Back to GetFilings.com
FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1993 or
[ ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from N/A to N/A
Commission file number 0-10140
CVB FINANCIAL CORP.
(Exact name of registrant as specified in its charter)
California 95-3629339
State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization
701 N. Haven Avenue, Suite 350
Ontario, California 91764
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (909) 980-4030
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
Common Stock American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the Registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days Yes X No ___
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 15, 1994, the aggregate market value of the common
stock held by non-affiliates of the registrant was approximately
$86,493,700.
1
Number of shares of common stock of the registrant outstanding as
of March 15, 1994: 7,283,682.
The following document is incorporated by reference herein:
Definitive Proxy Statement for Part III of Form 10-K
the Annual Meeting of Stockholders
which will be filed within 120
days of the fiscal year ended
December 31, 1993
THIS REPORT INCLUDES A TOTAL OF 283 PAGES
EXHIBIT INDEX ON PAGE 84
2
PART I
ITEM 1. BUSINESS
CVB Financial Corp.
CVB Financial Corp. (referred to herein on an unconsolidated
basis as "CVB" and on a consolidated basis as the "Company") is a
bank holding company incorporated in California on April 27, 1981
and registered under the Bank Holding Company Act of 1956, as
amended. The Company commenced business on December 30, 1981
when, pursuant to a reorganization, it acquired all of the voting
stock of Chino Valley Bank (the "Bank"), which is the Company's
principal asset. The Company has two other subsidiaries,
Community Trust Deed Services ("Community") and Premier Results,
Inc. ("Premier").
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. Although Premier offered item and other processing
services, all of its assets were sold to Electronic Data Systems
Corporation on December 31, 1992. See "Item 1. BUSINESS
- - Premier Results, Inc." 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, 1993, the Company had $687.4 million in
total consolidated assets, $442.1 million in total consolidated
net loans and $596.0 million in total consolidated deposits.
The principal executive offices of the Company and the Bank
are located at 701 North Haven Avenue, Suite 350, Ontario,
California.
Chino Valley Bank
The Bank was incorporated under the laws of the State of
California on December 26, 1973, was licensed by the California
State Banking Department and commenced operations as a California
state chartered bank on August 9, 1974. The Bank's deposit
accounts are insured under the Federal Deposit Insurance Act up
to applicable limits. Like many other state chartered banks in
California, the Bank is not a member of the Federal Reserve
System. At December 31, 1993, the Bank had $686.7 million in
assets, $442.1 million in net loans and $596.5 million in
deposits.
3
The Bank currently has 16 banking offices located in San
Bernardino County, Riverside County and the eastern portion of
Los Angeles County in Southern California. Of the 16 offices,
the Bank opened seven as de novo branches and acquired the other
nine in acquisition transactions. Since 1990, the Bank has added
four offices, two in 1990 and two in 1993.
On March 5, 1993, the Company completed its acquisition of
Fontana First National Bank, a one-branch bank located in
Fontana, California ("Fontana"), for an aggregate cash purchase
price of $5.0 million. As of December 31, 1992, Fontana had
total assets of $26.3 million, net loans of $18.5 million,
deposits of $22.8 million and shareholders' equity of $3.4
million. For the year ended December 31, 1992, Fontana reported
net income of $74,000.
On October 21, 1993, the Bank entered into an agreement with
the Federal Deposit Insurance Corporation for the purchase of
certain assets and the assumption of deposits and other
liabilities of the failed Mid City Bank. The agreement provided
the Bank with the ability to re-price the deposits assumed within
specific time frames, regardless of the original terms of the
deposit. Net of the deposits that were re-priced and allowed to
withdraw, the Bank assumed approximately $20.0 million in
deposits, $2.0 million in investments, and $18.0 million in
loans.
Through its network of banking offices, the Bank emphasizes
personalized service combined with offering a full range of
banking services to businesses, professionals and individuals
located in the service areas of its offices. Although the Bank
focuses the marketing of its services to small- and medium-sized
businesses, a full range of retail banking services are made
available to the local consumer market.
The Bank offers a wide range of deposit instruments. These
include checking, savings, money market and time certificates of
deposit for both business and personal accounts. The Bank also
serves as a federal tax depository for its business customers.
The Bank also provides a full complement of lending
products, including commercial, installment and real estate
loans. Commercial products include lines of credit and other
working capital financing, accounts receivable lending and
letters of credit. Financing products for individuals include
automobile financing, lines of credit and home improvement and
home equity lines of credit. Real estate loans include mortgage
and construction loans.
The Bank also offers a wide range of specialized services
designed for the needs of its commercial accounts. These
services include cash management systems for monitoring cash
4
flow, a credit card program for merchants, courier pick-up and
delivery, payroll services and electronic funds transfers by way
of domestic and international wires and automated clearing house.
The Bank also makes available investment products to customers,
including a full array of fixed income vehicles and a program
pursuant to which it places its customers' funds in federally
insured time certificates of deposit of other institutions. The
Bank does not operate a trust department; however, it makes
arrangements with a correspondent institution to offer trust
services to its customers on request.
Community Trust Deed Services
The Company owns 100% of the voting stock of Community,
which has one office. Community's services, which are provided to
the Bank and non-affiliated persons, include preparing and filing
notices of default, reconveyances and related documents and
acting as a trustee under deeds of trust. At present, the
assets, revenues and earnings of Community are not material in
amount as compared to the Bank.
Premier Results, Inc.
The Company owns 100% of the voting stock of Premier.
Through Premier, the Company offered item processing services to
the Bank and other financial institutions, in addition to
statement reconcilement, bookkeeping, check filing, lock box,
microfilm development and on-site printing. On December 31,
1992, the Company sold all of the assets of Premier to Electronic
Data Systems Corporation. The assets, revenues and earnings of
Premier were not material in amount as compared to the Bank.
Economic Environment in the Bank's Market Area
The Bank concentrates on marketing to, and serving the needs
of, businesses, professionals and individuals in San Bernardino,
Riverside, northern Orange and eastern Los Angeles counties. The
general economy in Southern California, including the Bank's
market area, and particularly the real estate market, is
suffering from the effects of a prolonged recession that has
negatively impacted upon the ability of certain borrowers to
perform their obligations to their lending institutions,
including the Bank.
According to The UCLA Business Forecast For California, December
1993 Report (the "UCLA Report"), the current recession in California
is expected to continue until at least the second half of 1994,
despite the presence of a moderate national economic recovery. The
UCLA Report attributes the length and depth of the California
recession, which began in 1990, to a number of negative economic
factors, including permanent cutbacks in the California defense
industries and military base closings, a cyclical downturn in
5
California residential real estate construction, lower rates on
international trade growth as a result of the worldwide recession and
the effects on employment of an increased global emphasis on cost
controls and downsizing. The statewide unemployment rate in November
1993 was 8.6%, compared with the national average of 6.4%. The UCLA
Report notes that while statewide unemployment figures have improved
recently, this was due to a decline in the size of the labor force
and that total CalifoRnia employment has declined. Nevertheless, the
UCLA Report expects a weak job recovery to begin in California during
the second half of 1994, approaching a normal growth rate over the
next four years. Based on its assessment of recent economic reports
and the current economic environment in the Company's market areas,
management believes that the California recession may continue beyond
1994.
The overall general economic conditions and the real estate
market in Southern California have had and may continue to have an
adverse impact on certain of the Bank's borrowing customers and
their debt service capacities. The Bank's nonperforming assets
increased from $19.0 million at year end 1992 to $23.0 million at
year end 1993. While management believes that the allowance for
credit losses at December 31, 1993 was adequate to absorb the
then known or inherent losses in the loan portfolio, declining
real estate values in Southern California have reduced the value
of the real estate collateral that secures certain of the Bank's
loans and increased the loan-to-value ratio of those credits. As
of December 31, 1993, the Bank had approximately $322.9 million
in loans secured by real estate located in Southern California.
For a further discussion of the Bank's nonperforming assets and
allowance for possible credit losses, see "Item 7. MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS."
Competition
The Bank faces substantial competition for deposits and
loans throughout its market areas. The primary factors in
competing for deposits are interest rates, personalized services,
the quality and range of financial services, convenience of
office locations and office hours. Competition for deposits
comes primarily from other commercial banks, savings
institutions, credit unions, money market and mutual funds and
other investment alternatives. The primary factors in competing
for loans are interest rates, loan origination fees, the quality
and range of lending services and personalized services.
Competition for loans comes primarily from other commercial
banks, savings institutions, mortgage banking firms and other
financial intermediaries. The Bank faces competition for
deposits and loans throughout its market areas not only from
local institutions but also from out-of-state financial
intermediaries which have opened loan production offices or which
solicit deposits in the Bank's market areas. Many of the financial
intermediaries operating in the Bank's market areas offer certain
6
services, such as trust, investment and international banking
services, which the Bank does not offer directly. Additionally,
banks with larger capitalization and financial intermediaries not
subject to bank regulatory restrictions have larger lending
limits and are thereby able to serve the needs of larger
customers. The Bank has 16 offices located in San Bernardino,
Riverside, northern Orange and eastern Los Angeles counties.
Neither the deposits nor loans of any office of the Bank exceed
1% of the aggregate loans or deposits of all financial
intermediaries located in the counties in which such offices are
located.
Employees
At December 31, 1993, CVB, the Bank, Community and Premier
employed 311 persons, 200 on a full-time and 111 on a part-time
basis. The Company believes that its employee relations are
satisfactory.
Effect of Governmental Policies and Recent Legislation
Banking is a business that depends on rate differentials.
In general, the difference between the interest rate paid by the
Bank on its deposits and its other borrowings and the interest
rate received by the Bank on loans extended to its customers and
securities held in the Bank's portfolio comprise the major
portion of the Company's earnings. These rates are highly
sensitive to many factors that are beyond the control of the
Bank. Accordingly, the earnings and growth of the Company are
subject to the influence of local, domestic and foreign economic
conditions, including recession, unemployment and inflation.
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 intermediaries 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 intermediaries.
Proposals to change the laws and regulations governing the
7
operations and taxation of banks, bank holding companies and
other financial intermediaries are frequently made in Congress,
in the California legislature and before various bank regulatory
and other professional agencies. The likelihood of any major
changes and the impact such changes might have on the Company are
impossible to predict. Certain of the potentially significant
changes which have been enacted and proposals which have been
made recently are discussed below.
Federal Deposit Insurance Corporation Improvement Act of 1991
On December 19, 1991, the Federal Deposit Insurance
Corporation Improvement Act of 1991 (the "FDIC Improvement Act")
was enacted into law. Set forth below is a brief discussion of
certain portions of this law and implementing regulations that
have been adopted or proposed by the Federal Reserve Board, the
Comptroller of the Currency, the Office of Thrift Supervision and
the FDIC (collectively, the "federal banking agencies").
BIF Recapitalization. The FDIC Improvement Act provides the
FDIC with three additional sources of funds to protect deposits
insured by the Bank Insurance Fund (the "BIF") administered by
the FDIC. The FDIC is authorized to borrow up to $30 billion
from the U.S. Treasury; borrow from the Federal Financing Bank up
to 90% of the fair market value of assets of institutions
acquired by the FDIC as receiver; and borrow from financial
intermediaries that are members of the BIF. Any borrowings not
repaid by asset sales are to be repaid through insurance premiums
assessed to member institutions. Such premiums must be
sufficient to repay any borrowed funds within 15 years and
provide insurance fund reserves of $1.25 for each $100 of insured
deposits.
Improved Examinations. All insured depository institutions, except
certain small, well managed and, well capitalized institutions, must
undergo a full-scope, on-site examination by their appropriate federal
banking agency at least once every 12 months. The cost of examinations of
insured depository institutions and any affiliates may be assessed by the
appropriate federal banking agency against each institution or affiliate as
it deems necessary or appropriate.
8
Standards for Safety and Soundness. Pursuant to the FDIC Improvement
Act, the federal banking agencies have issued proposed safety and soundness
standards on matters such as loan underwriting and documentation, asset
quality, earnings, internal controls and audit systems, interest rate risk
exposure and compensation and other employee benefits. The proposals
establish, among other things, the maximum ratio of classified assets to
total capital plus ineligible allowance at 1.0 and the minimum level of
earnings sufficient to absorb losses without impairing capital. The
proposals provide that a bank's earnings are sufficient to absorb losses
without impairing capital if the bank is in compliance with minimum capital
requirements and the bank would, if its net income or loss over the last
four quarters continued over the next four quarters, remain in compliance
with minimum capital requirements. Any institution which fails to comply
with these standards must submit a compliance plan. Failure to submit an
acceptable plan or to comply with an approved plan will subject the
institution to further enforcement action. No assurance can be given as to
the final form of the proposed regulations or, if adopted, the impact of
such regulations on the Company and the Bank.
