three supervisory
categories are: financially sound with only a few minor weaknesses (Group A),
demonstrates weaknesses that could result in significant deterioration (Group
B), and poses a substantial probability of loss (Group C).
The BIF assessment rates are set forth below for institutions based on
their risk-based assessment categorization.
ASSESSMENT RATES EFFECTIVE JANUARY 1, 1996*
<TABLE>
<CAPTION>
GROUP A GROUP B GROUP C
------- ------- -------
<S> <C> <C> <C>
Well Capitalized................................ 0 3 17
Adequately Capitalized.......................... 3 10 24
Undercapitalized................................ 10 24 27
</TABLE>
- - ---------------
* Assessment figures are expressed in terms of cents per $100 of deposits.
On September 30, 1996, Congress passed the Budget Act which capitalized the
Savings Association Insurance Fund (SAIF) through a special assessment on
SAIF-insured deposits and required banks to share in part of the interest
payments on the Financing Corporation ("FICO") bonds which were issued to help
fund the federal government costs associated with the savings and loan crisis of
the late 1980's. The special thrift SAIF assessment has been set at 65.7 cents
per $100 insured by the thrift funds as of March 31, 1995. Effective January 1,
1997, for the FICO payments, SAIF-insured institutions will pay 3.2 cents per
$100 in domestic deposits and BIF-insured institutions, like the Bank, will pay
0.64 cents per $100 in domestic deposits. Full pro rata sharing of the FICO
interest payments takes effect on January 1, 2000.
11
<PAGE> 13
The federal banking regulators are also authorized to prohibit depository
institutions and their holding companies from facilitating or encouraging the
shifting of deposits from SAIF to BIF for the purpose of evading thrift
assessment rates. The Budget Act also prohibits the FDIC from setting premiums
under the risk-based schedule above the amount needed to meet the designated
reserve ratio (currently 1.25%).
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 is not 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 or bank holding companies. 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.
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.
Under the Interstate Act, the extent of a commercial bank's ability to
branch into a new state will depend on the law of the state. In October 1995,
California adopted an early "opt in" statute under the Interstate Act that
permits out-of-state banks to acquire California banks that satisfy a five-year
minimum age requirement (subject to exceptions for supervisory transactions) by
means of merger or purchases of assets, although entry through acquisition of
individual branches of California institutions and de novo branching into
California are not permitted. The Interstate Act and the California branching
statute will likely increase competition from out-of-state banks in the markets
in which the Company operates, although it is difficult to assess the impact
that such increased competition may 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 its 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.
In May 1995, the federal banking agencies issued final regulations which
change the manner in which they measure a bank's compliance with its CRA
obligations. The final regulations adopt a performance-based evaluation system
which bases CRA ratings on an institution's actual lending service and
investment performance, rather than the extent to which the institution conducts
needs assessments, documents community outreach, activities or complies with
other procedural requirements.
12
<PAGE> 14
In March 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.
In connection with its assessment of CRA performance, the FDIC assigns a
rating of "outstanding," "satisfactory," "needs to improve" or "substantial
noncompliance." Based on the last compliance examination conducted during the
third quarter of 1995, the Bank was rated satisfactory by the FDIC.
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 currently are subject to any such enforcement actions.
FACTORS THAT MAY AFFECT FUTURE RESULTS
The following discusses certain factors which may affect the Company's
financial results and operations and should be considered in evaluating the
Company.
Economic Conditions and Geographic Concentration. The Company's operations
are located in Southern California and concentrated primarily in the area known
as the Inland Empire. As a result of the geographic concentration, the Company's
results depend largely upon economic conditions in these areas, which have been
relatively volatile over the last several years. While the Southern California
and Inland Empire economies recently have exhibited positive economic and
employment trends, there is no assurance that such trends will continue. A
deterioration in economic conditions could have material adverse impact on the
quality of the Company's loan portfolio and the demand for its products and
services.
Interest Rates. The Company anticipates that interest rate levels will
remain generally constant in 1997, but if interest rates vary substantially from
present levels, the Company's results may differ materially from the results
currently anticipated. Changes in interest rates will influence the growth of
loans, investments and deposits and affect the rates received on loans and
investment securities and paid on deposits.
Government Regulation and Monetary Policy. The banking industry is subject
to extensive federal and state supervision and regulation. Significant new laws
or changes in, or repeals of, existing laws may cause the Company's results to
differ materially. Further, federal monetary policy, particularly as implemented
through the Federal Reserve System, significantly affects credit conditions for
the Company, primarily through open market operations in United States
government securities, the discount rate for bank borrowings and bank reserve
requirements, and a material change in these conditions would be likely to have
a material impact on the Company's results.
Competition. The banking and financial services business in the Company's
market areas are highly competitive. The increasingly competitive environment is
a result of changes in regulation, changes in technology and product delivery
systems, and the accelerating pace of consolidation among financial services
providers. The results of the Company may differ if circumstances affecting the
nature or level of competition change.
13
<PAGE> 15
Credit Quality. A significant source of risk arises from the possibility
that losses will be sustained because borrowers, guarantors and related parties
may fail to perform in accordance with the terms of their loans. The Company has
adopted underwriting and credit monitoring procedures and credit policies,
including the establishment and review of the allowance for credit losses, that
management believes are appropriate to minimize this risk by assessing the
likelihood of nonperformance, tracking loan performance and diversifying the
Company's credit portfolio, Such policies and procedures, however, may not
prevent unexpected losses that could have a material adverse effect on the
Company's results.
Other Risks. From time to time, the Company details other risks with
respect to its business and/or financial results in its filings with the
Commission.
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.
The Bank occupies the premises for sixteen of its offices under leases
expiring at various dates from 1996 through 2014. The Bank owns the premises for
eight of its offices, including its data center.
The Company's total occupancy expense, exclusive of furniture and equipment
expense, for the year ended December 31, 1996, was $3.6 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 10 of the Notes to the Consolidated 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
1996.
ITEM 4(A). EXECUTIVE OFFICERS OF THE REGISTRANT
As of March 15, 1997, the principal executive officers of the Company and
Bank are:
<TABLE>
<CAPTION>
NAME POSITION AGE
- - --------------------- --------------------------------------------------- ---
<S> <C> <C>
George A. Borba Chairman of the Board of the Company and the Bank 64
D. Linn Wiley President and Chief Executive Officer of the 58
Company and the Bank
Frank Basirico Executive Vice President/Senior Loan Officer of the 42
Bank
Jay W. Coleman Executive Vice President of the Bank 54
Ed Pomplun Executive Vice President of the Bank 50
Robert J. Schurheck Chief Financial Officer of the Company and 64
Executive Vice President and Chief Financial
Officer of the Bank
</TABLE>
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.
14
<PAGE> 16
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, 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. Basirico has served as Executive Vice President and Senior Loan Officer
of the Bank since November, 1996. From March, 1993 to November, 1996, he served
as Credit Administrator of the Bank. Prior to that time he was Executive Vice
President, senior loan officer at Fontana National Bank from 1981. Between 1976
and 1981 he served as Executive Vice President, senior loan officer at the Bank
of Hemet.
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. Pomplun has served as Executive Vice President and Division Manager of
the Trust Division since March 29, 1996. From February, 1994 to March 29, 1996
he held that position for Citizens Bank of Pasadena. From June, 1988 through
February, 1994, Mr. Pomplun served as Executive Vice President and Division
Manager of the Trust Division for First National Bank in San Diego. Between 1984
and 1988, he served as Vice President for Bank of America's Trust Division.
Between March, 1977 and June, 1984 he served as Trust Office Manager and Trust
Marketing Head for San Diego Trust and Savings Bank.
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.
15
<PAGE> 17
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
Shares of CVB Financial Corp. common stock price increased from an average
price of $12.13 per share for the first quarter of 1996 to an average per share
price of $16.39 for the fourth quarter of 1996. The following table presents the
high and low sales prices and dividend information for the Company's common
stock during each quarter for the past two years. The share prices and cash
dividend per share amounts presented for all periods have been restated to give
retroactive effect, as applicable, of the ten percent stock dividend declared on
December 18, 1996, and a ten percent stock dividend declared in 1995. The
Company had approximately 1,031 shareholders of record as of December 31, 1996.
TABLE 11 -- TWO YEAR SUMMARY OF COMMON STOCK PRICES
<TABLE>
<CAPTION>
QUARTER
ENDED HIGH LOW DIVIDENDS
- - -------- ------ ------ -------------------
<C> <C> <C> <S>
3/31/95 $12.81 $10.95 $.066 Cash Dividend
6/30/95 $11.57 $10.44 $.066 Cash Dividend
9/30/95 $10.85 $10.44 $.066 Cash Dividend
12/31/95 $12.50 $10.69 $.066 Cash Dividend
10% Stock Dividend
3/31/96 $12.50 $11.70 $.073 Cash Dividend
6/30/96 $15.23 $12.16 $.073 Cash Dividend
9/30/96 $16.36 $14.55 $.073 Cash Dividend
12/31/96 $18.98 $14.32 $.091 Cash Dividend
10% Stock Dividend
</TABLE>
The Company lists its common stock on the American Stock Exchange under the
symbol "CVB."
16
<PAGE> 18
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
-------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net Interest Income..................... $ 53,427,982 $ 48,140,875 $ 42,818,669 $ 35,891,367 $ 32,020,207
Provision for Credit Losses............. 2,887,821 2,575,000 350,000 1,720,000 1,772,109
Other Operating Income.................. 14,278,777 9,090,442 7,586,410 10,744,921 7,897,796
Other Operating Expenses................ 41,909,303 35,053,016 32,434,624 29,353,759 23,419,389
-------------- ------------ ------------ ------------ ------------
Earnings Before Income Taxes............ 22,909,635 19,603,301 17,620,455 15,562,529 14,726,505
Income Taxes............................ 9,576,299 8,145,842 7,185,679 6,040,178 5,711,445
-------------- ------------ ------------ ------------ ------------
NET EARNINGS............................ $ 13,333,336 $ 11,457,459 $ 10,434,776 $ 9,522,351 $ 9,015,060
============== ============ ============ ============ ============
Net Earnings per Common Share(1)........ $ 1.30 $ 1.12 $ 1.03 $ 0.95 $ 0.93
============== ============ ============ ============ ============
Stock Dividends......................... 10% 10% 10% 10% 10%
Cash Dividends Declared Per Share(1).... $ 0.31 $ 0.26 $ 0.24 $ 0.22 $ 0.20
Dividend Pay-Out Ratio.................. 23.85% 23.21% 23.30% 23.16% 21.51%
FINANCIAL POSITION:
Assets................................ $1,160,420,694 $936,939,922 $836,095,349 $687,407,957 $592,097,857
Net Loans............................. 576,686,562 496,448,905 484,617,731 442,083,848 374,661,538
Deposits.............................. 990,596,623 803,573,853 762,623,921 595,956,301 526,923,421
Stockholders' Equity.................. 89,087,071 78,260,216 61,939,928 59,957,532 52,038,215
Book Value Per Share(1)............... 8.93 7.97 6.35 6.19 5.41
Equity-to-Assets Ratio(2)............. 7.68% 8.35% 7.41% 8.72% 8.79%
FINANCIAL PERFORMANCE
Return on:
Beginning Equity.................... 17.04% 18.50% 17.40% 18.30% 20.40%
Average Equity...................... 16.09% 16.13% 16.84% 17.46% 18.72%
Return on Average Assets.............. 1.31% 1.39% 1.40% 1.52% 1.62%
CREDIT QUALITY:
Allowance for Credit Losses........... $ 12,238,816 $ 9,625,586 $ 9,470,736 $ 8,849,442 $ 6,461,345
Allowance/Total Loans................. 2.08% 1.90% 1.92% 1.96% 1.70%
Total Non Performing Loans............ $ 23,559,720 $ 26,847,307 $ 21,567,108 $ 13,262,357 $ 10,204,442
Non Performing Loans/Total Loans...... 4.00% 5.31% 4.37% 2.94% 2.68%
Allowance/Non Performing Loans........ 51.95% 35.85% 43.91% 66.73% 63.32%
Net Charge-Offs....................... $ 985,920 $ 2,420,150 $ 853,363 $ 918,898 $ 573,378
Net Charge-Offs/Average Loans......... 0.18% 0.50% 0.18% 0.22% 0.16%
</TABLE>
- - ---------------
(1) All per share information has been retroactively adjusted to reflect the 10%
stock dividend declared December 18, 1996, as to holders of record on
January 6, 1997, and paid January 21, 1997, and 10% stock dividends paid in
1996, 1995, 1994 and 1993.
(2) Stockholders' equity divided by total assets.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND THE
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. Certain statements under this caption constitute "forward-looking
statements" under the Reform Act which involve risk and uncertainties. The
Company's actual results may differ significantly from the results discussed in
such forward-looking statements. Factors that might cause such a difference
include but are not limited to economic conditions, competition in the
geographic and business areas in which the Company conducts its operations,
fluctuations in interest rates, credit quality and government regulation. For
additional information concerning these factors, see "Item 1.
Business -- Factors that May Affect Future Results."
CVB Financial Corp., ("CVB") is a bank holding company. Its primary
subsidiary, Citizens Business Bank, (the "Bank") is a state chartered bank with
23 branch offices located in San Bernardino, Riverside, east
17
<PAGE> 19
Los Angeles, and north Orange Counties. Community Trust Deed Services
("Community") 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".
On March 29, 1996, the Bank acquired Citizens Bank of Pasadena with
deposits of approximately $111.7 million, and loans of approximately $59.9
million. As a result of the acquisition, the Bank acquired four new banking
offices. In addition to the commercial banking operation, the Bank acquired a
trust operation with approximately $800.0 million in assets under management,
which are not included on the balance sheet of the Bank.
On October 20, 1995, the Bank purchased a branch office located in
Victorville, California from Vineyard National Bank with deposits of $4.1
million and loans of $952,000.
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, including federal funds sold.
The acquisitions and mergers during 1994, 1995 and 1996, have provided the
Bank with seven new banking offices and contributed significantly to the growth
of the Company's deposits, loans and assets.
Virtually all of the Company's activities are conducted within its market
area, which includes the Inland Empire and other areas of Southern California.
During 1996, Southern California, and specifically the Inland Empire, continued
to make progress in its recovery from a serve recession. The recession resulted
from declines in the defense industry, corporate relocations and general
weakness in the real estate market. During 1996, confidence improved among small
business and consumers. Many industries grew at a satisfactory rate, although
the construction and defense industries continued to struggle. While the
Southern California economies have exhibited recent positive economic and
employment trends, there is no assurance that such trends will continue.
ANALYSIS OF THE RESULTS OF OPERATIONS
The Company reported net earnings of $13.3 million for the year ended
December 31, 1996. This represented an increase of $1.9 million, or 16.37%, over
earnings of $11.5 million for the year ended December 31, 1995. For the year
ended December 31, 1994, the Company reported net earnings of $10.4 million.