In December 1992, the federal banking agencies issued final
regulations prescribing uniform guidelines for real estate
lending. The regulations, which became effective on March 19,
1993, require insured depository institutions to adopt written
policies establishing standards, consistent with such guidelines,
for extensions of credit secured by real estate. The policies
must address loan portfolio management, underwriting standards
and loan-to-value limits that do not exceed the supervisory
limits prescribed by the regulations.
Prompt Corrective Regulatory Action. The FDIC Improvement Act
requires each federal banking agency to take prompt corrective
action to resolve the problems of insured depository institutions
that fall below one or more prescribed minimum capital ratios.
The purpose of this law is to resolve the problems of insured
depository institutions at the least possible long-term cost to
the appropriate deposit insurance fund.
The law required each federal banking agency to promulgate
regulations defining the following five categories in which an
insured depository institution will be placed, based on the level
of its capital ratios: well capitalized (significantly exceeding
the required minimum capital requirements), adequately
capitalized (meeting the required capital requirements),
undercapitalized (failing to meet any one of the capital
requirements), significantly undercapitalized (significantly
below any one capital requirement) and critically
undercapitalized (failing to meet all capital requirements).
In September 1992, the federal banking agencies issued
uniform final regulations implementing the prompt corrective
action provisions of the FDIC Improvement Act. Under the
regulations, an insured depository institution will be deemed to
be:
9
o "well capitalized" if it (i) has a total risk-based
capital ratio of 10% or greater, a Tier 1 risk-based
capital ratio of 6% or greater and a leverage ratio of
5% or greater and (ii) is not subject to an order,
written agreement, capital directive or prompt
corrective action directive to meet and maintain a
specific capital level for any capital measure;
o "adequately capitalized" if it has a total risk-
based capital ratio of 8% or greater, a Tier 1 risk-
based capital ratio of 4% or greater and a leverage
ratio of 4% or greater (or a leverage ratio of 3% or
greater if the institution is rated composite 1 under
the applicable regulatory rating system in its most
recent report of examination);
o "undercapitalized" if it has a total risk-based
capital ratio that is less than 8%, a Tier 1 risk-
based capital ratio that is less than 4% or a leverage
ratio that is less than 4% (or a leverage ratio that
is less than 3% if the institution is rated composite
1 under the applicable regulatory rating system in its
most recent report of examination);
o "significantly undercapitalized" if it has a total
risk-based capital ratio that is less than 6%, a Tier
1 risk-based capital ratio that is less than 3% or a
leverage ratio that is less than 3%; and
o "critically undercapitalized" if it has a ratio of
tangible equity to total assets that is equal to or
less than 2%.
An institution that, based upon its capital levels, is
classified as well capitalized, adequately capitalized or
undercapitalized may be reclassified to the next lower capital
category if the appropriate federal banking agency, after notice
and opportunity for hearing, (i) determines that the institution
is in an unsafe or unsound condition or (ii) deems the institution
to be engaging in an unsafe or unsound practice and not to have
corrected the deficiency. At each successive lower capital
category, an insured depository institution is subject to more
restrictions and federal banking agencies are given less
flexibility in deciding how to deal with it.
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
10
regulatory approval for acquisitions, branching and engaging in
new lines of business. Any undercapitalized depository
institution must submit an acceptable capital restoration plan to
the appropriate federal banking agency 45 days after becoming
undercapitalized. The appropriate federal banking agency cannot
accept a capital plan unless, among other things, it determines
that the plan (i) specifies the steps the institution will take
to become adequately capitalized, (ii) is based on realistic
assumptions and (iii) is likely to succeed in restoring the
depository institution's capital. In addition, each company
controlling an undercapitalized depository institution must
guarantee that the institution will comply with the capital plan
until the depository institution has been adequately capitalized
on an average basis during each of four consecutive calendar
quarters and must otherwise provide adequate assurances of
performance. The aggregate liability of such guarantee is
limited to the lesser of (a) an amount equal to 5% of the
depository institution's total assets at the time the institution
became undercapitalized or (b) the amount which is necessary to
bring the institution into compliance with all capital standards
applicable to such institution as of the time the institution
fails to comply with its capital restoration plan. Finally, the
appropriate federal banking agency may impose any of the
additional restrictions or sanctions that it may impose on
significantly undercapitalized institutions if it determines that
such action will further the purpose of the prompt corrective
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 of assets; (v)
modification or termination of specified activities;
(vi) replacement of directors or senior executive officers,
subject to certain grandfather provisions for those elected prior
to enactment of the FDIC Improvement Act; (vii) prohibitions on
the receipt of deposits from correspondent institutions;
(viii) restrictions on capital distributions by the holding
companies of such institutions; (ix) required divestiture of
subsidiaries by the institution; or (x) other restrictions as
determined by the appropriate federal banking agency. Although
the appropriate federal banking agency has discretion to
determine which of the foregoing restrictions or sanctions it
will seek to impose, it is required to force a sale of voting
shares or merger, impose restrictions on affiliate transactions
and impose restrictions on rates paid on deposits unless it
determines that such actions would not further the purpose of the
11
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 officers' 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.
As of December 31, 1993, the Bank had a total risk-based
capital ratio of 13.0%, a Tier 1 risk-based ratio of 11.7% and a
leverage ratio of 8.3%.
Other Items. The FDIC Improvement Act also, among other things,
(i) limits the percentage of interest paid on brokered deposits
and limits the unrestricted use of such deposits to only those
institutions that are well capitalized; (ii) requires the FDIC to
charge insurance premiums based on the risk profile of each
institution; (iii) eliminates "pass through" deposit insurance
for certain employee benefit accounts unless the depository
institution is well capitalized or, under certain circumstances,
adequately capitalized; (iv) prohibits insured state chartered
banks from engaging as principal in any type of activity that is
not permissible for a national bank unless the FDIC permits such
activity and the bank meets all of its regulatory capital
requirements; (v) directs the appropriate federal banking agency
to determine the amount of readily marketable purchased mortgage
servicing rights that may be included in calculating such
institution's tangible, core and risk-based capital; and (vi)
provides that, subject to certain limitations, any federal
savings association may acquire or be acquired by any insured
depository institution.
The FDIC has adopted final regulations implementing the
risk-based premium system mandated by the FDIC Improvement Act.
12
Under the transitional regulations, which cover the assessment
periods commencing on and after January 1, 1994, insured
depository institutions are required to pay insurance premiums
within a range of 23 cents per $100 of deposits to 31 cents per
$100 of deposits depending on their risk classification. To
determine the risk-based assessment for each institution, the
FDIC will categorize an institution as well capitalized,
adequately capitalized or undercapitalized based on its capital
ratios. A well capitalized institution is one that has at least
a 10% total risk-based capital ratio, a 6% Tier 1 risk-based
capital ratio and a 5% Tier 1 leverage capital ratio. An
adequately capitalized institution will have at least an 8% total
risk-based capital ratio, a 4% Tier 1 risk-based capital ratio
and a 4% Tier 1 leverage capital ratio. An undercapitalized
institution will be one that does not meet either of the above
definitions. The FDIC will also assign each institution to one
of three supervisory 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. As a result,
the assessment rates within each of three capital categories will
be as follows (expressed as cents per $100 of deposits):
Supervisory Subgroup
A B C
Well capitalized 23 26 29
Adequately capitalized 26 29 30
Undercapitalized 29 30 31
In addition, the FDIC has issued final regulations
implementing provisions of the FDIC Improvement Act relating to
powers of insured state banks. The regulations prohibit, subject
to certain specified exceptions, insured state banks from making
equity investments of a type, or in an amount, that are not
permissible for national banks. In general, equity investments
include equity securities, partnership interests and equity interests
in real estate. Under the final regulations, non-permissible
investments must be divested by no later than December 19, 1996.
The FDIC has also issued final regulations which prohibit
insured state banks from engaging as principal in any activity
not permissible for a national bank, without FDIC approval. The
regulations also provide that, subject to certain specified
exceptions, subsidiaries of insured state banks may not engage
as principal in any activity that is not permissible for a
subsidiary of a national bank, without FDIC approval.
The impact of the FDIC Improvement Act on the Company and
the Bank is uncertain, especially since many of the regulations
promulgated thereunder have been only recently adopted and
certain of the law's provisions still need to be defined through
future regulatory action. Certain provisions, such as the
13
recently adopted real estate lending standards and the
limitations on investments and powers of state banks and the
rules to be adopted governing compensation, fees and other
operating policies, may affect the way in which the Bank conducts
its business, and other provisions, such as those relating to the
establishment of the risk-based premium system, may adversely
affect the Bank's results of operations.
Capital Adequacy Guidelines
The Federal Reserve Board and the FDIC have issued
guidelines to implement risk-based capital requirements. The
guidelines are intended to establish a systematic analytical
framework that makes regulatory capital requirements more
sensitive to differences in risk profiles among banking
organizations, takes off-balance-sheet financial instruments into
account in assessing capital adequacy and minimizes disincentives
to holding liquid, low-risk assets. Under these guidelines,
assets and credit equivalent amounts of off-balance-sheet
financial instruments, such as letters of credit and long-term
outstanding loan commitments, are assigned to one of several risk
categories, which range from 0% for credit risk-free assets, such
as cash and certain U.S. government securities, to 100% for
relatively high-risk assets, such as loans and investments in
fixed assets, premises and other real estate owned. The
aggregated dollar amount of each category is then multiplied by
the risk-weight associated with that category. The resulting
weighted values from each of the risk categories are then added
together to determine the total risk-weighted assets.
Beginning on December 31, 1992, the guidelines require a
minimum ratio of qualifying total capital to risk-weighted assets
of 8%, of which at least 4% must consist of Tier 1 capital.
Higher risk-based ratios are required to be considered well
capitalized under the prompt corrective action provisions of the
FDIC Improvement Act. See "Item 1. BUSINESS - Effect of
Governmental Policies and Recent Legislation - Federal Deposit
Insurance Improvement Act of 1991 - Prompt Corrective Regulatory
Action."
A banking organization's qualifying total capital consists
of two components: Tier 1 capital (core capital) and Tier 2
capital (supplementary capital). Tier 1 capital consists
primarily of common stock, related surplus and retained earnings,
qualifying noncumulative perpetual preferred stock (plus, for
bank holding companies, qualifying cumulative perpetual preferred
stock in an amount up to 25% of Tier 1 capital) and minority
interests in the equity accounts of consolidated subsidiaries.
Intangibles, such as goodwill, are generally deducted from Tier 1
capital; however, purchased mortgage servicing rights and
purchase credit card relationships may be included, subject to
certain limitations. At least 50% of the banking organization's
total regulatory capital must consist of Tier 1 capital.
14
Tier 2 capital may consist of (i) the allowance for possible
loan and lease losses in an amount up to 1.25% of risk-weighted
assets; (ii) cumulative perpetual preferred stock and long-term
preferred stock (which for bank holding companies must have an
original maturity of 20 years or more) and related surplus;
(iii) hybrid capital instruments (instruments with
characteristics of both debt and equity), perpetual debt and
mandatory convertible debt securities; and (iv) eligible term
subordinated debt and intermediate-term preferred stock with an
original maturity of five years or more, including related
surplus, in an amount up to 50% of Tier 1 capital. The inclusion
of the foregoing elements of Tier 2 capital are subject to
certain requirements and limitations of the federal banking
agencies.
The Federal Reserve Board and the FDIC have also adopted a
minimum leverage ratio of Tier 1 capital to average total assets
of 3% for the highest rated banks. This leverage ratio is only a
minimum. Institutions experiencing or anticipating significant
growth or those with other than minimum risk profiles are
expected to maintain capital well above the minimum level.
Furthermore, higher leverage ratios are required to be considered
well capitalized or adequately capitalized under the prompt
corrective action provisions of the FDIC Improvement Act. See
"Item 1. BUSINESS - Effect of Governmental Policies and Recent
Legislation - Federal Deposit Insurance Corporation Improvement
Act of 1991 -Prompt Corrective Regulatory Action."
As of December 31, 1993, the Company and the Bank had total
risk-based capital ratios of 13.1% and 13.0%, Tier 1 risk-based
capital ratios of 11.8% and 11.7% and leverage ratios of 8.4% and
8.3%, respectively.