Earnings per share, adjusted for the effects of a 10% stock dividend declared
each year, were $1.30, $1.12, and $1.03 per share for 1996, 1995, and 1994,
respectively.
The increase in earnings for 1996 compared to 1995 was the result of an
increase in net interest income and an increase in other operating income.
Increased net interest income for 1996 reflected a higher volume of average
earning assets. The increase in other operating income resulted from the
collection of a $2.1 million settlement of litigation coupled with an increase
in fee income that resulted from the acquisition of the Trust Division. The
increases in revenue were partially offset by higher operating expenses, and to
a lesser extent, a higher provision for credit losses.
The increase in earnings for 1995 compared to 1994 resulted primarily from
an increase in net interest income and, to a lesser extent, the increase in
other operating income. Increased net interest income for 1995 generally
resulted from a higher volume of interest earning assets coupled with higher
yields on those assets. The increase was partially offset by a higher provision
for credit losses and increased other operating expenses.
For the year ended December 31, 1996, the Company's return on average
assets was 1.31%, compared to a return on average assets of 1.39% for the year
ended December 31, 1995, and 1.40% for the year ended December 1994. The
Company's return on average stockholders' equity was 16.09% for the year ended
December 31, 1996, compared to 16.13% for the year ended December 31, 1995, and
16.84% for the year ended December 31, 1994.
18
<PAGE> 20
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 the federal marginal tax rate of 35.00%.
TABLE 1 -- Distribution of Average Assets, Liabilities, and Stockholders'
Equity; Interest Rates and Interest Differentials
<TABLE>
<CAPTION>
1996 1995 1994
--------------------------------- ------------------------------- ------------------------------
AVERAGE AVERAGE AVERAGE
BALANCE INTEREST RATE BALANCE INTEREST RATE BALANCE INTEREST RATE
---------- -------- ----- -------- -------- ----- -------- -------- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Investment Securities
Taxable(1)........... $ 303,086 $ 18,613 6.14% $220,427 $ 13,736 6.23% $171,806 $ 10,084 5.87%
Tax preferenced(2)... 26,330 1,318 7.02 11,012 553 7.04 7,695 376 6.85
Federal Funds Sold..... 9,893 512 5.18 4,285 248 5.79 10,297 432 4.20
Net Loans(3)(4)........ 541,351 54,451 10.06 477,588 50,158 10.50 457,273 43,156 9.44
---------- -------- --------
Total Earning Assets... 880,660 74,894 8.56 713,312 64,695 9.10 647,071 54,048 8.38
Total Non Earning
Assets............... 135,970 112,238 98,086
---------- -------- --------
Total Assets........... $1,016,630 $825,550 $745,157
========== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Demand Deposits........ $ 327,789 $268,709 $236,945
Savings Deposits(5).... 353,190 $ 8,901 2.52% 303,092 $ 7,199 2.38% 321,631 $ 6,834 2.12%
Time Deposits.......... 188,319 9,839 5.22 140,366 7,339 5.23 108,515 3,939 3.63
---------- -------- --------
Total Deposits......... 869,298 18,740 2.16 712,167 14,538 2.04 667,091 10,773 1.61
---------- -------- --------
Other Borrowings....... 51,185 2,726 5.33 35,232 2,016 5.72 9,877 456 4.62
---------- -------- --------
Interest Bearing
Liabilities.......... 592,694 21,466 3.62 478,690 16,554 3.46 440,023 11,229 2.55
---------- -------- --------
Other Liabilities...... 13,276 7,103 6,216
Stockholders' Equity... 82,871 71,048 61,973
---------- -------- --------
Total Liabilities and
Stockholders'
Equity............... $1,016,630 $825,550 $745,157
========== ======== ========
Net interest spread.... 4.94% 5.64% 5.83%
Net interest margin.... 6.13 6.78 6.64
Net interest margin
excluding loan
fees................. 5.76 6.41 6.31
</TABLE>
- - ---------------
(1) Includes certificates of deposit purchased from other institutions.
(2) Yields are calculated on a taxable equivalent basis using a marginal tax
rate of 35.00%.
(3) Loan fees are included in total interest income as follows, (000)s omitted;
1996, $3,203; 1995, $2,662; 1994, $2,138.
(4) Non performing loans are included in net loans as follows, (000)s omitted;
1996, $23,559; 1995, $26,847; 1994, $21,567.
(5) Includes interest bearing demand and money market accounts.
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 borrowed funds. Net interest income was
$53.4 million for 1996. This represented an increase of $5.3 million, or 10.98%,
over net interest income of $48.1 million for 1995. Net interest income
increased $5.3 million, or 12.43%, for 1995, compared to net interest income of
$42.8 million for 1994. The increase in net interest income for 1996 compared to
1995 reflected greater average balances of earning assets for 1996. The increase
in net interest income for 1995 compared to 1994 was the combined result of
higher average yields on greater average balances of earning assets.
19
<PAGE> 21
The net interest margin measures net interest income as a percentage of
average earning assets. The net interest margin can be affected by changes in
the yield on earning assets and the cost of interest bearing liabilities, as
well as changes in the level of interest bearing liabilities in proportion to
earning assets. The net interest margin can also be affected by changes in the
mix of earning assets as well as the mix of interest bearing liabilities. The
Company's net interest margin was 6.13% for 1996, compared to 6.78% for 1995,
and 6.64% for 1994. A lower yield on average earning assets, coupled with an
increase in the cost of average interest bearing liabilities, contributed to the
decrease in the net interest margin for 1996 compared to 1995. The increase in
the net interest margin for 1995 compared to 1994 was the result of a higher
yield on average earning assets for 1995.
The yields on earning assets for 1996 and 1995 were affected by a less
profitable asset mix for each year. Loans typically have higher yields than
investments and federal funds sold. Net loans averaged 61.47% of average earning
asset for 1996, compared to an average of 66.95% for 1995 and 70.67% for 1994.
Conversely, average investment securities, including federal funds sold,
increased to 38.53% for 1996, compared to 33.05% for 1995, and 29.33% for 1994.
The net interest spread is the difference between the yield on average
earning assets less the cost of average interest bearing liabilities. The
Company's net interest spread was 4.94% for 1996, compared to a net interest
spread of 5.64% for 1995, and 5.83% for 1994. The decrease in the net interest
spread for 1996 compared to 1995 resulted from a decrease in the yield on
earning assets and an increase in the cost of average interest bearing
liabilities. The decrease in the net interest spread for 1995 compared to 1994
resulted as the cost of interest bearing liabilities increased greater than the
yield on earning assets.
The Company earned total interest income of $74.9 million for 1996. This
represented an increase of $10.2 million, or 15.76%, from interest income of
$64.7 million for 1995. Interest income increased $10.6 million, or 19.70%, for
1995, from total interest income of $54.0 million for 1994. The increase in
total interest income for 1996 compared to 1995 reflected a greater average
balance of interest earning assets. The increase in interest income for 1995
compared to 1994 was the result of the combined effects of an increase in the
level of average earning assets and a higher yield earned on those assets.
The Company paid total interest expense on deposits and other borrowed
funds of $21.5 million for 1996. This represented an increase of $4.9 million,
or 29.67%, over total interest expense of $16.6 million for 1995. For 1995,
interest expense increased $5.3 million, or 47.43%, over total interest expense
of $11.2 million for 1995. For both 1996 and 1995, the increase in interest
expense was the combined result of greater levels of average interest bearing
liabilities and an increase in the cost of average interest bearing liabilities.
The cost of average interest bearing liabilities increased to 3.62% for
1996, compared to 3.46% for 1995, and 2.55% for 1994. For the most part, the
increase in the cost of average interest bearing liabilities for 1996 and 1995
reflected increased price competition for interest bearing deposits. For 1995,
the increase in the cost of interest bearing liabilities was also affected by an
increase in the cost of average borrowed funds. The Company was able to offset,
in part, the impact of the increased cost of interest bearing deposits for 1995
by obtaining a greater portion of its total average deposits from noninterest
bearing demand deposits. As a percentage of total average deposits, average
noninterest bearing demand deposits were 37.71% for 1996, compared to 37.73% for
1995, and 35.52% for 1994.
Table 2 presents a comparison of interest income and interest expense
resulting from changes in the volumes and rates on average earning assets and
average 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 expense attributable to changes in interest rates
are calculated by multiplying the change in interest rate by the initial volume.
The changes attributable to interest rate and volume changes are calculated by
multiplying the change in rate times the change in volume.
20
<PAGE> 22
TABLE 2 -- Rate and Volume Analysis for Changes in Interest Income, Interest
Expense, and Net Interest Income
<TABLE>
<CAPTION>
1996 COMPARED TO 1995 1995 COMPARED TO 1994
INCREASE (DECREASE) DUE TO INCREASE (DECREASE) DUE TO
------------------------------------ ----------------------------------
RATE/ RATE/
VOLUME RATE VOLUME TOTAL VOLUME RATE VOLUME TOTAL
------- ------- ------ ------- ------ ------ ------ -------
(AMOUNT IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest Income:
Taxable investment securities...... $ 5,152 $ (200) $ (75) $ 4,877 $2,854 $ 622 $ 176 $ 3,652
Tax preferenced securities......... 769 (2) (2) 765 161 11 5 177
Fed funds.......................... 324 (26) (34) 264 (252) 164 (96) (184)
Loans.............................. 6,697 (2,121) (283) 4,293 1,918 4,868 216 7,002
------- ------- ----- ------- ------ ------ ----- ------
Total earning assets................. 12,942 (2,349) (394) 10,199 4,681 5,665 301 10,647
------- ------- ----- ------- ------ ------ ----- ------
Interest Expense:
Savings deposits................... 1,191 438 73 1,702 (394) 805 (46) 365
Time deposits...................... 2,508 (6) (2) 2,500 1,156 1,735 509 3,400
Other borrowings................... 912 (139) (63) 710 1,170 109 281 1,560
------- ------- ----- ------- ------ ------ ----- ------
Total interest bearing liabilities... 4,611 293 8 4,912 1,932 2,649 744 5,325
------- ------- ----- ------- ------ ------ ----- ------
Net Interest Income.................. $ 8,331 $(2,642) $(402) $ 5,287 $2,749 $3,016 $(443) $ 5,322
======= ======= ===== ======= ====== ====== ===== ======
</TABLE>
Interest and fees on loans, the Company's primary source of revenue,
totaled $54.5 million for 1996. This represented an increase of $4.3 million, or
8.56%, over interest and fees on loans of $50.2 million for 1995. For 1995,
interest and fees on loans increased $7.0 million, or 16.23%, from $43.2 million
for 1994. The increase in interest and fee on loans for 1996 reflected an
increase in the average balance of loans compared to 1995. For 1996, loan yields
decreased as a result of increased price competition. For 1995, the increase in
interest and fees on loans was the combined result of a greater average balance
of loans and a greater average yield on those loans.
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. There was no
interest income that was accrued and not reversed on any nonperforming loan at
December 31, 1996, 1995, or 1994. 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 $253,000 higher for 1996, $988,000 higher
for 1995, and $1,363,000 higher for 1994. Accordingly, yields on loans would
have increased by 0.05%, 0.20%, and 0.29%, for 1996, 1995, and 1994,
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, were accounted for as other real estate owned as required under SFAS No.
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 in calculating the yield.
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, 1996, the Company recognized
loan fee income of $3.2 million. This represented an increase of 541,000, or
20.32% over loan fee income of $2.7 million recognized in 1995. For 1995, loan
fee income increased $524,000, or 24.51%, over loan fees of $2.1 million
recognized for 1994.
21
<PAGE> 23
Table 3 summarizes loan fee activity for the Bank for the years indicated.
TABLE 3 - Loan Fee Activity
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
Fees Collected................................ $ 2,861 $ 2,622 $ 2,857
Fees and costs deferred....................... (1,959) (1,098) (2,624)
Accretion of deferred fees and costs.......... 2,301 1,138 1,905
------- ------- -------
Total fee income reported..................... $ 3,203 $ 2,662 $ 2,138
======= ======= =======
Deferred net loan origination fees acquired... 1,158 0 180
======= ======= =======
Deferred net loan origination fees at end of
year........................................ $ 3,279 $ 2,463 $ 2,503
======= ======= =======
</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" risk to earnings from
potential changes in interest rates using various methods, including a
maturity/repricing gap analysis.
This analysis measures, at specific time intervals, the differences between
earning assets and interest bearing liabilities for which repricing
opportunities will occur. A positive difference, or gap, indicates that earning
assets will reprice faster than interest bearing liabilities. This will
generally produce a greater net interest margin during periods of rising
interest rates, and a lower net interest margin during periods of declining
interest rates. Conversely, a negative gap will generally produce a lower net
interest margin during periods of rising interest rates and a greater net
interest margin during periods of decreasing interest rates.
22
<PAGE> 24
Table 4 provides the Bank's maturity/repricing gap analysis at December 31,
1996, and 1995. The Bank had a negative cumulative 180 day gap of $212.6 million
at December 31, 1996. This represented an increase of $138.6 million, or
187.26%, over the 180 day cumulative negative gap of $74.0 million at December
31, 1995. In theory, this would indicate that at December 31, 1996, $212.6
million more in liabilities than assets would re-price if there was a change in
interest rates over the next 180 days. If interest rates increase, the negative
gap would tend to result in a lower net interest margin. If interest rates
decreased, the negative gap would tend to result in an increase in the net
interest margin.
TABLE 4 - Asset and Liability Maturity/Repricing Gap
<TABLE>
<CAPTION>
OVER 90 OVER 180
90 DAYS DAYS TO DAYS TO OVER
OR LESS 180 DAYS 365 DAYS 365 DAYS
--------- --------- --------- ---------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C>
1996
Earning Assets:
Investment Securities and debt securities
held for sale........................... $ 19,359 $ 16,396 $ 43,047 $ 305,279
Total Loans................................ 293,359 11,422 23,111 266,795
--------- --------- --------- --------
Total................................... $ 312,718 $ 27,818 $ 66,158 $ 572,074
Interest Bearing Liabilities
Savings Deposits........................... $ 361,248 $ 0 $ 0 $ 0
Time Deposits.............................. 107,564 48,313 33,720 8,569
Other Borrowings........................... 26,000 10,000 20,000 0
--------- --------- --------- --------
Total................................... 494,812 58,313 53,720 8,569
--------- --------- --------- --------
Period GAP................................... $(182,094) $ (30,495) $ 12,438 $ 563,505
========= ========= ========= ========
Cumulative GAP............................... $(182,094) $(212,589) $(200,151) $ 363,354
========= ========= ========= ========
1995
Earning Assets:
Fed Funds Sold............................. $ 7,000 $ 0 $ 0 $ 0
Investment Securities and debt securities
held for sale........................... 23,766 9,715 20,823 230,342
Total Loans................................ 296,031 14,795 13,377 181,874
--------- --------- --------- --------
Total................................... $ 326,797 $ 24,510 $ 34,200 $ 412,216
Interest Bearing Liabilities
Savings Deposits........................... $ 304,158 $ 0 $ 0 $ 0
Time Deposits.............................. 84,581 36,573 36,500 8,910
Other Borrowings........................... 0 0 40,000 0
--------- --------- --------- --------
Total................................... 388,739 36,573 76,500 8,910
--------- --------- --------- --------
Period GAP................................... $ (61,942) $ (12,063) $ (42,300) $ 403,306
========= ========= ========= ========
Cumulative GAP............................... $ (61,942) $ (74,005) $(116,305) $ 287,001
========= ========= ========= ========
</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 an increase or decrease in the net interest margin solely
as a result of the differences between repricing opportunities of earning assets
or interest bearing liabilities. The fact that the Bank reported a negative gap
at December 31, 1996, does not necessarily indicate that if interest rates
decreased net interest income would increase, or if interest rates increased net
interest income would decrease.
23
<PAGE> 25
CREDIT RISK
Implicit in lending activities is the risk that losses will occur 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.
Effective January 1, 1995, the Company adopted SFAS No. 114, "Accounting by
Creditors for the Impairment of a Loan.", as amended by SFAS No. 118,
"Accounting by Creditors for Impairment of a Loan -- Income Recognition and
Disclosures." The statements prescribe that a loan is impaired when principal
and interest are deemed uncollectible according to the original contractual
terms of the loan. Impairment is measured as either the expected future cash
flows discounted at each loan's effective interest rate, the fair value of the
loan's collateral if the loan is collateral dependent, or an observable market
price of the loan (if one exists). The amount of impairment is included as a
part of the Company's allowance for credit losses. See Note 5 of the Notes to
the Consolidated Financial Statements for additional information concerning
impaired loans.
At December 31, 1996, the Company reported an allowance for credit losses
of $12.2 million. This represented an increase of $2.6 million, or 27.15%, for
1996, compared to the allowance for credit losses of $9.6 million at December
31, 1995. For 1995, the allowance for credit losses increased $155,000, or
1.64%, from an allowance for credit losses of $9.5 million at December 31, 1994.
Of the total $12.2 million reserve for credit losses at December 31, 1996,
$3.4 million, or 28.16%, represented reserves for specific problem loans,
including impaired loans, and $8.8 million, or 71.847%, represented that portion
allocated to provide for general risks inherent in the loan portfolio.
Nonperforming loans totaled $23.6 million at December 31, 1996. This
represented a decrease of $3.3 million, or 12.25%, from nonperforming loans of
$26.8 million at December 31, 1995. For 1995, nonperforming loans increased $5.3
million, or 24.48%, from total nonperforming loans of $21.6 million at December
31, 1994. Nonperforming loans, measured as a percent of gross loans, equaled
4.00%, 5.31%, and 4.37%, at December 31, 1996, 1995, and 1994, respectively.
Nonperforming loans included loans for which interest is no longer
accruing. In addition, nonperforming loans include loans that have been
renegotiated from their original contractual terms, even if the loan is paying
as agreed under the renegotiated terms. The decrease in nonperforming loans
between December 31, 1996 and 1995 was the result of a $8.2 million, or 60.36%,
reduction in renegotiated loans. This decrease was partially offset by a $4.3
million, or 32.17% increase in nonaccrual loans. The increase in nonperforming
loans in 1995 was due to a $4.6 million increase in renegotiated loans and a
$676,000 increase in nonaccrual loans. See Table 9 -- Nonperforming Assets for
additional information concerning nonperforming loans.
While 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 incidental to mergers), and the resulting
allowance for credit losses for each of the years indicated.
24
<PAGE> 26
TABLE 5 -- Summary of Credit Loss Experience
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Amount of Total Loans at End of
Period(1)......................... $588,925 $506,074 $494,088 $450,933 $381,123
======== ======== ======== ======== ========
Average Total Loans
Outstanding(1).................... $552,393 $486,504 $466,514 $416,984 $368,452
======== ======== ======== ======== ========
Allowance for Credit Losses at
Beginning of Period............... $ 9,626 $ 9,471 $ 8,849 $ 6,461 $ 5,263
Loans Charged-Off:
Real Estate....................... 1,434 2,167 402 530 120
Commercial, Financial and
Industrial..................... 200 290 496 334 452
Agribusiness...................... 0 0 0 0 0
Municipal Lease Finance
Receivables.................... 0 0 0 0 0
Consumer Loans.................... 115 162 123 154 115
-------- -------- -------- -------- --------
Total Loans Charged-Off............. 1,749 2,619 1,021 1,018 687
-------- -------- -------- -------- --------
Recoveries:
Real Estate Loans................. 564 55 47 0 0
Commercial, Financial and
Industrial..................... 180 100 92 57 94
Agribusiness...................... 0 0 0 0 0
Municipal Lease Finance
Receivables.................... 0 0 0 0 0
Consumer Loans.................... 19 44 29 42 19
-------- -------- -------- -------- --------
Total Loans Recovered............. 763 199 168 99 113
-------- -------- -------- -------- --------
Net Loans Charged-Off............... 986 2,420 853 919 574
-------- -------- -------- -------- --------
Provision Charged to Operating
Expense........................... 2,888 2,575 350 1,720 1,772
-------- -------- -------- -------- --------
Adjustments Incident to Mergers..... 711 0 1,125 1,587 0
-------- -------- -------- -------- --------
Allowance for Credit Losses at End
of Period......................... $ 12,239 $ 9,626 $ 9,471 $ 8,849 $ 6,461
======== ======== ======== ======== ========
Net Loans Charged-Off to Average
Total Loans....................... 0.18% 0.50% 0.18% 0.22% 0.16%
Net Loans Charged-Off to Total Loans
at End of Period.................. 0.17% 0.48% 0.17% 0.20% 0.15%
Allowance for Credit Losses to
Average Total Loans............... 2.22% 1.98% 2.03% 2.12% 1.75%
Allowance for Credit Losses to Total
Loans at End of Period............ 2.08% 1.90% 1.92% 1.96% 1.70%
Net Loans Charged-Off to Allowance
for Credit Losses................. 8.06% 25.14% 9.01% 10.39% 8.88%
Net Loans Charged-Off to Provision
for Credit Losses................. 34.14% 93.98% 243.71% 53.43% 32.39%
</TABLE>
- - ---------------
(1) Net of deferred loan origination fees.
The provision for credit losses totaled $2.9 million for 1996. This
represented an increase of $313,000, or 12.15%, from the provision for credit
losses of $2.6 million for 1995. Loans acquired through merger for 1996 included
an adjustment to the allowance for credit losses of $711,000. Net loans charged
off totaled $986,000 for the year ended December 31, 1996. This represented a
decrease of $1.4 million, or 59.26%, from net loans charged off of $2.4 million
for 1995. The decrease was due primarily to the reduction in net real estate
loans charged off.
The Company's management believes that the allowance for credit losses at
December 31, 1996 was adequate to provide for both recognized potential losses
and estimated inherent losses in the portfolio. No
25
<PAGE> 27
assurances can be given that future events may not result in increases in
delinquencies, nonperforming loans or net loan charge offs that would increase
the provision for credit losses and thereby adversely affect the results of
operations. There is no precise method of predicting specific losses that
ultimately may be charged against the allowance for credit losses.
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 these categories.
There is a large unallocated portion of the allowance for credit losses and the
total allowance is applicable to the entire loan portfolio.
TABLE 6 -- Allocation of Allowance for Credit Losses
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
-------------------- -------------------- -------------------- -------------------- --------------------
ALLOWANCE % OF ALLOWANCE % OF ALLOWANCE % OF ALLOWANCE % OF ALLOWANCE % OF
FOR CATEGORY FOR CATEGORY FOR CATEGORY FOR CATEGORY 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... $ 395 47.8% $ 155 34.0% $ 88 28.7% $ 43 30.1% $ 113 27.5%
Commercial
and
Industrial... 7,794 46.1% 5,534 58.7% 4,182 63.5% 3,911 62.4% 2,422 68.0%
Consumer...... 126 3.3% 42 3.1% 43 3.1% 41 2.8% 164 3.0%
Unallocated... 3,924 N/A 3,895 N/A 5,158 N/A 4,854 N/A 3,762 N/A
------- ------ ------ ------ ------
Total......... $12,239 $ 9,626 $ 9,471 $ 8,849 $ 6,461
======= ====== ====== ====== ======
</TABLE>
OTHER OPERATING INCOME
Other operating income for the Company includes income derived from special
services offered by the Bank, such as trust, merchant card, investment,
international, and other business services; service charges and fees (primarily
from deposit accounts); gains (net of losses) from the sale of investment
securities, other real estate owned, and fixed assets; gross revenue from
Community; and other revenues not included as interest on earning assets.
Other operating income totaled $14.3 million for 1996. This represented an
increase of $5.2 million, or 57.07% over other operating income of $9.1 million
for 1995. Included as other income for the year ended December 31, 1996, was a
$2.1 million settlement of litigation paid to the Bank in March 1996. The
settlement related to a suit filed by the Bank against a former officer and
director for violation of an employment termination agreement.
Also contributing to the increase in other operating income for the year
ended December 31, 1996, was fee income originated by the Bank's new Trust
Division. The Trust Division was acquired as a result of the acquisition of
Citizens Bank of Pasadena in March 1996. Gross income generated from the Trust
Division totaled $2.3 million for 1996.
For 1995, other operating income increased $1.5 million, or 19.83%, over
other operating income of $7.6 million for 1994. The increase was primarily due
from increased service charges and fee income for 1995 compared to 1994.
Other income also includes revenue from Community, a subsidiary of the
Company. Total revenue from Community was approximately $247,000, $256,000, and
$274,000, for 1996, 1995, and 1994, respectively.
26
<PAGE> 28
OTHER OPERATING EXPENSES
Other operating expenses totaled $41.9 million for 1996. This represented
an increase of $6.9 million, or 19.56%, over total operating expenses of $35.1
million for 1995. For 1995, other operating expenses increased $2.6 million, or
8.07%, from total other operating expenses of $32.4 million for 1994.
For the most part, other operating expenses reflect the direct expenses and
related administrative expenses associated with staffing, maintaining,
promoting, and operating branch facilities. Consequently, other operating
expenses have increased as the asset size of the Company and the number of
branch offices have increased. Management's ability to control other operating
expenses in relation to asset growth can be measured in terms of other operating
expenses as a percentage of average assets. Operating expenses measured as a
percentage of average assets equaled 4.12% for 1996, compared to 4.25% for 1995,
and 4.35% for 1994.
Management's ability to control other operating expenses in relation to the
level of net revenue (net interest income plus non interest income) can be
measured in terms of other operating expenses as a percentage of net revenue.
For 1996, other operating expenses as a percentage of total revenue increased to
61.90%, compared to 61.25% for 1995, and 64.35% for 1994. The increase in the
percentage for 1996 was primarily the result of lower net interest margins
coupled with increased operating expenses that resulted from OREO expense and
the name change of the Bank.
Salaries and related expenses comprise the greatest portion of other
operating expenses. For 1996, salaries and related expenses totaled $20.0
million. This represented an increase of $3.5 million, or 21.33%, over salaries
and related expenses of $16.5 million for 1995. For 1995, salaries and related
expenses increased $1.3 million, or 8.22%, over salaries and related expenses of
$15.2 million for 1994. The increases for both 1996 and 1995 primarily resulted
from increased staffing levels. The increase in staffing levels for 1996
reflected the addition of four branch offices and the Trust Division resulting
from the acquisition of Citizens Bank of Pasadena. Despite the increases in
salaries and related expenses, as a percentage of average assets, salaries and
related expenses decreased to 1.97% for 1996, compared to a ratio of 2.00% for
1995, and 2.05% for 1994.
Occupancy and equipment expenses primarily represent the cost of operating
and maintaining branch and administrative facilities, including the purchase and
maintenance of furniture, fixtures and equipment, including data processing
equipment. Accordingly, the addition of four new branch offices as a result of
the Citizens Bank of Pasadena acquisition in 1996 contributed to increases in
both occupancy and equipment expenses.
Occupancy expense totaled $3.2 million for the year ended December 31,
1996. This represented an increase of $233,000, or 7.81%, from occupancy
expenses of $3.0 million for the year ended December 31, 1995. Equipment expense
totaled $3.1 million for 1996, representing an increase of $833,000, or 36.55%,
over equipment expense of $2.3 million for 1995.
Stationary and supply expense totaled $2.4 million for 1996. This
represented an increase of $605,000, or 33.02%, over stationary and supply
expense of $1.8 million for 1995. For 1995, stationary and supply expense
increased $276,000, or 17.75%, from $1.6 million for 1994. Contributing to the
increase for 1996 compared to 1995 was the cost of changing preprinted forms and
stationary as a result of the Bank's name change in March 1996.
Professional services decreased $875,000, or 30.60%, to $2.0 million for
1996, compared to $2.9 million for 1995. The decrease primarily reflected a
reduction in legal expenses for 1996 relating to the settlement of the lawsuit
against the former officer and director in March 1996. Promotion expense totaled
$2.2 million for 1996. This represented an increase of $710,000, or 48.99%, over
promotion expense of $1.4 million for 1995. The increase primarily reflected
increased advertising and promotion as a result of the acquisition of Citizens
Bank of Pasadena and the Bank's name change. Deposit insurance premiums
represents the Bank's contribution to the Bank Insurance Fund which provides
insurance on deposits of $100,000 or less. The decreases for 1996 and 1995 were
the result of lower premiums charged by the FDIC as the insurance funds achieved
target reserves and the Bank's capital position.
27
<PAGE> 29
The expense resulting from the amortization of goodwill and intangibles was
$1.0 million for 1996. This represented an increase of $383,000, or 59.71% over
the amortization expense of $643,000 for 1995. The increase represents the
additional goodwill and intangibles associated with the acquisition of Citizens
Bank of Pasadena. For 1995, the amortization expense from goodwill and
intangibles increased $259,000, or 67.53%, over an amortization expense of
$384,000 for 1994.
Other real estate owned expense represents the cost of foreclosure,
maintenance, and liquidation of real property obtained by the Bank as a result
of foreclosure. Included as an expense is a provision charged to earnings for
potential decreases in the value of other real estate owned. Other real estate
owned expense totaled $4.7 million for 1996. This represented an increase of
$1.4 million, or 44.34%, over other real estate owned expense of $3.3 million
for 1995. The increase in the expenses relating to other real estate owned
generally reflects the weakness in the Southern California economy over the last
several years, and specifically reflects the decline in Southern California real
estate values over that period.