In addition, the federal banking agencies have issued
proposed rules, in accordance with the FDIC Improvement Act,
seeking public comment on methods for measuring interest rate
risk, and two alternative methods for determining what amount of
additional capital, if any, a bank may be required to have for
interest rate risk. The Company cannot yet determine whether
such proposals will be adopted or the impact of such regulations,
if adopted, on the Company and the Bank.
The federal banking agencies issued a statement advising
that, for regulatory purposes, federally supervised banks and
savings associations should report deferred tax assets in
accordance with Statement of Financial Accounting Standards
("SFAS") No. 109, "Accounting for Income Taxes," beginning in
1993. See "Item 1. BUSINESS -Effect of Governmental Policies and
Recent Legislation - Accounting Changes." However, the federal
banking agencies have advised that they will place a limit on the
amount of deferred tax assets that is allowable in computing an
institution's regulatory capital. Deferred tax assets that can be
15
realized from taxes paid in prior carryback years and from the
future reversal of temporary differences would generally not be
limited. Deferred tax assets that can only be realized through
future taxable earnings, including the implementation of a tax
planning strategy, would be limited for regulatory capital
purposes to the lesser of (i) the amount that can be realized
within one year of the quarter-end report date or (ii) 10% of
Tier 1 capital. The amount of deferred taxes in excess of this
limit, if any, would be deducted from Tier 1 capital and total
assets in regulatory capital calculations. The federal banking
agencies have notified institutions that their capital rules will
be amended to reflect this change. Management does not expect
implementation of this proposal to have a material impact on the
Bank's regulatory capital levels.
The federal banking agencies issued a proposal in January
1994 seeking public comment on whether to amend their capital
definitions of leverage and risk based capital to conform such
definitions to the recently issued SFAS No. 115, "Accounting for
Certain Investments in Debt and Equity Securities," which requires
an institution to recognize as a separate component of stockholders'
equity the amount of unrealized gains and losses on securities
that are deemed to be "available for sale." See "Business -- Effect
of Government Policies and Recent Legislation -- Accounting Changes."
Accounting Changes
In February 1992, the Financial Accounting Standards Board
("FASB") issued SFAS No. 109, which supersedes SFAS No. 96. SFAS
No. 109 is effective for fiscal years beginning after
December 31, 1992, or earlier at the Company's option. SFAS
No. 109 employs an asset and liability approach in accounting for
income taxes payable or refundable at the date of the financial
statements as a result of all events that have been recognized in
the financial statements and as measured by the provisions of
enacted tax laws. The Company adopted SFAS No. 109 in 1992,
elected not to restate prior years and has determined that the
cumulative effect of the implementation was immaterial.
In May 1993, the FASB issued SFAS No. 114, "Accounting by
Creditors for Impairment of a Loan" ("SFAS No. 114"). Under the
provisions of SFAS No. 114, a loan is considered impaired when,
based on current information and events, it is probable that a
creditor will be unable to collect all amounts due according to
the contractual terms of the loan agreement. SFAS No. 114 requires
creditors to measure impairment of a loan based on the present
value of expected future cash flows discounted at the loan's
effective interest rate, market prices (when available) or the fair
market value of collateral for a collateral-dependent loan. If the
measure of the impaired loan is less than the recorded investment in
the loan, a creditor shall recognize an impairment by recreating a
valuation allowance with a corresponding charge to bad debt expense.
This statement also applies to restructured loans and changes the
16
definition of in-substance foreclosures to apply only to the loans
where the creditor has taken physical possession of the borrower's
assets. SFAS No. 114 applies to financial statements for fiscal years
beginning after December 15, 1994. Earlier implementation is
permitted. The Company is currently evaluating the impact of the
statement on its results of operations and financial position but
is unlikely to implement the statement early.
In December 1990, the FASB issued SFAS No. 106, "Employers' Accounting
for Post-Retirement Benefits Other Than Pensions" ("SFAS No. 106"),
effective for fiscal years beginning after December 15, 1992. In November
1992, the FASB issued SFAS No. 112, "Employers' Accounting for Post-
Employment Benefits" ("SFAS No. 112") effective for fiscal years beginning
after December 15, 1993. SFAS No. 106 and SFAS No. 112 focus primarily on
post-retirement health care benefits. The Company does not provide post-
retirement benefits and SFAS No. 106 and SFAS No. 112 will have no impact
on net income in 1994.
17
In May 1993, the FASB issued SFAS No. 115, "Accounting for Certain
Investments in Debt and Equity Securities," addressing the accounting and
reporting for investments in equity securities that have readily
determinable fair values and for all investments in debt securities. Those
investments would be classified in three categories and accounted for as
follows: (i) debt and equity securities that the entity has the positive
intent and ability to hold to maturity would be classified as "held to
maturity" and reported at amortized cost; (ii) debt and equity securities
that are held for current resale would be classified as trading securities
and reported at fair value, with unrealized gains and losses included in
operations; and (iii) debt and equity securities not classified as either
securities held to maturity or trading securities would be classified as
securities available for sale, and reported at fair value, with unrealized
gains and losses excluded from operations and reported as a separate
component of shareholders' equity. The Compnay adopted SFAS No. 115
effective as of January 1, 1994, and as of that date the Bank had both
investment securities classified at "held to maturity" and investment
securities classified as "available for sale." Securities classified as
available for sale will be reported at their fair value at the end of each
fiscal quarter. The value of such securities fluctuates based on changes
in interest rates. Generally, an increase in interest rates would result
in a decline in the value of investment securities held for sale, while a
decline in interest rates would result in an increase in the value of such
securities. Therefore, the value of investment securities available for
sale and the Bank's shareholders' equity could be subject to fluctuation,
based on changes in interest rates. As a consequence, the Bank's capital
levels for regulatory purposes could change based solely on fluctuations
in interest rates and fluctuations in the value of investment securities
available for sale. Such change could result in additional regulatory
restrictions under the prompt corrective actions provisions of the FDIC
Improvement Act of 1991 and various other laws and regulations that are
based, in part, on a institution's capital levels, including those dealing
with the risk related insurance premium system and brokered deposit
restrictions. See "Item 1, Business -- Effect of Governmental Policies and
Recent Legislation -- Federal Deposit Insurance Corporation Improvement Act
of 1991."
Omnibus Budget Reconciliation Act of 1993
On August 10, 1993, President Clinton signed the Omnibus
Budget Reconciliation Act of 1993 (the "Reconciliation Act").
Some of the provisions in the Reconciliation Act that may have an
effect on the Company include the following: (i) the corporate
income tax rate was increased from 34.04% to 35.0% for taxable
income in excess of $10.0 million; (ii) mark-to-market rules for
tax purposes with regard to securities held for sale by the
Company; (iii) beginning in 1994 the amount of business meals
and entertainment expenses that will be disallowed will be
increased from the current 20.0% disallowance to 50.0%
disallowance; (iv) club dues and lobbying expenses will no longer
be deductible; and (v) certain intangible assets, including
goodwill, will be amortized over a period of 15 years.
Considering the Company's current tax situation, the Company does
18
not expect the provisions of the Reconciliation Act to have a
material effect on the Company.
Supervision and Regulation
Bank holding companies and banks are extensively regulated
under both federal and state law.
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 "Act"). 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 Act. 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 Act 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 - Effect of Governmental
Policies and Recent Legislation - Capital Adequacy Guidelines."
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 Act, except in certain
statutorily prescribed instances, from acquiring direct or
indirect ownership or control of more than 5% of the outstanding
voting shares of any company that is not a bank or bank holding
19
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
may, subject to the prior approval of the Federal Reserve Board,
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 and is
generally prohibited from approving an application by a bank
holding company to acquire voting shares of any commercial bank
in another state unless such acquisition is specifically
authorized by the laws of such other state.
Under Federal Reserve Board regulations, a bank holding
company is required to serve as a source of financial and
managerial strength to its subsidiary banks and may not conduct
its operations in an unsafe or unsound manner. In addition, it
is the Federal Reserve Board's policy that, in serving as a source
of strength to its subsidiary banks, a bank holding company
should stand ready to use available resources to provide adequate
capital funds to its subsidiary banks during periods of financial
stress or adversity and should maintain the financial flexibility
and capital-raising capacity to obtain additional resources for
assisting its subsidiary banks. A bank holding company's failure
to meet its obligations to serve as a source of strength to its
subsidiary banks will generally be considered by the Federal
Reserve Board to be an unsafe and unsound banking practice or a
violation of the Federal Reserve Board's regulations or both.
This doctrine has become known as the "source of strength"
doctrine. Although the United States Court of Appeals for the
Fifth Circuit found the Federal Reserve Board's source of
strength doctrine invalid in 1990, stating that the Federal
Reserve Board had no authority to assert the doctrine under the
Act, the decision, which is not binding on federal courts outside
the Fifth Circuit, was recently reversed by the United States
Supreme Court on procedural grounds. The validity of the source
of strength doctrine is likely to continue to be the subject of
litigation until definitively resolved by the courts or by
Congress.
The Company is also a bank holding company within the
meaning of Section 3700 of the California Financial Code. As
such, the Company and its subsidiaries are subject to examination
20
by, and may be required to file reports with, the California
State Banking Department.
Finally, the Company is subject to the periodic reporting
requirements of the Securities Exchange Act of 1934, as amended,
including, but not limited to, filing annual, quarterly and other
current reports with the Securities and Exchange Commission.
The Bank
The Bank, as a California state chartered bank, is subject
to primary supervision, periodic examination and regulation by
the California Superintendent of Banks ("Superintendent") and the
FDIC.
The Bank is insured by the FDIC, which currently insures
deposits of each member bank to a maximum of $100,000 per
depositor. For this protection, the Bank, as is the case with
all insured banks, pays a semiannual statutory assessment and is
subject to the rules and regulations of the FDIC. See "Item 1.
BUSINESS - Effect of Governmental Policies and Recent
Legislation." 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 and
locations of branch offices. Further, the Bank is required to
maintain certain levels of capital. See "Item 1. BUSINESS -
Effect of Governmental Policies and Recent Legislation - Capital
Adequacy Guidelines."
Restrictions on Transfers of Funds to CVB by the Bank
CVB is a legal entity separate and distinct from the Bank
and its subsidiaries.
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 to
shareholders made during such period). In the event a bank has no
retained earnings or net income for its last three fiscal years,
cash dividends may be paid in an amount not exceeding the greater
of the retained earnings of the bank, the net income for such bank's
last preceding fiscal year, or the net income of the bank for its
current fiscal year only after obtaining the prior approval of the
Superintendent.
21
The FDIC also has authority to prohibit the Bank from
engaging in what, in the FDIC's opinion, constitutes an unsafe or
unsound practice in conducting its business. It is possible,
depending upon the financial condition of the bank in question
and other factors, that the FDIC could assert that the payment of
dividends or other payments might, under some circumstances, be
such an unsafe or unsound practice. Further, the FDIC and the
Federal Reserve Board have established guidelines with respect to
the maintenance of appropriate levels of capital by banks or bank
holding companies under their jurisdiction. Compliance with the
standards set forth in such guidelines and the restrictions that
are or may be imposed under the prompt corrective action
provisions of the FDIC Improvement Act could limit the amount of
dividends which the Bank or the Company may pay. See "Item 1.
BUSINESS - Federal Deposit Insurance Corporation Improvement Act
of 1991 - Prompt Corrective Regulatory Action and - Capital
Adequacy Guidelines" 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, are, and will continue to be, primarily dividends paid
by the Bank. At December 31, 1993, the Bank had approximately
$18.0 million 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 or in CVB or to or
in any other affiliate are limited to 10% of the Bank's capital
and surplus (as defined by federal regulations) and such secured
loans and investments are limited, in the aggregate, to 20% of
the Bank's capital and surplus (as defined by federal
regulations). California law also imposes certain restrictions
with respect to transactions involving CVB and other controlling
persons of the Bank. Additional restrictions on transactions with
affiliates may be imposed on the Bank under the prompt corrective
action provisions of the FDIC Improvement Act. See "Item 1.
BUSINESS - Effect of Governmental Policies and Recent Legislation
- - Federal Deposit Insurance Corporation Improvement Act of 1991 -
Prompt Corrective Regulatory Action."