In October 1995, the Financial Accounting standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 123 ("SFAS No. 123"), Accounting
for Stock-based Compensation. This statement establishes a new fair value based
accounting method for stock-based compensation plan and encourages (but does not
require) employers to adopt the new method in place of the provisions of
Accounting Principles Board Opinion No. 25 ("APB 25"), Accounting for Stock
Issued to Employees. Under the fair value method, compensation cost is measured
at the grant date based on the value of the award and is recognized over the
service period. Companies may continue to apply the accounting provisions of APB
25 in determining net income; however, they must apply the disclosure
requirements of FAS No. 123. The recognition provisions and disclosure
requirements of SFAS No. 123 were effective January 1, 1996. The Company has
elected not to adopt the provisions of SFAS No. 123, but has adopted the
disclosure requirements. See "Note 13 of the Consolidated Financial Statements."
INCOME TAXES
The Company's effective tax rate for 1995 was 41.80%, compared to an
effective tax rate of 41.50% for 1995, and 40.80% for 1994. These rates are
below the nominal combined Federal and State tax rates as a result of tax
preferenced income for each period. See "Note 7 of the Consolidated Financial
Statements."
ANALYSIS OF FINANCIAL CONDITION
The Company reported total assets of $1.2 billion at December 31, 1996.
This represented an increase of $223.5 million, or 23.85%, from total assets of
$936.9 million at December 31, 1995. During 1995, total assets increased $100.8
million, or 12.06%, from total assets of $836.1 million at December 31, 1994.
The level of assets at December 31, 1996, and 1995, included short term
deposits of approximately $45.0 million and $48.0 million, respectively. These
funds were reflected in the level of demand deposits and cash and due from banks
at December 31, 1996, and 1995. Asset, loan and deposit growth for 1996 was
affected significantly by the acquisition of Citizens Bank of Pasadena.
A greater portion of the increase in assets for 1996 was allocated to
earning assets; primarily investment securities and, to a lesser extent, loans.
The increase in earning assets for 1995 was allocated primarily to investment
securities. Increases in assets for 1996 were primarily funded by increases in
deposits, and to a lesser extent other borrowings and other liabilities.
Increases in assets for 1995 were funded by both increases in deposits and other
borrowed funds.
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 Notes to the Consolidated Financial Statements sets forth information
concerning the composition and the maturity distribution of the investment
securities portfolio at December 31, 1996, and 1995. At December 31, 1996, the
Company reported total investment securities of $384.1 million. This represented
an increase of $99.4 million, or 34.93%, from total investment securities of
28
<PAGE> 30
$284.6 million at December 31, 1995. For 1995, investment securities increased
$92.4 million, or 48.05%, over investment securities of $192.3 million at
December 31, 1994.
The Bank sold no federal funds on December 31, 1996, compared to federal
funds sold of $7.0 million at December 31, 1995.
The Company adopted SFAS No. 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. The market value, less the amortized cost of
investment securities, net of income taxes, is adjusted directly to
stockholders' equity. At December 31, 1996, securities held as available for
sale had a fair market value of $333.3 million, representing 86.79% of total
investment securities of $384.1 million. At December 31, 1996, net unrealized
losses on investment securities totaled $196,000.
Approximately $222.7 million, or 66.81% of total investment portfolio at
December 31, 1996 consisted of securities backed by mortgages. The final
maturity of these securities can be affected by the speed at which the
underlying mortgages repay. Mortgages tend to repay faster as interest rates
fall, and slower as interest rates rise. As a result, the Bank may be subject to
a "prepayment risk" resulting from greater funds available for reinvestment at a
time when available yields are lower. Conversely, the Bank may be subject to
"extension risk" resulting as lesser amounts would be available for reinvestment
at a time when available yields are higher. Prepayment risk includes the risk
associated with the payment of an investment's principal faster than originally
intended. Extension risk is the risk associated with the payment of an
investment's principal over a longer time period than originally anticipated. In
addition, there can be greater risk of price volatility for mortgage backed
securities as a result of anticipated prepayment or extension risk.
LOANS
At December 31, 1996, the Company reported total loans, net of deferred
loan fees, of $588.9 million. This represented an increase of $82.8 million, or
16.37%, over total loans, net of deferred loan fees of $506.1 million at
December 31, 1995. Total loans acquired as a result of the acquisition of
Citizens Bank of Pasadena were approximately $59.9 million, representing 72.3%
of the increase in loans for 1996. During 1995, total loans, net of deferred
loan fees, increased $12.0 million, or 2.43%, from total loans of $494.1 million
at December 31, 1994.
Table 7 presents the distribution of the Company's loan portfolio at the
dates indicated.
TABLE 7 -- Distribution of Loan Portfolio by Type
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------------------
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Commercial and Industrial........... $215,791 $234,709 $262,494 $249,648 $260,322
Real Estate
Construction...................... 36,925 23,805 26,302 56,358 43,879
Mortgage.......................... 244,601 149,039 116,077 79,929 61,619
Consumer, net of unearned
discount.......................... 19,576 15,876 15,553 12,517 11,642
Municipal Lease Finance
Receivables....................... 19,825 21,529 23,246 21,556 5,501
Agribusiness........................ 55,486 63,580 52,920 32,529 0
-------- -------- -------- -------- --------
Gross Loans............... 592,204 508,538 496,592 452,537 382,963
-------- -------- -------- -------- --------
Less:
Allowance for Credit Losses....... 12,239 9,626 9,471 8,849 6,461
Deferred Loan Fees................ 3,279 2,463 2,503 1,604 1,840
-------- -------- -------- -------- --------
Total Net Loans..................... $576,686 $496,449 $484,618 $442,084 $374,662
======== ======== ======== ======== ========
</TABLE>
29
<PAGE> 31
Commercial and industrial loans are loans to commercial entities to finance
capital purchases or improvements, or to provide cash flow for operations. Real
estate loans are loans secured by conforming first trust deeds on real property,
including property under construction, commercial property and single family and
multifamily residences. Consumer loans include installment loans to consumers as
well as home equity loans and other loans secured by junior liens on real
property. Municipal lease finance receivables are leases to municipalities.
Agribusiness loans are loans to finance the operating needs of wholesale dairy
farm operations, cattle feeders, livestock raisers, and farmers.
Table 8 provides the maturity distribution for commercial and industrial
loans as well as real estate construction loans as of December 31, 1996. Amounts
are also classified according to repricing opportunities or rate sensitivity.
TABLE 8 -- Loan Maturities and Interest Rate Category at December 31, 1996
<TABLE>
<CAPTION>
AFTER ONE
BUT
WITHIN WITHIN AFTER
ONE YEAR FIVE YEARS FIVE YEARS TOTAL
-------- ---------- ---------- --------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C>
Type of Loans:
Commercial and industrial(1).................. $216,130 $ 133,690 $ 94,445 $444,265
Construction.................................. 36,925 0 0 36,925
Agribusiness.................................. 55,486 0 0 55,486
-------- ---------- ---------- --------
$308,541 $ 133,690 $ 94,445 $536,676
======== ======== ======== ========
Amount of Loans based upon:
Fixed Rates................................... $ 80,971 $ 133,690 $ 94,445 $309,106
Floating or adjustable rates.................. 227,570 0 0 227,570
-------- ---------- ---------- --------
$308,541 $ 133,690 $ 94,445 $536,676
======== ======== ======== ========
</TABLE>
- - ---------------
(1) Includes approximately $228.5 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.
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 not the primary source of repayment but 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, 1996, substantially all 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, 1996, nonperforming assets, which included nonperforming
loans (see CREDIT RISK) and other real estate owned, totaled $29.8 million. This
represented a decrease of $5.3 million, or 15.23%, from total nonperforming
assets of $35.1 million at December 31, 1995. During 1995, nonperforming assets
increased $3.7 million, or 11.69%, from a total of $31.4 million at December 31,
1994. The decrease in nonperforming assets for 1996, reflected the decrease in
renegotiated loans and other real estate owned, partially offset by an increase
in nonaccrual loans. The increase in nonperforming assets for 1995 was the
result of increased nonperforming 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 future 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.
30
<PAGE> 32
TABLE 9 -- Non-Performing Assets
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------------------
1996 1995 1994 1993 1992
------- ------- ------- ------- -------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Non accrual loans........................ $17,564 $13,289 $12,613 $12,492 $ 6,642
Loans past due 90 days or more........... 621 0 0 0 272
Restructured loans....................... 5,374 13,558 8,954 770 3,291
Other real estate owned (OREO)........... 6,196 8,253 9,860 9,768 8,797
------- ------- ------- ------- -------
Total non performing assets.............. $29,755 $35,100 $31,427 23,030 $19,002
======= ======= ======= ======= =======
Percentage of non performing assets to
total loans outstanding & OREO......... 5.00% 6.82% 6.24% 5.00% 4.87%
======= ======= ======= ======= =======
Percentage of non performing assets to
total assets........................... 2.56% 3.75% 3.76% 3.35% 3.21%
------- ------- ------- ------- -------
</TABLE>
At December 31, 1996, the Company had loans for which interest was no
longer accruing totaling $17.6 million. This represented an increase of $4.3
million, or 32.17%, over total nonaccrual loans of $13.3 million at December 31,
1995. Approximately 31.00% of the number of nonaccrual loans, and 59.00% of the
dollar volume of these nonaccrual loans were secured by real property which had
a current appraisal that was 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, 1996, ranged between approximately 6.30% to
190.29%. The Bank has allocated specific reserves included in the allowance for
credit losses for potential losses on these loans.
A restructured loan is a loan for which the Bank has reduced the rate of
interest to a lower rate, forgiven all or a part of the interest income, or
forgiven part of the principal balance of the loan, due to the borrower's
financial condition. At December 31, 1996, the Company had a total of $5.4
million in loans that were classified as restructured.
Except for nonperforming loans as set forth in Table 9, and loans disclosed
as impaired, the Bank's management is not aware of any loans as of December 31,
1996, for which known credit problems of the borrower would cause serious doubts
as to the ability of such borrowers to comply with their present loan repayment
terms, or any known events that would result in the loan being designated as
nonperforming at some future date. The Bank's management cannot, however,
predict the extent to which the deterioration in general economic conditions,
real estate values, an increase in general rates of interest, or change in the
financial conditions or business of a borrower may adversely affect a borrower's
ability to pay.
At December 31, 1996, the net book value of the 11 properties held as other
real estate owned totaled $6.2 million. The Bank is actively marketing these
properties. The Bank's management cannot predict when these properties will be
sold or what the terms of sale will be when they are sold. 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 these properties at December 31, 1996. No assurances can be
given that further charges to earnings may not occur if Southern California real
estate values continue to decrease, or the Bank cannot promptly dispose of the
properties held.
DEPOSITS
The Company reported total deposits of $990.6 million at December 31, 1996.
This represented an increase of $187.0 million, or 23.27%, over total deposits
of $803.6 million at December 31, 1995. For 1995, total deposits increased $40.9
million, or 5.37%, from total deposits of $762.6 million at December 31, 1994.
Total deposits included approximately $45.0 million in short term demand
deposits at December 31, 1996, and $48.0 million in short term demand deposits
at December 31, 1995. The increase in total deposits for the year ended December
31, 1996, included approximately $111.7 million in deposits assumed as a result
of the acquisition of Citizens Bank of Pasadena.
31
<PAGE> 33
Noninterest bearing demand deposits totaled $431.2 million. This
represented an increase of $98.3 million, or 29.54%, over noninterest bearing
demand deposits of $332.9 million at the year ended December 31, 1995. For 1995,
noninterest bearing demand deposits increased $5.0 million, or 1.54%, over
noninterest bearing demand deposits of $327.8 million for the year ended
December 31, 1994.
Table 10 provides the remaining maturities of large denomination ($100,000
or more) time deposits, including public funds, at December 31, 1996.
TABLE 10 -- Maturity Distribution of Large Denomination Time Deposits
<TABLE>
<CAPTION>
DECEMBER 31, 1996
----------------------
(AMOUNTS IN THOUSANDS)
<S> <C>
3 months or less................. $ 77,783
Over 3 months through 6 months... 26,762
Over 6 months through 12
months......................... 18,221
Over 12 months................... 2,846
--------
Total.................. $125,612
========
</TABLE>
LIQUIDITY
Liquidity is actively managed to ensure sufficient funds are available to
meet the ongoing needs of both the Bank and CVB. Liquidity management includes
projections of future sources and uses of funds to insure the availability of
sufficient liquid reserves to provide for unanticipated circumstances.
For the Bank, sources of funds normally include principal payments on loans
and investments, other borrowed funds, and growth in deposits. Uses of funds
include withdrawal of deposits, interest paid on deposits, increased loan
balances, purchases, and other operating expenses. The Bank's investment
portfolio is structured to provide for continuous maturities of portions of the
portfolio to provide for short term liquidity needs. In addition, the Bank
maintains short term unsecured lines of credit with correspondent banks to
provide for contingent liquidity needs.
Other borrowed funds averaged $51.2 million. This represented an increase
of $16.0 million, or 45.28%, over average other borrowed funds of $35.2 million
for the year ended December 31, 1995. For 1995, average other borrowed funds
increased $25.4 million over average borrowed funds of $9.9 million for the year
ended December 31, 1994. The increases in other borrowed funds for 1996 and 1995
was primarily the result of a secured short term loan from the Federal Home Loan
Bank. The funds were used to purchase investment securities at a positive net
interest spread.
Net cash provided by operating activities, primarily representing interest
received, totaled $17.4 million for 1996, $18.2 million for 1995, and $9.5
million for 1994. Cash used for investing activities totaled $96.2 million for
1996, compared to $91.1 million for 1995, and $43.6 million for 1994. The funds
used for investing activities primarily represented increases in investments and
loans for each year reported. Investing activities for 1996 were also affected
by the $18.3 million purchase price paid for Citizens Bank of Pasadena. Funds
obtained from financing activities for 1996 and 1995 were obtained as a result
of increased deposits and other borrowed funds. For 1996 the increase in
deposits was primarily the result of increased demand deposits. Cash and cash
equivalents received as a result of acquisitions totaled $15.5 million for 1996,
compared to $126,000 for 1995, $22.6 million for 1994.
At December 31, 1996, cash and cash equivalents totaled $142.5 million
compared to $111.9 million at December 31, 1995, and $109.8 million 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 the maturity of investments and
32
<PAGE> 34
other liquid resources, the higher the loan to deposit ratio the less liquid are
the Bank's assets. For 1996, the Bank's loan to deposit ratio averaged 63.54%,
compared to an average ratio of 68.31% for 1995, and a ratio of 69.93% for 1994.
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, 1996, approximately $12.4 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, 1996, 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. In order to insure adequate levels of capital,
the Company conducts an ongoing assessment of projected sources and uses of
capital in conjunction with projected increases and mixes of assets.
Tier 1 capital, stockholders' equity less intangible assets, was $77.6
million at December 31, 1996. This represented an increase of $8.1 million, or
11.73%, over tier 1 capital of $69.4 million at December 31, 1995. Total
adjusted capital, Tier 1 capital plus the lesser of the reserve for credit
losses or 1.25% of risk weighted assets, with $86.6 million at December 31,
1996. This represented an increase of $9.6 million, or 12.52%, over total
adjusted capital of $76.9 million at December 31, 1995.
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 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 Prompt Corrective Action 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, bank regulators have excluded
adjustments to stockholders' equity that result from mark to market adjustments
of available for sale investment securities. At December 31, 1996, the Company
had an unrealized loss on investment securities net of taxes of $196,000,
compared to a gain net of taxes of $304,000 at December 31, 1995.
At December 31, 1996, and 1995, the Company exceeded all of the minimum
capital ratios required to be considered well capitalized. At December 31, 1996,
the Company's total risk-based capital ratio was 12.30%, compared to a ratio of
13.06% at December 31, 1995. The ratio of Tier 1 capital to risk weighted assets
was 11.03% at December 31, 1996, compared to a ratio of 11.79% at December 31,
1995. At December 31, 1996, the Company's leverage ratio was 7.21%, compared to
a ratio of 8.05% at December 31, 1995. (See NOTE 14 of the Notes to the
Consolidated Financial Statements.)
During 1996, the Board of Directors of the Company declared quarterly cash
dividends that totaled 34 cents per share for the full year (31 cents per share
after retroactive adjustment of the ten percent stock dividend declared on
December 18, 1996). After retroactive adjustment, cash dividends declared during
1996 were 2 cents greater than paid for 1995. Management does not believe that
the continued payment of cash dividends will impact the ability of the Company
to continue to exceed the current minimum capital standards.
33
<PAGE> 35
ACCOUNTING PRONOUNCEMENTS
In June 1996, the FASB issued SFAS No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities." This
statement provides accounting and reporting standards for transfers and
servicing of financial assets and extinguishments of liabilities. This statement
provides consistent standards for distinguishing transfers of financial assets
that are sales from transfers that are secured borrowings. A transfer of
financial assets in which the transferor surrenders control over those assets is
accounted for as a sale to the extent that consideration other than beneficial
interests in the transferred assets is received in exchange. This statement also
requires that liabilities and derivatives incurred or obtained by transferors as
part of a transfer of financial assets be initially measured at fair value, if
practicable. It also requires that servicing assets and other retained interests
in the transferred assets be measured by allocating the previous carrying amount
between the assets sold, if any, and retained interests, if any, based on their
relative fair value at the date of the transfer. Furthermore, this statement
requires that debtors reclassify financial assets pledged as collateral, and
that secured parties recognize those assets and their obligation to return them
in certain circumstances in which the secured party has taken control of those
assets. In addition, the statement requires that a liability be derecognized if
and only if either (a) the debtor pays the creditor and is relieved of its
obligation for the liability or (b) the debtor is legally released from being
the primary obligor under the liability either judicially or by the creditor.
Accordingly, a liability is not considered extinguished by an in-substance
defeasance. SFAS 125 is effective for transfers and servicing of financial
assets and extinguishment of liabilities occurring after December 31, 1996, and
is to be applied prospectively. Management does not believe that the application
of this statement will have a material impact on the Company's financial
statements. In 1996, the FASB also issued SFAS No. 127, "Deferral of the
Effective Date of Certain Provisions of FASB Statement No. 125," which defers
for one year the effective date of certain provisions of SFAS No. 125.
In May 1995, the FASB issued SFAS No. 122 "Accounting for Mortgage
Servicing Rights." SFAS 122 amends certain provisions of SFAS No. 65 "Accounting
for Certain Mortgage Banking Activities" to require that a mortgage banking
enterprise recognize as separate assets rights to service mortgage loans for
others, however those servicing rights are acquired. A mortgage banking
enterprise that acquires mortgage servicing rights through either the purchase
or origination of mortgage loans and sells or securitizes those loans with
servicing rights retained should allocate the total cost of the mortgage loans
to the mortgage servicing rights and the loans (without the mortgage servicing
rights) based on their relative fair value, if it is practicable to estimate
those fair values. If it is not practicable to estimate those fair values, the
entire cost of the acquisition should be allocated to the mortgage loans only.
SFAS 122 is effective for the fiscal year covered by this annual report.
Adoption of this pronouncement did not have a material impact on the Company's
financial statements.
In March 1995, the FASB issued SFAS No. 121 "Accounting for the Impairment
of Long-Lived Assets and for LongLived Assets to Be Disposed Of." This statement
establishes accounting standards for the impairment of long-lived assets,
certain identifiable intangibles, and goodwill related to those assets to be
held and used and for long-lived assets and certain identifiable intangibles to
be disposed of. An impairment loss shall be measured as the amount by which the
carrying amount of the asset exceeds the fair value of the asset. After an
impairment is recognized, the reduced carrying amount of the asset shall be
accounted for as its new cost. SFAS No. 121 is effective for the Bank's fiscal
year covered by this annual report. Adoption of this statement did not have a
material impact on the Company's financial statements.
34
<PAGE> 36
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CVB FINANCIAL CORP.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
Consolidated Financial Statements
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Consolidated Balance Sheets -- December 31, 1996 and 1995............................. 39
Consolidated Statements of Earnings
Years Ended December 31, 1996, 1995 and 1994........................................ 40
Consolidated Statements of Stockholders' Equity Years Ended December 31, 1996, 1995
and 1994............................................................................ 41
Consolidated Statements of Cash Flows for the Years Ended December 31, 1996, 1995 and
1994................................................................................ 42
Notes to Consolidated Financial Statements............................................ 44
Independent Auditors' Report.......................................................... 61
</TABLE>
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.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None
35
<PAGE> 37
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) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE" 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.
36
<PAGE> 38
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 35 for a
list of financial statements filed as part of this Report.
EXHIBITS
See Index to Exhibits at Page 62 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 62 of this Form 10-K.
REPORTS ON FORM 8-K
None
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.
37
<PAGE> 39
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 19th day of
March, 1997.
CVB FINANCIAL CORP.
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.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- - ------------------------------------------ --------------------------------- ---------------
<S> <C> <C>
/s/ GEORGE A. BORBA Chairman of the Board March 19, 1997
- - ------------------------------------------
George A. Borba
/s/ JOHN A. BORBA Director March 19, 1997
- - ------------------------------------------
John A. Borba
/s/ RONALD O. KRUSE Director March 19, 1997
- - ------------------------------------------
Ronald O. Kruse
/s/ JOHN J. LOPORTO Director March 19, 1997
- - ------------------------------------------
John J. LoPorto
/s/ CHARLES M. MAGISTRO Director March 19, 1997
- - ------------------------------------------
Charles M. Magistro
/s/ JOHN VANDER SCHAAF Director March 19, 1997
- - ------------------------------------------
John Vander Schaaf
/s/ JAMES C. SELEY Director March 19, 1997
- - ------------------------------------------
James C. Seley
/s/ ROBERT J. SCHURHECK Chief Financial Officer March 19, 1997
- - ------------------------------------------ (Principal Financial and
Robert J. Schurheck Accounting Officer)
/s/ D. LINN WILEY Director, President and March 19, 1997
- - ------------------------------------------ Chief Executive Officer
D. Linn Wiley (Principal Executive Officer)
</TABLE>
38
<PAGE> 40
CVB FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
ASSETS
1996 1995
-------------- ------------
<S> <C> <C>
Federal funds sold.......................................... $ 7,000,000
Investment securities held to maturity (Note 2)............. $ 50,733,695 24,272,507
Investment securities available for sale (Note 2)........... 333,347,741 260,373,597
Loans and lease finance receivables, net (Notes 3, 4 and
5)........................................................ 576,686,562 496,448,905
-------------- ------------
Total earning assets.............................. 960,767,998 788,095,009
Cash and due from banks..................................... 142,501,555 104,886,440
Premises and equipment, net (Note 6)........................ 24,235,381 17,219,247
Other real estate owned, net (Note 5)....................... 6,195,698 8,253,002
Deferred taxes (Note 7)..................................... 4,479,662 4,472,177
Goodwill.................................................... 11,692,367 8,508,237
Other assets................................................ 10,548,033 5,505,810
-------------- ------------
TOTAL............................................. $1,160,420,694 $936,939,922
============== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Deposits (Note 8):
Noninterest-bearing.................................... $ 431,183,256 $332,851,336
Interest-bearing....................................... 559,413,367 470,722,517
-------------- ------------
Total deposits.................................... 990,596,623 803,573,853
Demand note to U.S. Treasury................................ 12,609,866 6,738,465
Short-term borrowings (Note 9).............................. 56,000,000 40,000,000
Other liabilities........................................... 12,127,134 8,367,388
-------------- ------------
Total liabilities................................. 1,071,333,623 858,679,706
-------------- ------------
COMMITMENTS AND CONTINGENCIES (Note 10)
STOCKHOLDERS' EQUITY (Notes 13 and 14):
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, 9,972,981 (1996) and
8,926,707 (1995)....................................... 61,941,967 43,436,317
Retained earnings......................................... 27,340,835 34,520,110
Unrealized (loss) gain on investment securities available
for sale, net of tax (Note 2)............................. (195,731) 303,789
-------------- ------------
Total stockholders' equity........................ 89,087,071 78,260,216
-------------- ------------
TOTAL............................................. $1,160,420,694 $936,939,922
============== ============
</TABLE>
See accompanying notes to consolidated financial statements.
39
<PAGE> 41
CVB FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
THREE YEARS ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
INTEREST INCOME:
Loans, including fees............................. $54,451,505 $50,158,139 $43,155,882
----------- ----------- -----------
Investment securities:
Taxable........................................ 18,612,561 13,736,369 10,084,324
Tax-advantaged................................. 1,317,992 552,926 375,525
----------- ----------- -----------
19,930,553 14,289,295 10,459,849
----------- ----------- -----------
Federal funds sold................................ 512,393 247,966 431,699
----------- ----------- -----------
Total interest income..................... 74,894,451 64,695,400 54,047,430
----------- ----------- -----------
INTEREST EXPENSE:
Deposits (Note 8)................................. 18,740,044 14,538,843 10,773,128
Other borrowings.................................. 2,726,425 2,015,682 455,633
----------- ----------- -----------
Total interest expense.................... 21,466,469 16,554,525 11,228,761
----------- ----------- -----------
NET INTEREST INCOME BEFORE PROVISION FOR CREDIT
LOSSES............................................ 53,427,982 48,140,875 42,818,669
PROVISION FOR CREDIT LOSSES (Note 5)................ 2,887,821 2,575,000 350,000
----------- ----------- -----------
NET INTEREST INCOME AFTER PROVISION FOR CREDIT
LOSSES............................................ 50,540,161 45,565,875 42,468,669
OTHER OPERATING INCOME:
Service charges on deposit accounts............... 7,176,956 6,727,166 5,970,972
Trust services.................................... 2,326,831
Litigation settlement (Note 10)................... 2,100,000
Other............................................. 2,674,990 2,363,276 1,615,438
----------- ----------- -----------
Total other operating income.............. 14,278,777 9,090,442 7,586,410
----------- ----------- -----------
OTHER OPERATING EXPENSES:
Salaries, wages and employee benefits (Notes 11,
12 and 13)..................................... 20,013,237 16,494,846 15,241,684
Occupancy (Note 10)............................... 3,217,380 2,984,170 2,805,380
Equipment......................................... 3,111,464 2,278,699 1,969,544
Stationery and supplies........................... 2,438,084 1,832,810 1,556,527
Professional services............................. 1,985,331 2,860,529 1,850,000
Promotion......................................... 2,158,638 1,448,851 1,494,757
Data processing................................... 902,962 659,252 831,049
Deposit insurance premiums........................ 2,000 810,969 1,342,976
Other real estate owned expense (Note 5).......... 4,705,382 3,259,884 3,308,133
Other............................................. 3,374,825 2,423,006 2,034,574
----------- ----------- -----------
Total other operating expenses............ 41,909,303 35,053,016 32,434,624
----------- ----------- -----------
EARNINGS BEFORE INCOME TAXES........................ 22,909,635 19,603,301 17,620,455
INCOME TAXES (Note 7)............................... 9,576,299 8,145,842 7,185,679
----------- ----------- -----------
NET EARNINGS........................................ $13,333,336 $11,457,459 $10,434,776
=========== =========== ===========
NET EARNINGS PER COMMON SHARE....................... $ 1.30 $ 1.12 $ 1.03
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
40
<PAGE> 42
CVB FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
THREE YEARS ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
UNREALIZED
GAIN (LOSS)
COMMON ON SECURITIES
SHARES COMMON RETAINED AVAILABLE
OUTSTANDING STOCK EARNINGS FOR SALE
----------- ----------- ------------ -------------
<S> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1994.................. 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)
Common stock issued under stock option
plan and deferred compensation
agreements........................... 58,843 454,380
10% stock dividend, declared on December
20, 1995 and distributed on January
23, 1996............................. 811,090 10,544,170 (10,544,170)
Tax benefit from exercise of certain
stock options........................ 75,825
Cash dividends.......................... (2,597,072)
Net earnings............................ 11,457,459
Unrealized gains on securities available
for sale, net of tax................. 6,929,696
--------- ----------- ----------- -----------
BALANCE, DECEMBER 31, 1995................ 8,926,707 43,436,317 34,520,110 303,789
Common stock issued under stock option
plan and deferred compensation
agreements........................... 136,601 653,317
10% stock dividend, declared on December
18, 1996 and distributed on January
21, 1997............................. 909,673 17,852,333 (17,852,333)
Tax benefit from exercise of certain
stock options........................ 422,499
Cash dividends.......................... (3,082,777)
Net earnings............................ 13,333,336
Unrealized losses on securities
available for sale, net of tax....... (499,520)
--------- ----------- ----------- -----------
BALANCE, DECEMBER 31, 1996................ 9,972,981 $61,941,967 $ 27,340,835 $ (195,731)
========= =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
41
<PAGE> 43