Potential Enforcement Actions
Commercial banking organizations, such as the Bank, and
their institution-affiliated parties, which include the Company,
22
may be subject to potential enforcement actions by the Federal
Reserve Board, the FDIC and the Superintendent for unsafe or
unsound practices in conducting their businesses or for
violations of any law, rule, regulation or any condition imposed
in writing by the agency or any written agreement with the
agency. Enforcement actions may include the imposition of a
conservator or receiver, the issuance of a cease-and-desist order
that can be judicially enforced, the termination of insurance of
deposits (in the case of the Bank), the imposition of civil money
penalties, the issuance of directives to increase capital, the
issuance of formal and informal agreements, the issuance of
removal and prohibition orders against institution-affiliated
parties and the imposition of restrictions and sanctions under
the prompt corrective action provisions of the FDIC Improvement
Act. Additionally, a holding company's inability to serve as a
source of strength to its subsidiary banking organizations could
serve as an additional basis for a regulatory action against the
holding company. Neither the Company nor the Bank have been
subject to any such enforcement actions.
ITEM 2. Properties
The principal executive offices of the Company and the Bank
are located at 701 N. Haven Avenue, Suite 350, Ontario, California.
The office of Community is located at 125 East "H" Street, Colton,
California.
The Bank occupies the premises for ten of its offices under
leases expiring at various dates from 1994 through 2014. The
Bank owns the premises for its six other offices.
The Company's total occupancy expense, exclusive of furniture
and equipment expense, for the year ended December 31, 1993, was
$2.2 million. Management believes that its existing facilities
are adequate for its present purposes. However, management
currently intends to increase the Bank's assets over the next
several years and anticipates that a substantial portion of this
growth will be accomplished through acquisition or de novo opening
of additional banking offices. For additional information concerning
properties, see Notes 6 and 9 to the Company's financial statements
included in this report. See "Item 8, FINANCIAL STATEMENTS AND
SUPPLEMENTAL DATA."
ITEM 3. Legal Proceedings
From time to time the Company and the Bank are party to claims
and legal proceedings arising in the ordinary course of business.
After taking into consideration information furnished by counsel to
the Company and the Bank management believes that the ultimate
aggregate liability represented thereby, if any, will not
have a material adverse effect on the Company's consolidated
financial position or results of operations.
23
ITEM 4.Submission of Matters to a Vote of Security Holders
No matters were submitted to shareholders during the fourth
quarter of 1993.
ITEM 4(A). EXECUTIVE OFFICERS OF THE REGISTRANT
As of March 15, 1994, the principal executive officers of
the Company and Chino are:
Name Position Age
George A. Borba Chairman of the Board of 61
the Company and the Bank
D. Linn Wiley President and Chief Executive 55
Officer of the Company and the Bank
Daniel L. Thomas Executive Vice President/Manager 53
of the Chino office
Vincent T. Breitenberger Executive Vice President/Senior 60
Loan Officer of the Bank
Jay W. Coleman Executive Vice President of the Bank 51
Robert J. Schurheck Chief Financial Officer of 61
the Company and Executive Vice
President and Chief Financial Officer
of the Bank
Other than George A. Borba, who is the brother of John A.
Borba, a director of the Company and the Bank, there is no family
relationship among any of the above-named officers or any of the
Company's directors.
Mr. Borba has served as Chairman of the Board of the Company
since its organization in April 1981 and Chairman of the Board of
the Bank since its organization in December 1973. In addition,
Mr. Borba is the owner of George Borba Dairy.
Mr. Wiley has served as President and Chief Executive
Officer of the Company since October 4, 1991. Mr. Wiley joined
the Company and Bank as a director and as President and Chief
Executive Officer designate on August 21, 1991. Prior to that,
Mr. Wiley served as an Executive Vice President of Wells Fargo
Bank from April 1, 1990 to August 20, 1991. From 1988 to
April 1, 1990 Mr. Wiley served as the President and Chief
Administrative Officer of Central Pacific Corporation, and from
1983 to 1990 he was the President and Chief Executive Officer of
American National Bank.
24
Mr. Thomas assumed the position of Executive Vice
President/Manager of the Chino office effective November 1, 1988.
Prior to that time he was Executive Vice President from February 25,
1985 to October 31, 1988. Prior to that, he served as Senior Vice
President of Loan Administration at Bank of Newport.
Mr. Breitenberger has served as Executive Vice President of
the Bank since April 1982, and prior to that time was Senior Vice
President of the Bank from November 1980 to March 1982. He has
been the Senior Loan Officer of the Bank since November 1980.
Mr. Coleman assumed the position of Executive Vice President
of the Bank on December 5, 1988. Prior to that he served as
President and Chief Executive Officer of Southland Bank, N.A.
from March 1983 to April 1988.
Mr. Schurheck assumed the position of Chief Financial
Officer of the Company and Executive Vice President/Chief
Financial Officer of the Bank on March 1, 1990. He served as
Senior Vice President of the Bank from September 11, 1989 to
February 28, 1990. Prior to that he served as Senior Vice
President of General Bank from June 1988 to September 1989. From
July 1987 to June 1988 Mr. Schurheck was a self-employed
consultant; from December 1973 to June 1987 he was Senior Vice
President of Operations and Finance of State Bank in Lake Havasu
City, Arizona.
25
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS.
Shares of CVB Financial Corp. common stock price increased from an
average price of $10.129 for the first quarter of 1993, to an average price
of $12.538 for the fourth quarter of 1993. Fears regarding the recession,
weak California real estate prices, and bank capital levels continued to
dominate investors' perceptions of bank stocks, regardless of the
performance of CVB Financial Corp. The average price of CVB common stock
for the fourth quarter of 1993 was $12.538, and this represented a
multiple of book value of approximately 1.52. The following table
presents the high and low sales prices for the Company's common stock
during each quarter for the past three years. The share prices and cash
dividend per share amounts presented for all periods in the table below
have been restated to give retroactive effect to the ten percent stock
dividends declared on December 15, 1993. There were approximately 1,039
shareholders as of December 31, 1993.
Three Year Summary of Common Stock Prices
Quarter
Ended High Low Dividends
3/31/91 11.57 8.58 $.058 Cash Dividend
6/30/91 10.85 9.61 $.058 Cash Dividend
9/30/91 10.13 8.26 $.058 Cash Dividend
12/31/91 9.50 6.82 $.066 Cash Dividend
3/31/92 10.02 7.34 $.066 Cash Dividend
6/30/92 8.88 8.16 $.066 Cash Dividend
9/30/92 8.36 7.65 $.066 Cash Dividend
12/31/92 8.47 6.82 $.066 Cash Dividend
10% Stock Dividend
3/31/93 12.27 8.52 $.073 Cash Dividend
6/30/93 11.42 10.00 $.073 Cash Dividend
9/30/93 13.41 10.91 $.073 Cash Dividend
12/31/93 13.52 11.70 $.073 Cash Dividend
10% Stock Dividend
The Company lists its common stock on the American
Stock Exchange under the symbol "CVB."
26
ITEM. 6. SELECTED FINANCIAL DATA
1993 1992 1991 1990 1989
Net Interest Income $35,891,367 $32,020,207 $29,460,946 $29,736,722 $27,891,424
Provision for Credit Losses 1,720,000 1,772,109 604,000 545,000 1,414,000
Other Operating Income 10,744,921 7,897,796 7,038,897 6,400,600 4,900,574
Other Operating Expenses 29,353,759 23,419,389 22,709,783 20,908,041 18,692,995
Earnings Before Income Taxes 15,562,529 14,726,505 13,186,060 14,684,281 12,685,003
Income Taxes 6,040,178 5,711,445 5,217,380 5,837,716 4,854,375
NET EARNINGS $ 9,522,351 $ 9,015,060 $ 7,968,680 $ 8,846,565 $ 7,830,628
Net Earnings Per Common Share $1.27 $1.23 $1.10 $1.18 $1.05
Stock Splits ---- ---- ---- ---- 2 for 1
Stock Dividends 10% 10% ---- ---- 25%
Cash Dividends Declared Per Share $0.29 $0.26 $0.24 $0.22 $0.054
Dividend Pay-Out Ratio 22.83% 21.14% 21.82% 18.64% 5.14%
Financial Position:
Assets $687,407,957 $592,097,857 $560,324,296 $512,360,816 $472,657,303
Net Loans 442,083,848 374,661,538 365,573,877 362,757,799 342,555,462
Deposits 595,956,301 526,923,421 499,807,113 462,891,267 429,073,520
Stockholders' Equity 59,957,532 52,038,215 44,188,978 38,365,267 32,500,926
Book Value Per Share 8.24 7.19 6.25 5.44 4.52
Equity-to-Assets Ratio 8.72% 8.79% 7.89% 7.49% 6.88%
Financial Performance:
Return on:
Beginning Equity 18.30% 20.40% 20.77% 27.22% 31.65%
Average Equity 17.46% 18.72% 19.45% 24.67% 27.51%
Return on Average Assets 1.52% 1.62% 1.54% 1.81% 1.88%
Credit Quality:
Allowance for Credit Losses $ 8,849,442 $ 6,461,345 $ 5,262,614 $ 5,091,679 $ 5,037,155
Allowance/Total Loans 1.96% 1.70% 1.42% 1.38% 1.45%
Total Non-Performing Loans $13,262,357 $ 10,204,442 $ 5,847,393 $ 10,090,000 $ 3,946,000
Non-Performing Loans/Total Loans 2.94% 2.68% 1.58% 2.74% 1.14%
Non-Performing Loans/Allowance 149.87% 157.93% 111.11% 198.17% 78.34%
Net Charge-Offs $ 918,898 $ 573,378 $ 433,065 $ 490,476 $ 89,884
Net Charge-Offs/Average Loans 0.22% 0.16% 0.12% 0.14% 0.03%
All per share information has been retroactively adjusted to reflect the 10% stock dividend
declared December 15, 1993, as to holders of record on January 3, 1994, and payable January 17,
1994.
Stockholders' equity divided by total net assets.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
27
Management's discussion and analysis is written to provide
greater insight into the results of operations and the financial
condition of CVB Financial Corp. and its subsidiaries. This
analysis should be read in conjunction with the audited financial
statements contained within this report including the notes
thereto. CVB Financial Corp., (CVB) is a bank holding company.
Its primary subsidiary, Chino Valley Bank, (the Bank) is a state
chartered bank with 16 branch offices located in San Bernardino,
Riverside, east Los Angeles, and north Orange Counties.
Community Trust Deed Services (CTD) is a nonbank subsidiary
providing services to the Bank as well as nonaffiliated persons.
For purposes of this analysis, the consolidated entities are
referred to as the "Company".
The results of operations, and the financial condition of
the Company were affected in 1993 by two separate bank
acquisitions. On March 8, 1993, the Company acquired Fontana
First National Bank through merger with the "Capital B Bank" as
the continuing entity. On the date of acquisition Fontana First
National Bank had approximately $23.7 million in deposits and
acquiring approximately $18.5 million in loans. Fontana First
National Bank was purchased for $5.04 million, which resulted in
$2.0 million in goodwill.
On October 21, 1993, the Bank assumed the deposits and
purchased certain assets of the failed Mid City Bank, N.A. from
the Federal Deposit Insurance Corporation (the FDIC). The
acquisition was structured under a written agreement between the
FDIC and the Bank that allowed the Bank certain rights in regard
to repricing deposits and purchasing additional assets as well as
providing the Bank with indemnification from prior activities of
the failed bank. After exercising its right to re-price specific
deposits, the Bank assumed approximately $20.0 million in
deposits, and purchased $2.0 million in investments and $18.0
million in loans.
ANALYSIS OF THE RESULTS OF OPERATIONS
The Company reported net earnings of $9.5 million for the
year ended December 31, 1993. This represented an increase of
$507,000 or 5.60%, over net earnings of $9.0 million for the year
ended December 31, 1992. For the year ended December 31, 1991,
net earnings totaled $7.9 million. Earnings per share have
increased from $1.10, to $1.23, to $1.27, for the years ended
December 31, 1991, 1992, and 1993, respectively.
The return on average assets increased from 1.54% for the
year ended December 31, 1991, to 1.62% for the year ended
December 31, 1992, then decreased to 1.52% for the year ended
December 31, 1993. Return on average shareholders' equity
decreased from 19.45%, to 18.72%, to 17.46%, for the years ended
December 31, 1991, 1992, and 1993, respectively. The capital to
28
asset ratio (the leverage ratio) increased from 8.28% at December
31, 1991, to 8.37% at December 31, 1993.
The increase in net earnings for 1993 and 1992 was primarily
the result of increases in net interest income. Contributing to
the increase in net interest income was a significant increase in
assets and a lower cost of total deposits resulting from
increased noninterest bearing demand deposits as a percent of
total deposits. Significant growth in other operating income for
1993 also contributed to increased net earnings. This was the
result of gains realized on securities sold during the year.
Increases in the provision for loan losses for 1992 and
1993, and a $2.8 million provision for potential losses on other
real estate owned for 1993, offset a portion of the increase in
net interest income for 1992 and 1993. Growth in assets exceeded
increases in earnings for 1993, resulting in a decrease in return
on assets.
NET INTEREST INCOME AND THE NET INTEREST MARGIN
Table 1 provides average balances of assets, liabilities,
and shareholders' equity, for the years ended December 31, 1993,
1992, and 1991. Interest income and interest expense and the
corresponding yields and costs are included for applicable
interest earning assets and interest bearing liabilities for each
year ended. Rates for tax preferenced investments are provided
on a taxable equivalent basis using a marginal tax rate of
34.25%.
29
TABLE 1 - Distribution of Average Assets, Liabilities, and
Stockholders' Equity; Interest Rates and Interest
Differentials
(amounts in thousands)
1993 1992 1991
Average 1993 1993 Average 1992 1992 Average 1991 1991
Balance Interest Rate Balance Interest Rate Balance Interest Rate
ASSETS
Investment Securities
Taxable $120,288 8,188 6.81% $111,543 8,682 7.78% $ 78,272 6,595 8.43%
Tax preferenced 3,142 131 5.87% 9,941 355 5.03% 11,822 658 7.81%
Federal Funds Sold 14,135 414 2.93% 11,530 414 3.59% 19,640 1,097 5.59%
Net Loans 410,097 37,036 9.03% 362,784 34,762 9.58% 357,298 40,491 11.33%
Total Earnings Assets 547,662 45,769 8.37% 495,798 44,213 8.95% 467,032 48,841 10.51%
Total Non-earning Assets 79,537 61,397 50,845
Total Assets $627,199 $557,195 $517,877
LIABILITIES AND
STOCKHOLDERS' EQUITY
Demand Deposits $178,539 $139,354 $114,909
Savings Deposits 287,044 6,478 2.26% 276,904 8,247 2.98% 271,274 13,815 5.09%
Time Deposits 92,472 3,180 3.44% 82,129 3,732 4.54% 79,110 5,206 6.58%
Total Deposits 558,055 9,658 1.73% 498,387 11,979 2.40% 465,293 19,021 4.09%
Other Borrowings 8,440 220 2.61% 6,548 214 3.27% 5,968 359 6.02%
Interest Bearing Liabilities 387,956 9,878 2.55% 365,581 12,193 3.34% 356,352 19,380 5.44%
Other Liabilities 6,172 4,110 5,653
Stockholders' Equity 54,532 48,150 40,963
Total Liabilities and
Stockholders' Equity $627,199 $557,195 $517,877
Net interest spread 5.82% 5.61% 5.07%
Net interest margin 6.56% 6.49% 6.36%
Net interest margin excluding loan fees 6.07% 6.02% 5.86%
Includes certificates of deposit purchased from other institutions
Yields are calculated on a taxable equivalent basis
Loan fees are included in total interest income as follows: 1993, $2,694; 1992, $2,321; 1991, $2,353
Non-performing loans are included in net loans a follows: 1993 $13,262;1992, $10,205; 1991, $5,847
Includes interest-bearing demand and money market accounts
Net interest income is equal to the difference between the
interest the Company receives on interest earning assets and the
interest it pays for interest bearing liabilities. Net interest
income totaled $35.9 million for the year ended December 31,
1993, representing an increase of $3.9 million, or 12.1%, over
net interest income of $32.0 million for the year ended December
31, 1992. For the year ended December 31, 1991, the Company
generated net interest income of $29.5 million. The net interest
margin is the net return on average interest earning assets, or
30
net interest income measured as a percent of average interest
earning assets. The net interest margin totaled 6.56%, 6.49%,
and 6.36%, for the years ended December 31, 1993, 1992, and 1991,
respectively.
The increases in net interest income and net interest margin for
both 1993 and 1992 were the result of continued improvement in
the net interest spread. A general decline in the rate paid for
interest bearing liabilities, coupled with increases in
noninterest bearing demand deposits as a percent of total
deposits, resulted in a decrease in the cost of funds.
The net interest spread is the difference between the yield on
interest earning assets and the cost of interest bearing
liabilities. The yield on interest earning assets decreased
from 10.51%, to 8.95%, to 8.37%, for the years ended December 31,
1991, 1992, and 1993, respectively. During the same period, the
cost of interest bearing liabilities decreased from 5.44% for
1991, to 3.34% for 1992, to 2.55% for 1993. The decreases in
the yields on interest earning assets as well as the cost of
interest bearing liabilities both reflect decreases in interest
rates in general during the three year period. As the decreases
in the cost of interest bearing liabilities was greater than the
decreases in the yield on interest earning assets, the net
interest spread increased from 5.07% for 1991, to 5.61%
for 1992, to 5.82% for 1993.
Increases in net interest income and the net interest margin for
1992 and 1993 were also affected by a less costly deposit mix.
The Company's assets are primarily funded by deposits, including
non-interest bearing demand deposits. Noninterest bearing demand
deposits have increased from $131.5 million, to $157.4 million,
to $221.6 million at December 31, 1991, 1992 and 1993,
respectively. This represented increases of $64.1
million, or 40.70% for 1993, and $25.9 million, or 19.75% for
1992. As a percent of average total deposits, average
noninterest bearing demand deposits have increased from
24.70%, to 27.96%, to 31.99%, for the years ended December 31,
1991, 1992, and 1993, respectively. As average noninterest
bearing deposits have increased as a percent of average total
deposits, the cost of average total deposits has decreased from
4.09%, to 2.40%, to 1.73%, for the years ended December 31, 1991,
1992 and 1993, respectively.
31
Table 2 provides a summary of the changes in interest income and
interest expense resulting from changes in the volume of interest earning
assets and interest bearing liabilities, and the changes resulting from
changes in interest rates for the years ended December 31, 1993, 1992, and
1991. The changes in interest income or expense attributable to volume
changes are calculated by multiplying the change in volume by the initial
average rate. The changes in interest income attributable to changes in
interest rates are calculated by multiplying the change in rate by the
initial volume. The changes attributable to rate and volume changes are
calculated by multiplying the change in rate times the change in volume.
TABLE 2 - Rate and Volume Analysis for Changes in Interest
Income, Interest Expense and Net Interest Income
(amounts in thousands)
1993 Compared to 1992 1992 Compared to 1991
Increase (decrease) due to Increase (decrease) due to
Rate/ Rate/
Volume Rate Volume Total Volume Rate Volume Total
Interest Income:
Taxable investment securities $ 680 $(1,089) $ (85) $(494) $ 2,804 $ (503) $ (214) $ 2,087
Tax preferenced securities (242) 61 (43) (224) (104) (237) 38 (303)
Fed funds 94 (77) (17) 0 (453) (391) 161 (683)
Loans 4,534 (1,999) (261) 2,274 622 (6,255) (96) (5,729)
Total earnings assets 5,066 (3,104) (406) 1,556 2,869 (7,386) (111) (4,628)
Interest Expense:
Savings deposits 302 (1,999) (72) (1,769) 287 (5,736) (119) (5,568)
Time deposits 470 (907) (115) (552) 199 (1,611) (62) (1,474)
Other borrowings 62 (43) (13) 6 35 (164) (16) (145)
Total interest bearing liabilities 834 (2,949) (200) (2,315) 521 (7,511) (197) (7,187)
Net Interest Income $ 4,232 (155) (206) 3,871 $ 2,348 $ 125 $ 86 $ 2,559
The Company's primary source of revenue is the interest
income it receives on loans. In general, the Company stops accruing
interest on a nonperforming loan after its principal or interest
becomes 90 days or more past due. Interest that has already
accrued on a nonperforming loan is reversed from income when the
loan is placed in a nonperforming status. Interest income for
the year ended December 31, 1992, and 1991, respectively,
included interest of $115,900, and $89,500 that was accrued and
not reversed on nonperforming loans. There was no interest
income that was accrued and not reversed on any nonperforming loan at
December 31, 1993. For 1991 and 1992, the amount of interest
accrued on nonperforming loans was deemed collectable primarily
based on the value of collateral in which the Bank held a
security interest. Had nonperforming loans for which interest
was no longer accruing complied with the original terms and
conditions of the notes, interest income would have increased by
32
$1,186,000, $698,600, and $1,037,200 for the years ended December
31, 1993, 1992, and 1991 respectively. Accordingly, yields on
loans would have increased by 0.28%, 0.19%, and 0.29%,
respectively. Included in Other Real Estate Owned at December
31, 1993 is a loan totaling $977,000 which, although performing
according to its original terms, is accounted for as real estate
held for sale as required under SFAS 66. As principal and
interest payments on this loan were current at December 31, 1993,
for analysis purposes, the average balance of the loan was
included in total loans, and the yield on loans was
adjusted accordingly.
Loan fees and the direct costs associated with the
origination of loans are deferred and netted against the outstanding
loan balance. The deferred net loan fees and costs are recognized
as interest income net of cost over the term of the loan in a manner
that approximates the level-yield method. (See Note 1 of the
Financial Statements). Fees collected on loans are an integral
part of the loan pricing decision. For the year ended December
31, 1993, the Company recognized $2.7 million in loan origination
fees, representing an increase of $373,000, or 16.1%, from fee
income of $2.3 million recognized in 1992. Fee income recognized
for 1991 totaled $2.4 million. Table 3 summarizes loan fee
activity for the Bank for the three year period.
TABLE 3 - Loan Fee Activity
(amounts in thousands)
1993 1992 1991
Fees collected $ 2,394 $ 3,419 $ 2,649
Fees and costs deferred (1,328) (2,262) (1,109)
Accretion of deferred fees and costs 1,628 1,164 813
Total fee income reported $ 2,694 $ 2,321 $ 2,353
Deferred net loan origination fees acquired 64 0 0
Deferred net loan origination fees
at end of year $ 1,604 $ 1,840 $ 718
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
actively monitors interest rate "sensitivity" to potential
changes in interest rates using a maturity/repricing gap
analysis. This analysis measures, for specific time intervals,
the differences between interest earning assets and interest
bearing liabilities for which re-pricing opportunities will
occur. A positive difference, or gap, indicates that interest
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
33
net interest margin during periods of decreasing interest rates.
Conversely, a negative gap will generally produce lower net
interest margin during periods of rising interest rates and
a greater net interest margin during periods of decreasing
interest rates.
Table 4 provides the Bank's maturity/repricing gap analysis
at December 31, 1993 and 1992. The Bank had a positive one year
cumulative gap of $22.1 million at December 31, 1993, compared
to a negative one year cumulative gap of $33.5 million at
December 31, 1992. The change from a negative gap position to a
positive gap position is primarily the result of an increase in
loans that reprice within one year.
TABLE 4 - Asset and Liability Maturity/Repricing Gap
(amounts in thousands)
Over 90 Over 180
90 days days to days to Over
or less 180 days 365 days 365 days
1993
Earnings Assets:
Fed Funds $ 15,000 $ 0 $ 0 $ 0
Investment Securities and
debt securities held for sale 22,846 4,829 3,429 118,415
Deposits with other financial
institutions 298 0 100 99
Total Loans 335,776 7,109 14,571 93,477
Total 373,920 11,938 18,100 211,991
Interest-Bearing Liabilities
Savings Deposits 292,550 0 0 0
Time Deposits 39,666 18,315 14,955 8,918
Other Borrowings 15,848 0 0 0
Total 348,064 18,315 14,955 8,918
Period GAP $ 25,856 $ (6,377) $ 3,145 $203,073
Cumulative GAP $ 25,856 $ 19,479 $ 22,624 $225,697
1992
Earnings Assets:
Fed Funds $ 12,290 $ 0 $ 0 $ 0
Investment Securities and
debt securities held for sale 16,823 3,983 7,083 93,165
Total Loans 280,507 3,720 11,616 85,280
Total 309,620 7,703 18,699 178,445
Interest-Bearing Liabilities
Savings Deposits 295,205 0 0 0
Time Deposits 34,392 24,355 4,565 11,294
Other Borrowings 10,988 0 0 0
Total 340,585 24,355 4,565 11,294
34
Period GAP $(30,965) $(16,652) $ 14,134 $167,151
Cumulative GAP $(30,965) $(47,617) $(33,483) $133,668
The interest rates paid on deposit accounts do not always
move in unison with the rates charged on loans. Specifically,
changes in the prime lending rate do not always result in an immediate
change in the rate paid on money market and savings accounts. In addition,
the magnitude of changes in the rate charged for loans is not necessarily
proportionate to the magnitude of changes in the rate paid for deposits.