CVB FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE YEARS ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
1996 1995 1994
------------- ------------- -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Interest received.................................... $ 70,894,714 $ 62,860,948 $ 51,205,480
Service charges and other fees received.............. 14,275,786 9,090,073 7,714,225
Interest paid........................................ (21,342,531) (14,960,400) (10,663,359)
Cash paid to suppliers and employees................. (36,795,937) (31,269,910) (31,894,127)
Income taxes paid.................................... (9,643,766) (7,557,407) (6,818,811)
------------- ------------- -------------
Net cash provided by operating activities.... 17,388,266 18,163,304 9,543,408
------------- ------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of securities available for
sale.............................................. 18,528,445 13,516,987 53,296,643
Proceeds from maturities of securities available for
sale.............................................. 66,919,013 28,692,902 62,480,377
Proceeds from maturities of securities held to
maturity.......................................... 1,697,771 1,667,623 1,119,772
Purchases of securities available for sale........... (112,617,197) (117,966,851) (163,500,011)
Purchases of securities held to maturity............. (27,055,000) (6,767,297) (2,366,781)
Net increase in loans................................ (29,043,734) (20,186,658) (1,448,189)
Loan origination fees received....................... 2,861,432 2,622,019 2,857,475
Proceeds from sale of other real estate owned........ 4,704,182 5,775,784 4,423,508
Proceeds from sale of premises and equipment......... 55,490 586,858 56,728
Purchases of premises and equipment.................. (3,267,172) (6,828,719) (5,324,476)
Consideration (paid) received in business
combinations...................................... (18,322,106) 2,822,309 13,324,176
Other investing activities........................... (623,112) 4,974,883 (8,496,214)
------------- ------------- -------------
Net cash used in investing activities........ (96,161,988) (91,090,160) (43,576,992)
------------- ------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in noninterest-bearing
deposits and money market and savings accounts.... 56,288,172 (10,948,901) 53,601,842
Net increase in time certificates of deposit......... 18,998,252 47,832,612 16,821,858
Net increase (decrease) in short-term borrowings..... 21,247,889 40,288,754 (7,792,948)
Cash dividends on common stock....................... (3,082,777) (2,597,072) (2,343,542)
Proceeds from exercise of stock options.............. 415,402 283,014 128,829
------------- ------------- -------------
Net cash provided by financing activities.... 93,866,938 74,858,407 60,416,039
------------- ------------- -------------
NET INCREASE IN CASH AND CASH EQUIVALENTS.............. $ 15,093,216 $ 1,931,551 $ 26,382,455
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR........... 111,886,440 109,828,593 60,852,849
------------- ------------- -------------
CASH AND CASH EQUIVALENTS, END OF YEAR, BEFORE
ACQUISITIONS......................................... 126,979,656 111,760,144 87,235,304
CASH AND CASH EQUIVALENTS RECEIVED IN ACQUISITIONS..... 15,521,899 126,296 22,593,289
------------- ------------- -------------
CASH AND CASH EQUIVALENTS, END OF YEAR................. $ 142,501,555 $ 111,886,440 $ 109,828,593
============= ============= =============
</TABLE>
42
<PAGE> 44
CVB FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
THREE YEARS ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
1996 1995 1994
------------- ------------- -------------
<S> <C> <C> <C>
RECONCILIATION OF NET EARNINGS TO NET CASH PROVIDED BY
OPERATING ACTIVITIES:
Net earnings......................................... $ 13,333,336 $ 11,457,459 $ 10,434,776
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Gain on sale of investment securities............. (139,702) (184,430) (3,333)
Loss on sale of investment securities............. 136,711 184,061 131,148
Gain on sale of premises and equipment............ (16,736) (3,960) (16,789)
Gain on sale of other real estate owned........... (135,824) (277,608) (6,563)
(Accretion of discounts) amortization of premiums
on investment securities........................ (616,984) 274,095 336,308
Provision for credit losses....................... 2,887,821 2,575,000 350,000
Provision for losses on other real estate owned... 3,449,178 1,900,000 2,400,000
Accretion of deferred loan fees and costs......... (2,301,269) (1,137,727) (1,905,470)
Loan fees and costs deferred...................... (1,959,267) (1,097,674) (2,624,409)
Depreciation and amortization..................... 2,708,109 1,881,702 1,549,006
Change in accrued interest receivable............. (1,081,484) (970,821) (1,272,788)
Change in accrued interest payable................ 123,938 1,594,125 565,402
Deferred tax (benefit) provision.................. (1,015,728) (1,382,537) 308,734
Change in other assets and liabilities............ 2,016,167 3,351,619 (702,614)
------------- ------------- -------------
Total adjustments............................ 4,054,930 6,705,845 (891,368)
------------- ------------- -------------
NET CASH PROVIDED BY OPERATING ACTIVITIES.............. $ 17,388,266 $ 18,163,304 $ 9,543,408
============= ============= =============
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES
Real estate acquired through foreclosure............. $ 6,231,881 $ 6,345,927 $ 6,598,432
============= ============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
43
<PAGE> 45
CVB FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE-YEAR PERIOD ENDED DECEMBER 31, 1996
1. 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, Citizens Business Bank (the "Bank"), formerly Chino Valley Bank,
and Community Trust Deed Services, after elimination of all material
intercompany transactions and balances.
Nature of Operations -- The Company's primary operations are related to
traditional banking activities, including the acceptance of deposits and the
lending and investing of money through the operations of the Bank. The Bank also
provides trust services to customers through several of its branch offices. The
Bank's customers consist of small to mid-sized businesses and individuals
located in the Inland Empire, San Gabriel Valley and Orange County. The Bank
operates 23 branches, with the headquarters located in the city of Ontario.
Investment Securities -- The Company classifies as held to maturity those
debt securities that it has the positive intent and ability to hold to maturity.
All other debt and equity securities are classified as available for sale.
Securities held to maturity are accounted for at cost and adjusted for
amortization of premiums and accretion of discounts. Securities available for
sale are accounted for at fair value, with the net unrealized gains and losses
(unless other than temporary), net of income tax effects, presented as a
separate component of stockholders' equity. 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 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. Properties under capital lease and leasehold
improvements are amortized over the shorter of their economic lives or the
initial term of the lease.
44
<PAGE> 46
CVB FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
THREE-YEAR PERIOD ENDED DECEMBER 31, 1996
Other Real Estate Owned -- Other real estate owned, shown net of an
allowance for losses of $1,931,682 and $1,195,843 at December 31, 1996 and 1995,
respectively, represents real estate acquired through foreclosure in
satisfaction of commercial and real estate loans and is stated at fair value,
minus estimated costs to sell (fair value at time of foreclosure). Loan balances
in excess of fair value of the real estate acquired at the date of acquisition
are charged against the allowance for credit losses. Any subsequent operating
expenses or income, reduction in estimated values, and gains or losses on
disposition of such properties are charged to current operations.
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 the straight-line basis.
Income Taxes -- Deferred income taxes are recognized for the tax
consequences in future years of differences between the tax bases of assets and
liabilities and their financial reporting amounts at each year-end, based on
enacted tax laws and statutory tax rates applicable to the periods in which the
differences are expected to affect taxable income.
Earnings per Common Share -- 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 10,279,401 (1996), 10,190,707
(1995) and 10,067,327 (1994). 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.
Trust Services -- The Company maintains funds in Trust for customers. The
amount of these funds and the related liability have not been recorded in the
accompanying consolidated balance sheets, as they are not assets or liabilities
of the Bank or Company, with the exception of any funds held on deposit with the
Bank. Trust fees are recorded on an accrual basis.
Use of Estimates in the Preparation of Financial Statements -- The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
45
<PAGE> 47
CVB FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
THREE-YEAR PERIOD ENDED DECEMBER 31, 1996
2. 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>
1996
------------------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED
COST HOLDING GAINS HOLDING LOSSES FAIR VALUE
------------ ------------- -------------- ------------
<S> <C> <C> <C> <C>
Investment securities held to
maturity:
Mortgage-backed securities....... $ 7,398,151 $ 402,845 $ (105,578) $ 7,695,418
Municipal bonds.................. 42,144,804 582,924 (66,037) 42,661,691
Other debt securities............ 1,190,740 1,190,740
------------ ---------- ----------- ------------
$ 50,733,695 $ 985,769 $ (171,615) $ 51,547,849
============ ========== =========== ============
Investment securities available for
sale:
U.S. Treasury securities......... $ 55,355,558 $ 286,512 $ (20,680) $ 55,621,390
Mortgage-backed securities....... 15,394,600 44,299 (56,988) 15,381,911
CMO/REMICs....................... 199,955,848 547,961 (947,136) 199,556,673
Government agency................ 51,105,163 131,829 (39,040) 51,197,952
FHLB stock....................... 6,982,900 6,982,900
Other debt securities............ 4,591,013 15,902 4,606,915
------------ ---------- ----------- ------------
Total.................... $333,385,082 $ 1,026,503 $ (1,063,844) $333,347,741
============ ========== =========== ============
</TABLE>
<TABLE>
<CAPTION>
1995
------------------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED
COST HOLDING GAINS HOLDING LOSSES FAIR VALUE
------------ ------------- -------------- ------------
<S> <C> <C> <C> <C>
Investment securities held to
maturity:
Mortgage-backed securities....... $ 8,759,019 $ 576,366 $ (145,242) $ 9,190,143
Municipal bonds.................. 14,465,144 380,424 (52,922) 14,792,646
Other debt securities............ 1,048,344 1,048,344
------------ ---------- ----------- ------------
$ 24,272,507 $ 956,790 $ (198,164) $ 25,031,133
============ ========== =========== ============
Investment securities available for
sale:
U.S. Treasury securities......... $ 30,612,310 $ 445,285 $ (29,615) $ 31,027,980
Mortgage-backed securities....... 15,259,068 27,893 (58,265) 15,228,696
CMO/REMICs....................... 165,226,252 934,042 (464,368) 165,695,926
Government agency................ 41,659,418 182,579 (53,002) 41,788,995
FHLB stock....................... 6,632,000 6,632,000
------------ ---------- ----------- ------------
$259,389,048 $ 1,589,799 $ (605,250) $260,373,597
============ ========== =========== ============
</TABLE>
A mortgage-backed security classified as held to maturity at December 31,
1996 and 1995 was transferred from the available for sale portfolio in June
1994. The unrealized loss on this security was approximately $302,000 and
$467,000, net of accretion, at December 31, 1996 and 1995, respectively.
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.
46
<PAGE> 48
CVB FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
THREE-YEAR PERIOD ENDED DECEMBER 31, 1996
At December 31, 1996 and 1995, investment securities having an amortized
cost of approximately $123,914,000 and $116,056,000, respectively, were pledged
to secure public deposits, short-term borrowings, and for other purposes as
required or permitted by law.
The amortized cost and fair value of debt securities at December 31, 1996,
by contractual maturity, are shown below. Although mortgage-backed securities
and CMO/REMICs have contractual maturities through 2022, 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................. $ 100,402 $ 100,635 4.08% $ 52,728,966 $ 52,733,664 5.47%
Due after one year
through five years... 7,229,091 7,249,542 4.14% 58,322,768 58,692,593 6.15%
Due after five years
through ten years.... 20,566,416 20,791,567 4.85%
Due after ten years.... 15,439,635 15,710,687 5.42%
----------- ----------- ---- ------------ ------------ ----
43,335,544 43,852,431 4.80% 111,051,734 111,426,257 5.81%
FHLB stock............. 6,982,900 6,982,900
Mortgage-backed
securities and
CMO/REMICs........... 7,398,151 7,695,418 6.32% 215,350,448 214,938,584 6.28%
----------- ----------- ---- ------------ ------------ ----
$ 50,733,695 $ 51,547,849 5.15% $ 333,385,082 $ 333,347,741 6.13%
=========== =========== ==== ============ ============ ====
</TABLE>
Net realized gains and losses on sales of investment securities are as
follows:
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Gross realized gains................ $ 139,702 $ 184,430 $ 3,333
Gross realized losses............... (136,711) (184,061) (131,148)
----------- ----------- -----------
$ 2,991 $ 369 $ (127,815)
=========== =========== ===========
</TABLE>
3. LOANS AND LEASE FINANCE RECEIVABLES
The Bank grants loans to customers throughout its primary market in the
Inland Empire, San Gabriel Valley and Orange County 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 credit 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, 1996.
The Bank makes loans to borrowers in a number of different industries. No
industry had aggregate loan balances exceeding 10% of the December 31, 1996 or
1995 loan and lease finance receivables balance, with the exception of loans
made to the agribusiness industry, which represented 13% of net loans
outstanding at December 31, 1995. At December 31, 1996, the Bank's loan
portfolio included approximately $367.9 million of loans to borrowers involved
in several industries. Such loans are secured by commercial and residential real
properties.
At December 31, 1996 the Bank held approximately $343.6 million of fixed
rate loans. These fixed rate loans bear interest at rates ranging from 5% to 15%
and have contractual maturities between one and ten years.
47
<PAGE> 49
CVB FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
THREE-YEAR PERIOD ENDED DECEMBER 31, 1996
The following is a summary of the components of loan and lease finance
receivables:
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Commercial, financial and industrial............ $215,791,309 $234,708,614
Real estate:
Construction.................................. 36,925,453 23,804,890
Mortgage...................................... 244,600,742 149,037,733
Loans to individuals for household, family and
other consumer expenditures................... 19,575,820 15,876,904
Municipal lease finance receivables............. 19,824,796 21,528,868
Agribusiness.................................... 55,486,266 63,580,122
------------ ------------
592,204,386 508,537,131
Allowance for credit losses (Note 5)............ (12,238,816) (9,625,586)
Deferred loan origination fees, net............. (3,279,008) (2,462,640)
------------ ------------
$576,686,562 $496,448,905
============ ============
</TABLE>
4. 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>
1996 1995
---------- ----------
<S> <C> <C>
Outstanding balance, beginning of year.............. $3,055,000 $3,343,000
Credit granted, including renewals.................. 173,000 270,000
Repayments.......................................... (188,000) (558,000)
---------- ----------
Outstanding balance, end of year.................... $3,040,000 $3,055,000
========== ==========
</TABLE>
5. ALLOWANCE FOR CREDIT AND OTHER REAL ESTATE OWNED LOSSES
Activity in the allowance for credit losses was as follows:
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Balance, beginning of year........ $ 9,625,586 $ 9,470,736 $ 8,849,442
Provision charged to operations... 2,887,821 2,575,000 350,000
Additions to allowance resulting 711,329 1,124,657
from acquisitions...............
Loans charged off................. (1,749,004) (2,619,620) (1,021,230)
Recoveries on loans previously 763,084 199,470 167,867
charged off.....................
----------- ----------- -----------
Balance, end of year.............. $12,238,816 $ 9,625,586 $ 9,470,736
=========== =========== ===========
</TABLE>
The Bank accounts for impaired loans in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 114, "Accounting by Creditors for
Impairment of a Loan." In accordance with this statement, the Bank measures its
impaired loans by using the present value of the expected future cash flows
discounted at the loans effective interest rate or the fair value of the
collateral if the loan is collateral dependent. If the
48
<PAGE> 50
CVB FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
THREE-YEAR PERIOD ENDED DECEMBER 31, 1996
calculated measurement of an impaired loan is less than the recorded investment
in the loan, a portion of the Bank's general reserve is allocated as an
impairment reserve.