Consequently, changes in interest rates do not necessarily result in
increases or decreases in the net interest margin solely as a result of the
differences between re-pricing opportunities of interest earning assets or
interest bearing liabilities. The fact that the Bank reported a nominal
positive gap at December 31, 1993 does not necessarily indicate that the
Bank's net interest margin will increase if rates increase in 1994, or
decrease if interest rates decrease. The analysis does provide a measure
for the Bank's Management to determine the relative level of interest rate
risk at any point in time.
SUMMARY OF CREDIT LOSS EXPOSURE
Implicit in lending activities is the risk that losses will
be experienced and the amount of such losses will vary over time.
Consequently, the Company maintains an allowance for credit
losses by charging to earnings a provision for potential credit
losses. Loans determined to be a loss are charged to the
allowance. 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 potential 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.
35
At December 31, 1993, the allowance for credit losses was $8.8
million, representing an increase of $2.4 million or 36.96%, over the
allowance for credit losses of $6.5 million at December 31, 1992. As a
percent of gross loans, the allowance for credit losses increased from
1.70% at December 31, 1992, to 1.96% at December 31, 1993. The increase in
the allowance for credit losses at December 31, 1993 resulted as the
provision for credit losses of $1.7 million, plus acquired reserves of $1.6
million, exceeded the net amount of loans charged to the reserve of
$919,000 for the year. Acquired reserves represent the allowance for
credit losses acquired from Fontana First National Bank, and the discount
from face value of specific loans purchased from the FDIC relating to the
Mid City Bank acquisition.
Net loans charged to the allowance for credit losses totaled
$433,000, $574,000, and $919,000 for the years ended December 31,
1991, 1992, and 1993, respectively. The increase in the amount
charged to reserves each year reflects the increases in loans
outstanding and the continued economic downturn in the Southern
California economy. The provision for credit losses totaled
$604,000, $1,772,000, and $3,307,000, for the years ended
December 31, 1991, 1992 and 1993. The increased provision
primarily reflects the increase in loans charged to the allowance
for credit losses for each period. Net loans charged to the
reserve, as a percent of average loans totaled 0.12%, 0.16%,
and 0.22% for the years ended December 31, 1991, 1992, and 1993.
The increase in the allowance for credit losses reflects the
prolonged regional economic downturn and the Bank's recognition
of the possibility that the downturn may continue and the
uncertain impact it may have on the Company's loan portfolio.
The increase in the allowance for credit losses has been made to
support the growth in the loan portfolio and to provide an
additional measure of protection in a recessionary economic
environment. The Bank recognizes that the current recessionary
conditions may continue, and the potential impact this may have
on the loan portfolio is uncertain. Nonperforming loans
increased from $10.2 million, or 2.68% of gross loans, at
December 31, 1992, to $12.5 million, or 2.77% of gross loans, at
December 31, 1993. While the Bank's Management believes that the
allowance was adequate to provide for both recognized potential
losses and estimated inherent losses in the portfolio, no
assurance can be given that economic conditions that may
adversely affect the Company's service area or other
circumstances will not result in increased provisions for credit
losses in the future.
36
Table 5 provides the comparative statistics on net credit losses, the
provisions for credit losses, and the allowance for credit losses. Loan
losses are fully, or partially charged against the allowance for credit
losses when, in the Bank's Management's judgment, the full collectability
of the loan's principal is in doubt. However, there is not a precise
method of predicting specific losses which ultimately may be charged
against the allowance for credit losses, and as such, Management is unable
to reasonably estimate the full amount of loans to be charged to the
reserve in future periods.
37
TABLE 5 - Summary of Credit Loss Experience
(amounts in thousands)
1993 1992 1991 1990 1989
Amount of Total Loans at End of Period $ 450,933 $ 381,123 $ 370,837 $ 367,849 $ 347,593
Average Total Loans Outstanding $ 416,984 $ 368,452 $ 362,457 $ 361,241 $ 291,476
Allowance for Credit Losses
at Beginning of Period $ 6,461 $ 5,263 $ 5,092 $ 5,037 $ 3,713
Loans Charged-Off:
Real Estate Loans 530 120 154 7 0
Commercial and Industrial 334 452 282 548 142
Consumer Loans 154 115 42 85 105
Total Loans Charged-Off 1,018 687 478 640 247
Recoveries:
Real Estate Loans 0 0 0 0 0
Commercial and Industrial 57 94 15 101 98
Consumer Loans 42 19 30 49 59
Total Loans Recovered 99 113 45 150 157
Net Loans Charged-Off 919 574 433 490 90
Provision Charged to Operating Expense 1,720 1,772 604 545 1,414
Adjustment Incident to Mergers 1,587
Allowance for Credit Losses
at End of period $ 8,849 6,461 5,263 5,092 5,037
Net Loans Charged-Off to
Average Total Loans 0.22% 0.16% 0.12% 0.14% 0.03%
Net Loans Charged-Off to Total Loans
at End of Period 0.20% 0.15% 0.12% 0.13% 0.03%
Allowance for Credit Losses
to Average Total Loans 2.12% 1.75% 1.45% 1.41% 1.73%
Allowance for Credit Losses
to Total Loans at End of Period 1.96% 1.70% 1.42% 1.38% 1.45%
Net Loans Charged-Off to allowance
for Credit Losses 10.39% 8.88% 8.23% 9.62% 1.79%
Net Loans Charged-Off to Provision
for Credit Losses 53.43% 32.39% 71.69% 89.91% 6.36%
Table 6 provides a summary of the allocation of the
allowance for credit losses for specific loan categories for the five
year period ended December 31, 1993. The allocations presented
should not be interpreted as an indication that loans charged to
the allowance for credit losses will occur in these amounts or
proportions, or that the portion of the allowance allocated to
each loan category represents the total amount available for
future losses that may occur within such categories, since there
is a large unallocated portion of the allowance for credit losses
and the total allowance is applicable to the entire
loan portfolio.
38
Table 6 - Allocation of Allowance for Credit Losses
(amounts in thousands)
1993 1993 1992 1992 1991 1991
Allow- % of Allow- % of Allow- % of
ance for Category ance for Category ance for Category
Credit to Total Credit to Total Credit to Total
Losses Loans Losses Loans Losses Loans
Real Estate Loans $ 43 30.1% $ 113 27.5% $ 77 29.5%
Commercial and Industrial 3,911 62.4% 2,422 68.0% 2,587 66.8%
Consumer 41 2.8% 164 3.0% 100 3.5%
Not Allocated 4,854 N/A 3,762 N/A 2,499 N/A
Total $8,849 95.2% $6,461 98.5% $5,263 99.8%
1990 1990 1989 1989
Allow- % of Allow- % of
ance for Category ance for Category
Credit to Total Credit to Total
Losses Loans Losses Loans
Real Estate Loans $ 128 30.1% $ 219 32.4%
Commercial and Industrial 2,320 65.8% 1,920 63.2%
Consumer 113 3.8% 130 4.0%
Not Allocated 2,531 N/A 2,768 N/A
Total $5,092 99.7% 5,037 99.6%
OTHER OPERATING INCOME
Other operating income for the Company includes service
charges on deposit accounts, gain on sale of securities, gross revenue
from CTD, and other revenues not derived from interest on earning
assets. Other operating income increased from $7.9
million for the year ended December 31, 1992, to $10.7 million
for the year ended December 31, 1993. This represented an
increase of $2.8 million, or 36.05%. For 1992, other operating
income increased $858,899, or 12.2%, from $7.0 million for the
year ended December 31, 1991.
The increase in other operating income for 1993 was the
result of gains on securities sold. Gains on sales of securities
totaled $3.7 million for the year ended December 31, 1993, compared
to gains of $261,531 for 1992, and $716,608 for 1991. The gains in
1993 were a result of restructuring the portfolio in anticipation
of adopting SFAS 115. (See discussion of Investment Securities
for explanation of SFAS 115).
39
Service charges on deposit accounts increased from $5.0 million to
$5.2 million for the years ended December 31, 1992 and 1993, respectively.
Service charges totaled $4.5 million for the year ended December 31, 1991.
Other operating income for 1991 and 1992 included gross revenue from a
subsidiary called Premier Results (Premier). Premier began operation in
1990 and provided item processing services for other financial
institutions. Premier had total revenues of $870,000 in 1992, and $638,000
for 1991. In December of 1992, Premier was sold to Electronic Data
Systems, Inc. as it was determined that the nature of the business was not
compatible with the Company's long term strategic plans. Net earnings from
Premier for 1992 totaled $125,000. Consequently, the divestiture did not
have a significant impact on 1993's earnings.
Other income also includes total revenue from CTD, a subsidiary of the
Company. Total revenue from CTD was approximately $238,000, $337,000, and
$271,000 for the years ended December 31, 1991, 1992, and 1993,
respectively.
NONINTEREST EXPENSES
Noninterest expenses totaled $29.4 million for the year
ended December 31, 1993. This represented an increase of $5.9
million, or 25.34%, from total noninterest expenses of $23.4
million for the year ended December 31, 1992. Total noninterest
expenses for the year ended December 31, 1991 were $22.7 million.
As a percent of average assets, total noninterest expenses
decreased from 4.39% for 1991, to 4.20% for 1992, then
increased to 4.68% for 1993. This increase was entirely related
to expenses associated with collection and foreclosure costs on
troubled credits.
A $2.8 million provision for potential losses on the sale of
other real estate owned contributed substantially to the increase
in noninterest expense for 1993. Other real estate owned is
property acquired by the Bank through foreclosure (See Loans).
Primarily as a result of the current economic climate in Southern
California, real estate values have decreased significantly over
the last two years. In anticipation of a continuation of this
trend in both commercial and residential real estate values, the
Bank's Management has provided an allowance for potential losses
on specific properties currently held by the Bank. The allowance
primarily protects against further decreases in real estate
values. Without the provision for potential losses on other
real estate owned for 1993, and the cost of carrying that real
estate, total noninterest expense, as a percent of average
assets, would have decreased for 1993 compared to 1992.
Salaries and related expenses totaled $14.4 million for the
year ended December 31, 1993. This represented an increase of
$962,073, or 7.14%, over total salaries and related expenses of
$13.5 million for the year ended December 31, 1992. Total
salaries and related expenses were $13.7 million for the year
ended December 31, 1991. As a percent of average assets, total
40
salaries and related expenses have decreased from 2.64%,
to 2.42%, to 2.30%, for the years ended December 31, 1991, 1992,
and 1993, respectively. Full time equivalent employees decreased
from 296 for 1991, to 243 for 1992, then increased to 302 for
1993. This increase in salaries for 1993 was primarily
related to the acquisitions of Fontana First National Bank and
Mid City Bank. As both acquisitions resulted in increased
assets, the additional salaries did not impact salary
expense as a percent of average assets.
INCOME TAXES
The Company's effective tax rate for 1993 was 39.2%, compared to a
rate of 38.8% for 1992, and a rate of 39.5% for 1991. These rates are below
the nominal combined Federal and State tax rates as a result of tax
preferenced income for each period. The increase in the effective tax rate
for 1993 reflects the retroactive Federal tax increase for revenues in
excess of $10.0 million, and the increase in the State tax rate for 1993.
ANALYSIS OF FINANCIAL CONDITION
Total assets increased from $592.1 million at December 31,
1992, to $687.4 million at December 31, 1993. This represented an
increase of $95.3 million, or 16.10%. Net loans increased $67.4
million, or 18.00%, from $374.7 million for the year ended
December 31, 1992, to $442.1 million for the year ended December
31, 1993. As in previous years, asset growth was primarily
funded by increased deposit growth. Total deposits increased
from $526.9 million at December 31, 1992, to $596.0 million at
December 31, 1993, an increase of $69.0 million, or 13.10%. The
acquisitions of Fontana First National Bank and Mid City Bank
accounted for approximately $43.0 million, or 45.0% of the $95.3
million increase in the Company's assets for 1993.
INVESTMENT SECURITIES
The Company maintains a portfolio of investment securities
to provide income and serve as a source of liquidity for its ongoing
operations. Note 2 of the financial statements sets forth the
distribution of the investment portfolio at December 31, 1993 and
1992.
In 1993, the Financial Accounting Standards Board introduced
new mark to market accounting rules for investment securities (SFAS
115). Under the new accounting method, when adopted, securities
held as "available for sale" will be reported at current market
value for financial reporting purposes. Increases or decreases
in market value when compared to cost will be adjusted directly
to the Company's capital accounts. While the Company has
demonstrated the ability and the intent to hold investment
securities until maturity, changes in liquidity needs as well
as changes in interest rates have resulted in the sale of
investment securities in the past. The introduction of SFAS 115
41
has changed the methodology used in determining the type
of securities purchased for the portfolio and the timing of sales
of securities within the portfolio.