At December 31, 1996 and 1995 the Bank had classified as impaired loans
totaling $22,938,557 and $30,235,233, respectively. Of these loans, the Bank has
determined that, as of December 31, 1996 and 1995, $16,892,056 and $559,223,
respectively, of such loans required specific reserves, and accordingly, the
Bank has recorded specific reserves of $3,446,565 and $415,093 on such loans.
The Bank has determined that $6,046,501 and $29,676,000 of these impaired loans
outlined above do not require specific reserves in accordance with SFAS No. 114
because the estimated present value of discounted future cash flows or the fair
value of the collateral, in the case of collateral-dependent loans, exceeds the
book value of the related loans at the date of measurement. Additional valuation
allowances, however, may exist on such loans based on management's judgment. The
average recorded investment in impaired loans during the years ended December
31, 1996 and 1995 was approximately $31,195,000 and $30,459,000, respectively.
Interest income of $1,248,136 and $2,267,300 was recognized on impaired loans
during the years ended December 31, 1996 and 1995, respectively.
The Bank's policy for recognition of interest income and charge-offs and
application of payments on impaired loans is the same as the policy applied to
nonaccrual loans.
At December 31, 1996, loans on nonaccrual status totaled $17,564,126, all
of which are included in the impaired loans discussed above, compared to
$13,289,449 at December 31, 1995.
Due to financial difficulties encountered by certain borrowers, the Bank
has restructured the terms of certain loans to facilitate loan payments. As of
December 31, 1996 and 1995, loans with these restructured terms totaled
$5,374,431 and $13,558,000, respectively. The balance of impaired loans
disclosed above includes all troubled debt restructured loans that, as of
December 31, 1996 and 1995, are considered impaired.
Interest foregone on nonaccrual and restructured loans outstanding during
the years ended December 31, 1996, 1995 and 1994 amounted to approximately
$253,000, $988,000 and $1,363,000, respectively.
Activity in the allowance for other real estate owned losses was as
follows:
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Balance, beginning of year........ $ 1,195,843 $ 1,180,090 $ 1,650,903
Provision charged to operations... 3,449,178 1,900,000 2,400,000
Charge-offs of real estate (2,713,339) (1,884,247) (2,870,813)
owned...........................
----------- ----------- -----------
Balance, end of year.............. $ 1,931,682 $ 1,195,843 $ 1,180,090
=========== =========== ===========
</TABLE>
The Company incurred additional expenses of $1,256,204 (1996), $1,359,884
(1995) and $908,133 (1994) related to the holding and disposition of other real
estate owned.
49
<PAGE> 51
CVB FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
THREE-YEAR PERIOD ENDED DECEMBER 31, 1996
6. PREMISES AND EQUIPMENT
Premises and equipment consist of:
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Land............................................ $ 5,322,304 $ 2,613,493
Bank premises................................... 11,858,431 8,819,086
Furniture and equipment......................... 20,864,075 17,073,983
Leased property under capital lease............. 649,330 649,330
------------ ------------
38,694,140 29,155,892
Accumulated depreciation and amortization (14,458,759) (11,936,645)
------------ ------------
$ 24,235,381 $ 17,219,247
============ ============
</TABLE>
7. INCOME TAXES
Income tax expense (benefit) comprised the following:
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Current provision
Federal........................... $ 7,662,723 $ 7,141,463 $ 4,995,206
State............................. 2,929,304 2,386,916 1,881,739
----------- ----------- -----------
10,592,027 9,528,379 6,876,945
----------- ----------- -----------
Deferred (benefit) provision:
Federal........................... (751,898) (1,144,867) 165,756
State............................. (263,830) (237,670) 142,978
----------- ----------- -----------
(1,015,728) (1,382,537) 308,734
----------- ----------- -----------
$ 9,576,299 $ 8,145,842 $ 7,185,679
=========== =========== ===========
</TABLE>
Income tax liability (asset) comprised the following:
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Current:
Federal....................................... $ 20,306 $ 1,868,265
State......................................... (36,146) 248,461
------------ ------------
(15,840) 2,116,726
------------ ------------
Deferred:
Federal....................................... (3,614,523) (3,563,446)
State......................................... (865,139) (908,731)
------------ ------------
(4,479,662) (4,472,177)
------------ ------------
$ (4,495,502) $ (2,355,451)
============ ============
</TABLE>
50
<PAGE> 52
CVB FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
THREE-YEAR PERIOD ENDED DECEMBER 31, 1996
The components of the net deferred tax asset are as follows:
<TABLE>
<CAPTION>
FEDERAL 1996 1995
------- ---------- ----------
<S> <C> <C>
Deferred tax liabilities:
Depreciation...................................... $1,778,312 $ 400,038
Valuation of trust assets......................... 631,750
Core deposit premium.............................. 516,102
Leases............................................ 91,279 183,558
Unrealized gains on securities.................... 181,000
Other............................................. 36,572 75,608
---------- ----------
Gross deferred tax liability........................ 3,054,015 840,204
---------- ----------
Deferred tax assets:
California franchise tax.......................... 699,521 437,663
Bad debt and credit loss deduction................ 2,888,135 2,965,394
Other real estate owned reserves.................. 1,369,386 940,153
Deferred compensation............................. 1,169,904
Self-insurance reserves........................... 147,485
Unrealized loss on securities..................... 118,694
Other............................................. 275,413 60,440
---------- ----------
Gross deferred tax asset............................ 6,668,538 4,403,650
---------- ----------
Net deferred tax asset -- federal................... $3,614,523 $3,563,446
========== ==========
STATE
-----
Deferred tax liabilities:
Depreciation...................................... $ 540,081 $ 164,420
Valuation of trust asset.......................... 203,965
Core deposit premium.............................. 166,627
Unrealized gains on securities.................... 32,000
Other............................................. 6,586 17,674
---------- ----------
Gross deferred tax liability........................ 917,259 214,094
---------- ----------
Deferred tax assets:
Bad debt and credit loss deduction................ 756,914 756,110
Other real estate owned reserves.................. 442,116 303,535
Deferred compensation............................. 377,704
Self-insurance reserves........................... 47,617
Unrealized loss on securities..................... 24,916
Other............................................. 133,131 63,180
---------- ----------
Gross deferred tax asset............................ 1,782,398 1,122,825
---------- ----------
Net deferred tax asset -- state..................... $ 865,139 $ 908,731
========== ==========
</TABLE>
51
<PAGE> 53
CVB FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
THREE-YEAR PERIOD ENDED DECEMBER 31, 1996
A reconciliation of the statutory income tax rate to the consolidated
effective income tax rate follows:
<TABLE>
<CAPTION>
1996 1995 1994
-------------------- -------------------- --------------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
---------- ------- ---------- ------- ---------- -------
<S> <C> <C> <C> <C> <C> <C>
Federal income tax at
statutory rate.............. $8,018,256 35.0% $6,861,155 35.0% $6,167,159 35.0%
State franchise taxes, net of
federal benefit............. 1,732,558 7.6 1,397,010 7.1 1,316,067 7.5
Tax-exempt interest........... (848,998) (3.7) (627,409) (3.2) (561,837) (3.2)
Other, net.................... 674,483 2.9 515,086 2.6 264,290 1.5
---------- ---- ---------- ---- ---------- ----
$9,576,299 41.8% $8,145,842 41.5% $7,185,679 40.8%
========== ==== ========== ==== ========== ====
</TABLE>
8. DEPOSITS
Time certificates of deposit with balances of $100,000 or more amounted to
approximately $125,612,000 and $109,040,000 at December 31, 1996 and 1995,
respectively. Interest expense on such deposits amounted to approximately
$6,496,000 (1996), $4,924,000 (1995) and $2,471,000 (1994).
9. SHORT-TERM BORROWINGS
On November 29, 1996 and 1995, the Bank entered into short-term borrowing
agreements with the Federal Home Loan Bank ("FHLB") maturing on November 29,
1997 and November 29, 1996. The Bank had outstanding borrowings of $40,000,000
at December 31, 1996 and 1995 with a weighted average interest rate of 5.5% for
the years then ended. The FHLB is holding certain investment securities of the
Bank as collateral for the borrowings. In addition, on December 31, 1996, the
Bank entered into an overnight agreement with a financial institution to borrow
$16,000,000 at 8.0% annual interest. The Bank maintains cash deposits with the
financial institution as collateral for the borrowings.
10. COMMITMENTS AND CONTINGENCIES
The Company leases land and buildings under operating leases for varying
periods extending to 2014, at which time the Company can exercise options that
could extend certain leases through 2026. The future minimum annual rental
payments required for leases, which have initial or remaining noncancelable
lease terms in excess of one year as of December 31, 1996, excluding property
taxes and insurance, are approximately as follows:
<TABLE>
<S> <C>
1997..................................... $1,324,000
1998..................................... 1,190,000
1999..................................... 1,218,000
2000..................................... 1,139,000
2001..................................... 847,000
Succeeding years......................... 2,352,000
----------
Total minimum payments required.......... $8,070,000
==========
</TABLE>
Total rental expense for the Company was approximately $1,401,000 (1996),
$1,785,000 (1995) and $1,670,000 (1994).
At December 31, 1996, the Bank had commitments to extend credit of
approximately $103,726,000 and obligations under letters of credit of
$8,453,000. Commitments to extend credit are agreements to lend to customers,
provided there is no violation of any condition established in the contract.
Commitments generally
52
<PAGE> 54
CVB FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
THREE-YEAR PERIOD ENDED DECEMBER 31, 1996
have fixed expiration dates or other termination clauses and may require payment
of a fee. Commitments are generally variable rate, and many of these commitments
are expected to expire without being drawn upon. As such, the total commitment
amounts do not necessarily represent future cash requirements. The Bank uses the
same credit underwriting policies in granting or accepting such commitments or
contingent obligations as it does for on-balance-sheet instruments, which
consist of evaluating customers' creditworthiness individually.
Standby letters of credit written are conditional commitments issued by the
Bank 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 Bank holds appropriate collateral supporting those commitments. Management
does not anticipate any material losses as a result of these transactions.
The Bank has federal fund borrowing limits totaling $77,300,000 and
available lines of credit borrowing limits totaling $62,300,000 from certain
financial institutions.
In the ordinary course of business, the Company becomes involved in
litigation. In the opinion of management and based upon discussions with legal
counsel, except as discussed below, the disposition of such litigation will not
have a material effect on the Company's consolidated financial position or
results of operations. During 1996 the Company received $2,100,000 in settlement
of litigation with a former employee of the Company.
11. DEFERRED COMPENSATION PLANS
As a result of the acquisition of Citizens Commercial Trust and Savings
Bank of Pasadena ("Citizens Bank of Pasadena"), the Bank assumed deferred
compensation and salary continuation agreements with several former employees of
Citizens Business Bank of Pasadena. These agreements call for periodic payments
at the retirement of such employees who have normal retirement dates through
2021. In connection with these agreements, the Bank assumed life insurance
policies which it intends to use to fund the related liability. Benefits paid to
retirees amounted to approximately $170,000 for the year ended December 31,
1996.
The Bank also assumed a death benefit program for certain former employees
of Citizens Bank of Pasadena under which the Bank will provide benefits to the
former employees beneficiary 1) in the event of death while employed by the
Bank; 2) after termination of employment for total and permanent disability; 3)
after retirement, if retirement occurs after age 65. Amounts are to be paid to
the former employee's beneficiaries over a ten-year period in equal
installments. Further, the Bank assumed life insurance policies to fund any
future liability related to this program. Amounts paid for the benefit of
retirees amounted to $51,488 for the year ended December 31, 1996.
12. 401(K) AND PROFIT SHARING PLAN
The Bank sponsors a 401(k) and profit-sharing 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-
The Bank sponsors a 401(k) sharing component, subject to certain
limitations. The Bank's contributions are determined by the Board of Directors,
and amounted to approximately $888,000 (1996), $780,000 (1995) and $715,000
(1994).
53
<PAGE> 55
CVB FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
THREE-YEAR PERIOD ENDED DECEMBER 31, 1996
13. STOCK OPTION PLANS
The Company has granted options to purchase shares of the Company's common
stock to certain officers and directors under plans established in 1981 and
1991. The 1981 plan had 84,795 options outstanding at December 31, 1995, all of
which were exercised during 1996, and no more options can be granted under this
plan. The 1991 plan authorizes the issuance of up to 1,368,933 shares. Option
prices under the plan are to be determined 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.
At December 31, 1996, options for the purchase of 686,025 shares of the
Company's common stock were outstanding under the plan, of which options to
purchase 553,678 shares were exercisable at prices ranging from $5.64 to $12.81;
558,460 shares of common stock were available for the granting of future options
under the 1991 plan. The status of all optioned shares is as follows:
<TABLE>
<CAPTION>
SHARES PRICE RANGE
-------- --------------------
<S> <C> <C>
Outstanding at January 1, 1994................... 706,509 $ 1.82 - $ 9.90
Granted.......................................... 60,294.. 8.90 - 11.64
Exercised........................................ (34,452) 2.65 - 6.20
Canceled......................................... (15,280) 5.12 - 9.90
-------
Outstanding at December 31, 1994................. 717,071 $ 1.82 - $ 11.64
Granted.......................................... 135,963 11.57 - 12.26
Exercised........................................ (55,075) 5.12 - 9.90
Canceled......................................... (15,534) 5.12 - 5.12
-------
Outstanding at December 31, 1995................. 782,425 $ 1.82 - $ 12.26
Granted.......................................... 42,350 13.30 - 15.00
Exercised........................................ (134,155) 1.82 - 11.57
Canceled......................................... (4,595) 5.13 - 11.57
-------
Outstanding at December 31, 1996................. 686,025 $ 5.13 - $ 15.00
=======
</TABLE>
In 1996, 1995 and 1994, the Company granted to a key executive 14,641,
13,310 and 24,200 shares, respectively, of the Company's common stock in
accordance with his compensation agreement. The agreement also provides for the
granting of an additional 16,105 shares, which will be adjusted for any future
stock dividends or splits, through 1997, for which the executive is entitled to
receive stock and cash dividends.
The Company applies Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees," and related interpretations in accounting for its
plans. Accordingly, no compensation expense has been recognized for its
stock-based compensation plans other than for those options issued in accordance
with the employment agreement. Had compensation cost for the Company's other
stock option plans been determined based upon the fair value at the grant date
for awards under the plan consistent with the methodology prescribed under SFAS
No. 123, "Accounting for Stock-Based Compensation," the Company's net income and
earnings per share would have been reduced by approximately $1,097,000, or $.10
per share, during the year ended December 31, 1996, and $775,000, or $.07 per
share, during the year ended December 31, 1995. The fair value of the options
granted for the years ended December 31, 1996 and 1995 was estimated using the
Black-Scholes option-pricing model with the following assumptions: dividend
yield of .2%, volatility of 23.8%, risk-free interest rate of 6.5%, and an
expected life of 10 years.