The Bank's Management now reviews the portfolio from a total
return perspective. Current yields, in addition to current and
projected changes in market values, are now considered for both
purchases and sales of investment securities. Primarily as a
result of the adoption of this methodology in 1993, significant
changes were made to both the structure and maturities of the
investment portfolio. This restructure resulted in significant
gains from the sales of securities in 1993. (See Other Operating
Income)
The Bank's Management has elected to adopt SFAS 115 effective for
1994. At December 31, 1993, the market value of the investment portfolio
was approximately $150.9 million, representing an unrealized gain of
approximately $1.4 million over "book value" of $149.5 million. Had SFAS
115 been adopted, stockholders' equity would have been increased by the
amount of the unrealized gain at December 31, 1993, net of the tax effect.
The variance between market value and the cost value reported at December
31, 1993, is not material in relation to the Company's total capital.
In preparing for the implementation of SFAS 115 in 1994, the Bank's
investment portfolio is divided into two primary categories. These
included the "held for sale" portfolio and the "held to maturity"
portfolio. At December 31, 1993, the held for sale portion of the
portfolio comprised approximately 93.9% of the investment portfolio. The
balance was allocated to securities to be held to maturity. If securities
are sold prior to maturity to provide for liquidity needs or to take
advantage of changes in interest rates, securities from the held for sale
portion of the portfolio will be sold.
42
LOANS
Table 7 sets forth the distribution of the Company's loan
portfolio for each of the last five years.
TABLE 7 - Distribution of Loan Portfolio by Type
(amounts in thousands)
December 31 December 31 December 31 December 31 December 31
1993 1992 1991 1990 1989
Commercial and Industrial $282,177 $260,322 $248,168 $238,533 $220,982
Real Estate
Construction 56,358 43,879 40,788 39,775 48,076
Mortgage 79,929 61,619 68,753 75,006 64,353
Consumer,
net of unearned discount 12,517 11,642 13,067 13,948 13,818
Lease Finance Receivables 21,556 5,501 779 1,014 1,480
Gross Loans 452,537 382,963 371,555 368,276 348,709
Less:
Allowance for Credit Losses 8,849 6,461 5,263 5,092 5,037
Deferred Loan Fees 1,604 1,840 718 426 1,116
Total Net Loans $442,084 $374,662 $365,574 $362,758 342,556
Net loans increased $67.4 million, or 18.00%, from $374.7
million at December 31, 1992, to $442.1 million at December 31, 1993.
Approximately $32.9 million, or 48.8% of the $67.4 million
increase in net loans for 1993 resulted from the acquisitions of
Fontana First National Bank and Mid City Bank. Net of acquired
loans, loans increased approximately $34.5 million, or 9.2%, for
1993. The increase in loans, net of acquired loans, represents a
significant increase over the increase for 1992 when net loans
increased only $9.1 million, or 2.49%. The relatively slow real
growth in loans (net of loans acquired) for both 1992 and 1993,
reflects the prolonged economic downturn in the Southern
California economy, and the resulting decrease in loan demand.
Approximately $192.1 million, or 42.5% of the loan portfolio
matures within one year. Of this total, approximately $169.3
million, or 88.1%, have variable rates that are tied to the
Bank's prime lending rate. Loans that mature within one year
assist with the liquidity needs of the Bank as well as providing
greater repricing opportunities. Variable rate loans tied to the
Bank's prime lending rate provide immediate re-pricing
opportunities when interest rates change. Table 8 provides the
maturity distribution for commercial and industrial loans as well
as real estate construction loans as of December 31, 1993.
Amounts are also classified according to repricing opportunities
or rate sensitivity.
43
TABLE 8 - Loan Maturities and Interest Rate Sensitivity
(amounts in thousands)
December 31, 1993
After One
Within But Within After
One Year Five Years Five Years Total
Types of Loans:
Commercial and industrial 135,788 159,779 40,757 336,324
Construction 56,358 0 0 56,358
Total 192,146 159,779 40,757 392,682
Amount of Loans based upon:
Fixed Rates 22,869 31,778 15,424 70,071
Floating or adjustable rates 169,277 128,001 25,333 322,611
Total 192,146 159,779 40,757 392,682
Includes approximately $54.147 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 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, 1993, approximately
97.0% 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.
In January of 1994, the greater Los Angeles area was affected by a
major earthquake and a series of aftershocks that were centered in the San
Fernando Valley. The Company is not located in the San Fernando Valley nor
is the San Fernando Valley part of the Company's service area. It is not
yet possible to assess the effect of the earthquake on the Company's
borrowers' primary or secondary repayment sources, or its overall effect on
the local economy in general. The Company's facilities and other real
estate owned suffered no damage, and management is not aware of any effects
from the earthquake that would materially impact its financial condition.
44
At December 31, 1993, nonperforming assets totaled $22.1 million. This
represented an increase of $4.1 million, or 21.6%, from total nonperforming
assets of $19.0 million at December 31, 1992. Nonperforming assets include
loans for which interest is no longer accruing, loans 90 or more days past
due, restructured loans, other real estate owned, and in substance
foreclosures. Although the Bank's Management believes that nonperforming
loans are generally well secured and that potential losses are provided for
in the Company's allowance for credit losses, there can be no assurance
that continued deterioration in economic conditions or collateral values
will not result in future credit losses. Table 9 provides information on
nonperforming loans and other real estate owned for the periods indicated.
TABLE 9 - Non-Performing Assets
(amounts in thousands)
December 31
1993 1992 1991 1990 1989 1988
Non-accrual loans $12,492 $6,642 $3,684 $9,164 $2,081 $3,828
Loans past due 90 days or more 0 272 85 19 23 174
Restructured loans 770 3,291 2,078 907 1,842 445
Other real estate owned (OREO) 9,768 8,797 3,586 0 695 693
Total non-performing assets $23,030 $19,002 $9,433 $10,090 $4,641 $5,140
Percentage of non-performing assets
to total loans outstanding & OREO 5.00% 4.87% 2.52% 2.74% 1.33% 2.04%
Percentage of non-performing assets
to total assets 3.35% 3.21% 1.68% 1.97% 0.98% 1.38%
At December 31, 1993, loans for which interest was no longer
accruing totaled $12.5 million. All loans on a nonaccrual status
were secured by real property which has a current appraisal that
is less than one year old. The estimated ratio of the
outstanding loan balances to the fair values of the related
collateral for nonaccrual loans at December 31, 1993, ranged
between approximately 21% to 92% of the loan value. The Bank has
allocated specific reserves included in the allowance for credit
losses for potential losses on these loans.
Except for nonperforming loans as set forth in Table 9, the
Bank's Management is not aware of any loans as of December 31,
1993 for which known credit problems of the borrower would cause
the Company to have serious doubts as to the ability of such
borrowers to comply with their present loan repayment terms or
any known events that would result in the loan being designated
as nonperforming at some future date. The Bank's Management
cannot, however, predict the extent to which the current economic
environment may persist or worsen or the full impact this
environment may have on the Company's loan portfolio.
At December 31, 1993, the book value of other real estate
45
owned totaled $9.8 million. This included 9 separate parcels of
property acquired through foreclosure, and one loan secured by
real estate that is performing but is classified as real estate
held for sale. The Bank is actively marketing these properties.
The Bank's Management cannot predict when these properties will
be sold or the terms of those sales when they occur. While
Management recognizes that the Southern California real estate
market continues to remain weak, the Bank has recent appraisals
on each property that support the carrying costs of those
properties at December 31, 1993. No assurance can be given that
if Southern California real estate values continue to decrease,
and the Bank cannot dispose of the properties held promptly,
further charges to earnings may not occur.
DEPOSITS
Total deposits increased $69.0 million, or 13.10%, from
$526.9 million at December 31, 1992, to $596.0 million at December 31,
1993. The acquisitions of Fontana First National Bank and Mid
City Bank accounted for approximately $43.0 million, or 62.0%, of
the $69.0 million increase in the Company's deposits for 1993.
Non-interest bearing demand deposits represented the largest
growth, increasing $64.1 million, or 40.73%, from $157.4 million
at December 31, 1992, to $221.6 million at December 31, 1993. As
a result of the increase, average non-interest bearing demand
deposits represented 32.0% of average deposits for the year ended
December 31, 1993. This compared with 27.96% of average deposits
for 1992.
Table 1 provides the average balances for each general
deposit category, including the associated costs for the years ended
December 31, 1991, 1992, and 1993. As average non-interest
bearing demand deposits have increased as a percent of total
average deposits for 1992 and 1993, average savings and time
deposits have decreased as a percent of total average deposits.
Average savings deposits, as a percent of average total deposits,
have decreased from 58.30% in 1991, to 55.56% for 1992, to 51.44%
for 1993. Average time deposits, as a percent of average total
deposits, have decreased from 17.00% in 1991, to 16.48% in 1992,
to 16.57%, for 1993. The change in the deposit mix has resulted
in a lower cost of average total deposits in 1992 and 1993.
Despite the changes in the deposit mix, the majority of funds
provided from customer deposits are derived from savings
deposits. Savings deposits include money market accounts as well
as traditional savings accounts.
Table 10 provides the remaining maturities of large
denomination ($100,000 or more) time deposits, including public
funds as of December 31, 1993.
46
TABLE 10 - Maturity Distribution of Large Denomination Time Deposits
(amounts in thousands)
December 31, 1993
3 months or less $27,242
Over 3 months through 6 months 7,732
Over 6 months through 12 months 6,716
Over 12 months 4,172
Total $45,862
LIQUIDITY
Liquidity is actively managed to ensure sufficient funds are
available to meet the ongoing needs of both the Bank and CVB.
This includes projections of future sources and uses of funds,
in addition to the maintenance of sufficient liquid reserves to
provide for unanticipated events.
For the Bank, sources of funds normally include interest and
principal payments on loans and investments, proceeds from
maturing or sold investments, and growth in deposits. Uses of
funds include withdrawal of deposits, interest paid on deposits,
advances or funding of new loans, purchases and operating
expenses. The Bank maintains funds as overnight federal funds
sold and other short term investment securities to provide
for short term liquidity needs. In addition, the Bank maintains
short term unsecured lines of credit of $50.0 million with
correspondent banks to provide for contingent liquidity
needs. At December 31, 1993, the Bank reported liquid assets,
including cash, federal funds sold, and unpledged investment
securities of $156.0 million. Liquid assets represented 22.7%
of total assets at December 31, 1993.
Since the primary sources and uses of funds for the Bank are
loans and deposits, the relationship between gross loans and
total deposits provides a useful measure of the Bank's liquidity.
Typically, the closer the ratio of loans to deposits is to 100%,
the more reliant the Bank is on its loan portfolio to provide for
short term liquidity needs. Since repayment of loans tends to be
less predictable than investments and other liquid resources, the
higher the loan to deposit ratio the less liquid the Bank. For
the year ended December 31, 1993, the Bank's loan to deposit
ratio averaged 74.7%, compared to an average ratio of 73.9% for
1992.
The liquidity ratio provides another measure of the Bank's
liquidity. This ratio is calculated by dividing the difference
between short term liquid assets from short term volatile
liabilities by the sum of loans and long term investments. This
ratio measures the percent of illiquid long term assets that are
being funded by short term volatile liabilities. As of December
31, 1993, this ratio was 2.72%, compared to a negative 1.7%, at
47
December 31, 1992.
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, 1993, approximately $20.0 million of the Bank's
equity was unrestricted and available to be paid as dividends to
CVB.
Management of CVB believes that such restrictions will not
have a significant impact on the ability of CVB to meet its
ongoing cash obligations. As of December 31, 1993, neither the
Bank nor CVB had any material commitments for capital
expenditures.
On November 16, 1993, the Company entered into a definitive
agreement and plan of reorganization (the Agreement) for the
Company to acquire, through merger, Western Industrial National
Bank (WIN). Chino Valley Bank will be the continuing operation.
The Company will provide to the shareholders of WIN $13.5
million, plus accrued earnings from December 31, 1993. WIN
currently has two branch offices located in South El Monte. WIN
reported total assets of $45.3 million, total deposits of $36.3
million, and gross loans of $37.5 million at December 31, 1993.
It is not anticipated that the acquisition will have a
significant effect on the Company's liquidity or its capital
ratios.