54
<PAGE> 56
CVB FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
THREE-YEAR PERIOD ENDED DECEMBER 31, 1996
14. REGULATORY MATTERS
The Company and the Bank are subject to various regulatory capital
requirements administered by the federal banking regulatory agencies. Failure to
meet minimum capital requirements can initiate certain mandatory -- and possibly
additional discretionary -- actions by regulators that, if undertaken, could
have a direct material effect on the Company's financial statements. Under
capital adequacy guidelines and the regulatory framework for prompt corrective
action, the Company and Bank must meet specific capital guidelines that involve
quantitative measures of assets, liabilities, and certain off-balance sheet
items as calculated under regulatory accounting practices. The capital amounts
and classification are also subject to qualitative judgment by the regulators
about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Company and the Bank to maintain minimum amounts and ratios (set
forth in the table below) of total and Tier I capital (primarily common stock
and retained earnings less goodwill) to risk-weighted assets, and of Tier I
capital to average assets. Management believes, as of December 31, 1996, that
the Company and the Bank meet all capital adequacy requirements to which they
are subject.
As of December 31, 1996, the most recent notification from the FDIC
categorized the Company and the Bank as well capitalized under the regulatory
framework for prompt corrective action. To be categorized as well capitalized,
the minimum total risk-based, Tier I risk-based, and Tier I leverage (tangible
Tier I capital divided by average total assets) ratios as set forth in the table
below must be maintained. There are no conditions or events since that
notification that management believes have changed the institutions' category.
55
<PAGE> 57
CVB FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
THREE-YEAR PERIOD ENDED DECEMBER 31, 1996
The actual capital ratios of the Company and the Bank at December 31 are as
follows:
<TABLE>
<CAPTION>
TO BE WELL
CAPITALIZED
UNDER
PROMPT
FOR CAPITAL CORRECTIVE
ADEQUACY ACTION
ACTUAL PURPOSES: PROVISIONS:
----------------- --------------- ----------------
AMOUNT AMOUNT AMOUNT
(000S) RATIO (000S) RATIO (000S) RATIO
------- ----- ------- ------ ------- -------
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1996:
Total Capital (to Risk Weighted
Assets)
Company........................ $86,561 12.3% $56,300 8.0% N/A
Bank........................... 83,769 11.9% 56,315 8.0% $70,394 >/= 10.0%
Tier I Capital (to Risk Weighted
Assets)
Company........................ 77,591 11.0% 28,215 4.0% N/A
Bank........................... 74,832 10.7% 28,975 4.0% 41,962 >/= 6.0%
Tier I Capital (to Average Assets)
Company........................ 77,591 7.2% 43,713 4.0% N/A
Bank........................... 74,832 7.0% 42,761 4.0% 53,451 >/= 5.0%
As of December 31, 1995:
Total Capital (to Risk Weighted
Assets)
Company........................ 76,930 13.0% 47,118 8.0% N/A
Bank........................... 72,447 12.4% 46,763 8.0% 58,454 >/= 10.0%
Tier I Capital (to Risk Weighted
Assets)
Company........................ 69,448 11.8% 23,559 4.0% N/A
Bank........................... 65,020 11.1% 23,426 4.0% 35,140 >/= 6.0%
Tier I Capital (to Average Assets)
Company........................ 69,448 8.0% 34,524 4.0% N/A
Bank........................... 65,020 7.6% 34,931 4.0% 42,989 >/= 5.0%
</TABLE>
In addition, California Banking Law limits the amount of dividends a bank
can pay without obtaining prior approval from bank regulators. Under this law,
the Bank could, as of December 31, 1996, declare and pay additional dividends of
approximately $12,437,000.
Banking regulations require that all banks maintain a percentage of their
deposits as reserves at the Federal Reserve Bank. On December 31, 1996, this
reserve requirement was approximately $18,392,000.
56
<PAGE> 58
CVB FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
THREE-YEAR PERIOD ENDED DECEMBER 31, 1996
15. CONDENSED FINANCIAL INFORMATION OF PARENT COMPANY
BALANCE SHEETS
<TABLE>
<CAPTION>
1996 1995
------- -------
(IN THOUSANDS)
<S> <C> <C>
Assets:
Investment in Citizens Business Bank................................... $86,328 $73,832
Other assets, net...................................................... 6,319 7,736
------- -------
Total assets............................................................. $92,647 $81,568
======= =======
Liabilities.............................................................. $ 3,560 $ 3,308
Stockholders' equity..................................................... 89,087 78,260
------- -------
Total liabilities and stockholders' equity............................... $92,647 $81,568
======= =======
</TABLE>
STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Equity in earnings of Citizens Business Bank.................. $13,596 $11,632 $10,724
Other expense, net............................................ (263) (175) (289)
------- ------- -------
Net earnings.................................................. $13,333 $11,457 $10,435
======= ======= =======
</TABLE>
57
<PAGE> 59
CVB FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
THREE-YEAR PERIOD ENDED DECEMBER 31, 1996
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings................................................. $ 13,333 $ 11,457 $ 10,435
Adjustments to reconcile net earnings to cash provided by
(used in) operating activities:
Earnings of Citizens Business Bank........................ (13,596) (11,632) (10,724)
Other operating activities, net........................... 1,028 (1,839) (1,088)
Total adjustments.................................... (12,568) (13,471) (11,812)
-------- -------- --------
Net cash provided by (used in) operating
activities......................................... 765 (2,014) (1,377)
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Dividends received from Citizens Business Bank............... 600 4,296 18,619
Sale of premises and land.................................... 1,588
Investment in subsidiaries................................... (14,797)
-------- -------- --------
Net cash provided by investing activities............ 2,188 4,296 3,822
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash dividends on common stock............................... (3,083) (2,597) (2,344)
Proceeds from exercise of stock options...................... 415 283 129
-------- -------- --------
Net cash used in financing activities................ (2,668) (2,314) (2,215)
-------- -------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........... 285 (32) 230
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR................... 760 792 562
-------- -------- --------
CASH AND CASH EQUIVALENTS, END OF YEAR......................... $ 1,045 $ 760 $ 792
======== ======== ========
</TABLE>
16. QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-------- ------- ------------ -----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
1996
Net interest income........................... $11,648 $13,679 $ 14,001 $14,100
Provision for credit losses................... 1,213 430 515 730
Net earnings.................................. 2,758 3,297 3,656 3,622
Earnings per common share..................... 0.27 0.32 0.36 0.35
1995
Net interest income........................... $12,104 $11,643 $ 11,870 $12,524
Provision for credit losses................... 1,225 350 1,000
Net earnings.................................. 2,541 2,647 2,985 3,284
Earnings per common share..................... 0.25 0.25 0.29 0.32
</TABLE>
58
<PAGE> 60
CVB FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
THREE-YEAR PERIOD ENDED DECEMBER 31, 1996
17. 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, 1996
and 1995. The use of different market assumptions and/or estimation
methodologies may have a material effect on the estimated fair value amounts.
<TABLE>
<CAPTION>
1996
-----------------------------
CARRYING ESTIMATED
AMOUNT FAIR VALUE
------------ ------------
<S> <C> <C>
ASSETS
Cash and due from banks......................... $142,501,555 $142,501,555
Federal funds sold
Investment securities held to maturity........ 50,733,695 51,547,849
Investment securities available for sale...... 333,347,741 333,347,741
Loans and lease finance receivables, net...... 576,686,562 578,756,000
LIABILITIES
Deposits:
Noninterest-bearing........................... 431,183,256 431,183,256
Interest-bearing.............................. 559,413,367 559,670,000
Demand note to U.S. Treasury.................... 12,609,866 12,609,866
1995
-----------------------------
CARRYING ESTIMATED
AMOUNT FAIR VALUE
------------ ------------
ASSETS
Cash and due from banks......................... $104,886,440 $104,886,400
Federal funds sold
Investment securities held to maturity........ 7,000,000 7,000,000
Investment securities available for sale...... 24,272,507 25,031,133
Loans and lease finance receivables, net...... 496,448,905 496,956,000
LIABILITIES
Deposits:
Noninterest-bearing........................... 332,851,336 332,851,336
Interest-bearing.............................. 470,722,517 471,475,000
Demand note to U.S. Treasury.................... 6,738,465 6,738,465
Short-term borrowings........................... 40,000,000 40,000,000
</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.
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.
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 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, 1996 and
1995 includes the carrying amount of nonaccrual loans at each respective
date.
59
<PAGE> 61
CVB FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
THREE-YEAR PERIOD ENDED DECEMBER 31, 1996
The amounts of accrued interest receivable on loans and lease finance
receivables and investments is considered to be stated at fair value.
The amounts payable to depositors for demand, savings, money market
accounts, the demand note to the U.S. Treasury, short-term borrowings and
the related accrued interest payable 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, 1996 and 1995. 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.
18. BUSINESS ACQUISITIONS
On March 29, 1996, the Bank acquired by merger Citizens Bank of Pasadena
for approximately $18,322,000. The following unaudited pro forma financial
information presents the combined results of operations as if the acquisition
had taken place on January 1, 1995, after giving effect to the purchase
accounting adjustments described in the explanatory notes. The weighted average
number of shares used in the calculation of earnings per share was 10,279,401
(1996) and 10,190,707 (1995).
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------
1996 1995
------------ ------------
<S> <C> <C>
Income on loans and investments................. $ 77,230,035 $ 74,450,758(1)
Interest expense................................ (21,904,566) (18,213,476)
------------ ------------
Net interest income before provision for credit
losses........................................ 55,325,469 56,237,282
Provision for credit losses..................... (3,284,636) (2,610,000)
------------ ------------
Net interest income after provision for credit
losses........................................ 52,040,833 53,627,282
Other operating income.......................... 15,494,139 13,971,340
Other operating expenses........................ (44,343,433) (43,285,683)(2)
------------ ------------
Earnings before income taxes.................... 23,191,539 24,312,939
Income taxes.................................... (9,694,063) (10,089,870)
------------ ------------
Net earnings.................................... $ 13,497,476 $ 14,223,069
============ ============
Earnings per share.............................. 1.31 1.40
============ ============
</TABLE>
- - ---------------
(1) Includes the estimated effect of accretion of discount on loans purchased.
(2) Includes adjustments to the operating expenses related to the acquisition
including increases in depreciation and amortization expenses and reductions
in salaries and data processing expenses.
On October 20, 1995, the Bank assumed deposits and other liabilities with a
fair value of approximately $4,104,000 and purchased assets with a fair value of
approximately $1,282,000, related to the Victorville branch of Vineyard National
Bank, and began operating the former branch of Vineyard National Bank as a
branch office of the Bank. The Bank also received approximately $2,822,000 in
consideration for consummating this transaction.
The results of operations since the dates of these acquisitions are
included in the accompanying consolidated statements of earnings.
60
<PAGE> 62
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, 1996 and 1995, and the
related consolidated statements of earnings, stockholders' equity, and cash
flows for each of the three years in the period ended December 31, 1996. These
consolidated financial statements are the responsibility of CVB Financial
Corp.'s management. Our responsibility is to express an opinion on these
consolidated 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, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles.
/s/ DELOITTE & TOUCHE LLP
- - --------------------------------------
Deloitte & Touche LLP
January 24, 1997
Los Angeles, California
61
<PAGE> 63
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. PAGE
- - ----------- ----
<S> <C> <C>
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)................. *
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)................................................. *
</TABLE>
62
<PAGE> 64
<TABLE>
<CAPTION>
EXHIBIT NO. PAGE
- - ----------- ----
<S> <C> <C>
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).................................................................. *
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 by 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(13)
10.28 Agreement and Plan of Reorganization between Chino Valley Bank, CVB
Financial Corp. and Citizens Commercial Trust & Savings Bank of Pasadena,
dated November 1, 1995(14)................................................
22 Subsidiaries of Company(9)................................................ *
23 Consent of Independent Certified Public Accountants....................... 65
27 Financial Data Schedule................................................... 66
</TABLE>
- - ---------------
* 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.
(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.
63
<PAGE> 65
(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.
(13) Filed as Exhibit 10.27 to the Registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 1994, Commission file number 1-10394,
which is incorporated herein by this reference.
(14) Filed as Exhibit 10.28 to the Registrant's Quarterly report on Form 10-Q
filed with the Commission on November 13, 1995 which is incorporated herein
by this reference.
64
<PAGE> 1
Exhibit 23
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 No. 33-41318 on Form S-8 and the Key Employee Stock Grant Plan
Registration Statement No. 33-50442 on Form S-8 of our report dated January 24,
1997, appearing on page 76 in this Annual Report on Form 10-K of CVB Financial
Corp. for the fiscal year ended December 31, 1996.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
March 19, 1997
Los Angeles, California
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE DECEMBER
31, 1996, CONSOLIDATED BALANCE SHEET, AND THE DECEMBER 31, 1996, CONSOLIDATED
STATEMENT OF EARNINGS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 142,502
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 333,348
<INVESTMENTS-CARRYING> 50,734
<INVESTMENTS-MARKET> 51,548
<LOANS> 588,925
<ALLOWANCE> 12,239
<TOTAL-ASSETS> 1,160,421
<DEPOSITS> 990,597
<SHORT-TERM> 56,000
<LIABILITIES-OTHER> 24,284
<LONG-TERM> 453
<COMMON> 61,942
0
0
<OTHER-SE> 27,145
<TOTAL-LIABILITIES-AND-EQUITY> 1,160,421
<INTEREST-LOAN> 54,452
<INTEREST-INVEST> 19,930
<INTEREST-OTHER> 512
<INTEREST-TOTAL> 74,894
<INTEREST-DEPOSIT> 18,740
<INTEREST-EXPENSE> 21,466
<INTEREST-INCOME-NET> 53,428
<LOAN-LOSSES> 2,888
<SECURITIES-GAINS> 3
<EXPENSE-OTHER> 41,909
<INCOME-PRETAX> 22,910
<INCOME-PRE-EXTRAORDINARY> 13,333
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,333
<EPS-PRIMARY> 1.30
<EPS-DILUTED> 1.29
<YIELD-ACTUAL> 6.13
<LOANS-NON> 17,564
<LOANS-PAST> 621
<LOANS-TROUBLED> 5,374
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 9,626
<CHARGE-OFFS> 1,749
<RECOVERIES> 763
<ALLOWANCE-CLOSE> 12,239
<ALLOWANCE-DOMESTIC> 8,315
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 3,924
</TABLE>