CAPITAL RESOURCES
Historically, the primary source of capital for the Company
has been the retention of operating earnings. The Company conducts
an ongoing assessment of projected sources and uses of capital in
conjunction with projected increases and anticipated mixes of
assets in order to maintain adequate levels of capital. Total
adjusted capital, shareholder equity plus allowance for credit
losses, was $68.8 million at December 31, 1993, representing an
increase of $10.3 million, or 17.6%, over total adjusted capital
of $58.5 million at December 31, 1992.
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. The highest level for capital adequacy
under Prompt Corrective Action is "Well Capitalized". To
qualify for this level of capital adequacy an institution must
48
maintain a total risk-based capital ratio of at least 10.0%, a
Tier 1 risk-based capital ratio of at least 6.0%, and a leverage
ratio of at least 5.0%. At December 31, 1993, the Company
exceeded all of the minimum capital ratios required to be
considered well capitalized.
At December 31, 1993, the Company's total risk-based capital
ratio was 13.1% compared to 13.7% on December 31, 1992. The
ratio of Tier I capital to risk weighted assets was 11.8% at
December 31, 1993, compared to a ratio of 13.3% for December 31,
1992. The decrease in the risk-based capital ratios during 1993
reflects increases in risk weighted assets greater than increases
in both Tier I and total adjusted capital. The Company's risk-
based capital ratio was also affected by $2.0 million in goodwill
that resulted from the acquisition of Fontana First National
Bank.
In addition to the aforementioned requirement, 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. As of
December 31, 1993, the Company's leverage ratio was 8.4%, down
from a ratio of 9.2% at December 31, 1992. The Bank's leverage
ratio was 8.3% at the 1993 year end, down from 8.9% at December
31, 1992. Banking regulators have established 3.0% as the
minimum leverage ratio. However, institutions experiencing or
anticipating significant growth or those with other than minimum
risk profiles are expected to maintain a leverage ratio in excess
of the minimum.
During 1992, the Board of Directors of the Company declared
quarterly cash dividends that totaled 32 cents per share for the
full year (29 cents per share after retroactive adjustment for
the ten percent stock dividend declared on December 15,
1993). After retroactive adjustment, cash dividends declared
during 1993 was equal to dividends paid for 1992. Management
does not believe that the continued payment of cash dividends
will impact the ability of the Company to exceed the current
minimum capital standards.
49
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CVB Financial Corp.
Index to consolidated Financial Statements
and Financial Statement Schedules
Consolidated Financial Statements
Page
Consolidated Balance Sheets -- 51
December 31, 1993 and 1992
Consolidated Statements of Earnings
Year Ended December 31, 1993,
1992 and 1991 52
Consolidated Statements of
Stockholders' Equity Year Ended
December 31, 1993, 1992 and 1991 53
Consolidated Statements of Cash Flows
for the Year Ended December 31,
1993, 1992 and 1991 54
Notes to Consolidated Financial Statements 57
Independent Auditors' Report 79
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.
50
CONSOLIDATED BALANCE SHEETS - DECEMBER 31, 1993 AND 1992
December 31
ASSETS 1993 1992
Federal funds sold $ 15,000,000 $ 12,290,000
Investment securities held for investment,
at cost [market value of $9,506,000 (1993)
and $107,945,000 (1992) (Note 2)] 9,153,916 103,965,120
Investment securities held for sale,
at lower of cost or market [market value
of $141,378,000 (1993) and $17,462,000
(1992) (Note 2)] 140,364,947 17,088,577
Loans and lease finance receivables,
net (Notes 3, 4 and 5) 442,083,848 374,661,538
Total earning assets 606,602,711 508,005,235
Cash and due from banks (Note 12) 45,852,849 58,939,035
Premises and equipment, net (Note 6) 9,065,950 7,856,316
Other real estate owned (Note 5) 9,768,298 8,796,678
Other assets 16,118,149 8,500,593
Total Assets $687,407,957 $592,097,857
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits (Note 8)
Noninterest-bearing $221,552,597 $157,428,049
Interest-bearing 374,403,704 369,495,372
595,956,301 526,923,421
Demand note to U.S. Treasury 14,205,027 6,652,757
Other liabilities 17,289,097 6,483,464
627,450,425 540,059,642
Commitments and contingencies (Note 9)
Stockholders' equity (Notes 11 and 12):
Preferred stock - authorized, 20,000,000
shares without par value; no shares issued
or outstanding Common stock - authorized,
50,000,000 shares without par value; issued
and outstanding, 7,274,582 (1993) and
6,577,865 (1992) 20,619,439 11,866,467
Retained earnings 39,338,093 40,171,748
59,957,532 52,038,215
Total Liabilities and Stockholders' Equity $687,407,957 $592,097,857
51
CONSOLIDATED STATEMENTS OF EARNINGS
THREE YEARS ENDED DECEMBER 31, 1993
Year Ended December 31
1993 1992 1991
INTEREST INCOME:
Loans, including fees $ 37,036,068 $ 34,762,460 $ 40,491,397
Investment securities:
Taxable 8,187,804 8,681,623 6,594,842
Tax-advantaged 131,424 354,587 658,407
8,319,228 9,036,210 7,253,249
Federal funds sold 413,834 414,475 1,096,701
45,769,130 44,213,145 48,841,347
INTEREST EXPENSE:
Deposits (Note 8) 9,657,636 11,979,025 19,021,807
Other borrowings 220,127 213,913 358,594
9,877,763 12,192,938 19,380,401
NET INTEREST INCOME BEFORE PROVISION
FOR CREDIT LOSSES 35,891,367 32,020,207 29,460,946
PROVISION FOR CREDIT LOSSES (Note 5) 1,720,000 1,772,109 604,000
NET INTEREST INCOME AFTER PROVISION
FOR CREDIT LOSSES 34,171,367 30,248,098 28,856,946
OTHER OPERATING INCOME:
Service charges on deposit accounts 5,214,765 5,046,780 4,488,567
Investment securities gains, net 3,721,041 261,531 716,608
Service charges on item processing 0 870,505 638,630
Other 1,809,115 1,718,980 1,195,092
10,744,921 7,897,796 7,038,897
- -CONTINUED-
52
CONSOLIDATED STATEMENTS OF EARNINGS - CONTINUED
Years Ended December 31
1993 1992 1991
OTHER OPERATING EXPENSES:
Salaries, wages and employee
benefits (Notes 10 and 11) 14,439,434 13,477,361 13,664,021
Occupancy (Note 9) 2,169,864 2,039,830 1,928,636
Equipment 1,526,519 1,446,283 1,551,331
Deposit insurance premiums 1,175,710 1,084,848 943,696
Stationery and supplies 1,068,657 982,332 854,992
Professional services 1,713,993 1,167,465 823,195
Data processing 877,542 819,765 746,285
Promotion 1,115,182 741,972 690,023
Other real estate owned expense
(Note 5) 3,834,015 305,768 103,651
Other 1,432,843 1,353,765 1,403,953
29,353,759 23,419,389 22,709,783
EARNINGS BEFORE INCOME TAXES 15,562,529 14,726,505 13,186,060
INCOME TAXES (Note 7) 6,040,178 5,711,445 5,217,380
NET EARNINGS $ 9,522,351 $ 9,015,060 $ 7,968,680
NET EARNINGS PER COMMON SHARE $ 1.27 $ 1.23 $ 1.10
53
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
THREE YEARS ENDED DECEMBER 31, 1993
Common Shares Common Retained
Outstanding Stock Earnings
BALANCE, JANUARY 1, 1991 5,829,708 $ 5,527,861 $32,837,406
Repurchase of common shares (75,007) (139,673) (779,217)
Common stock issued under
stock option plan 80,284 247,870
Tax benefit from exercise of
certain stock options 204,159
Cash dividends (1,678,108)
Net earnings 7,968,680
BALANCE, DECEMBER 31, 1991 5,834,985 5,636,058 38,552,920
Common stock issued under stock option plan
and deferred compensation agreements 145,131 477,075
10% stock dividend, declared on December 16,
1992 and distributed on January 19, 1993 597,749 5,753,334 (5,753,334)
Tax benefit from exercise of certain stock
options 294,926
Cash dividends (1,937,824)
Net earnings 9,015,060
BALANCE, DECEMBER 31, 1992 6,577,865 11,866,467 40,171,748
Common stock issued under stock option plan
and deferred compensation agreements 35,753 490,922
10% stock dividend, declared on December 15,
1993 and distributed on January 17, 1994 660,964 8,262,050 (8,262,050)
Tax benefit from exercise of certain
stock options 17,485
Cash dividends (2,111,441)
Net earnings 9,522,351
BALANCE, DECEMBER 31, 1993 7,274,582 $20,619,439 $39,338,093
See accompanying notes to the consolidated financial statements.
54
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE YEARS ENDED DECEMBER 31, 1993
Year Ended December 31
1993 1992 1991
CASH FLOWS FROM OPERATING ACTIVITIES:
Interest received $ 45,518,868 $ 43,876,733 $ 48,529,441
Service charges and other fees received 7,023,880 7,636,265 6,322,289
Interest paid (10,246,921) (12,533,022) (19,721,849)
Cash paid to suppliers and
employees (25,509,643) (23,574,465) (22,784,702)
Income taxes paid (6,145,842) (5,935,205) (5,453,759)
Net cash provided by operating activities 10,640,342 9,470,306 6,891,420
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of investment securities 63,864,087 27,648,498 28,672,242
Proceeds from maturities of investment securities 42,248,230 70,400,000 57,300,000
Purchases of investment
securities (117,560,921) (116,737,235) (101,280,042)
Net increase in loans (35,577,319) (23,009,386) (8,269,407)
Loan origination fees received 2,394,180 3,418,808 2,648,969
Proceeds from sale of other real estate owned 2,374,291 6,847,215 535,584
Proceeds from sale of premises and equipment 24,212 168,442 68,277
Purchases of premises and
equipment (2,324,386) (539,484) (355,630)
Payment for purchase of Fontana First
National Bank (5,043,323)
Other investing activities (2,843,235) (192,085) (894,659)
Net cash used in investing activities (52,444,184) (31,995,227) (21,574,666)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in noninterest-bearing
deposits and money market and savings accounts 28,949,459 31,675,700 44,783,882
Net decrease in time certificates of deposit (14,064,629) (4,559,392) (7,868,036)
Net increase (decrease) in short-term borrowings 5,246,056 (3,489,421) 6,053,474
Cash dividends on common stock (2,111,441) (1,937,824) (1,678,108)
Repurchases of common shares (918,890)
Proceeds from exercise of stock options 106,173 477,075 247,870
Net cash provided by financing activities 18,125,618 22,166,138 40,620,192
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (23,678,224) (358,783) 25,936,946
CASH AND CASH EQUIVALENTS, beginning of year 71,229,035 71,587,818 45,650,872
CASH AND CASH EQUIVALENTS, BEFORE ACQUISTIONS 47,550,811 71,229,035 71,587,818
Cash & cash equivalents received in purchase of Fontana
First National Bank 8,235,436 0 0
Cash & cash equivalents received in purchase of
Mid City Bank 5,066,602 0 0
CASH AND CASH EQUIVALENTS, end of year $ 60,852,849 $ 71,229,035 $ 71,587,818
- -CONTINUED-
55
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
Reconciliation of Net Earnings to Net Cash
Provided by Operating Activities
Year Ended December 31
1993 1992 1991
Net earnings $ 9,522,351 $ 9,015,060 $ 7,968,680
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Gain on sales of investment securities (3,724,956) (333,000) (882,000)
Loss on sales of investment securities 3,915 71,469 165,392
Gain on sale of other real estate owned (5,967) (445,844) (39,799)
Amortization of premiums on investment securities 710,718 738,017 526,475
Provision for credit losses 1,720,000 1,772,109 604,000
Provision for losses on other real estate owned 2,830,000 100,000
Accretion of deferred loan fees and costs (1,628,527) (1,164,459) (812,664)
Loan fees and costs deferred (1,328,458) (2,262,235) (1,108,951)
Depreciation and amortization 1,097,152 1,143,873 1,273,660
Change in accrued interest receivable 667,547 90,030 (25,717)
Change in accrued interest payable (369,158) (340,084) (341,448)
Deferred tax benefit (944,053) (806,201) (299,910)
Change in other assets and liabilities 2,089,778 1,891,571 (136,298)
Total Adjustments 1,117,991 455,246 (1,077,260)
Net cash provided by operating activities $ 10,640,342 $ 9,470,306 $ 6,891,420
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
Real estate acquired through foreclosure $ 5,204,093 $ 12,157,502 $ 4,275,587
Purchase of Fontana First National Bank:
Cash and cash equivalents acquired $ (8,235,436)
Fair value of other assets acquired (18,622,708)
Fair value of liabilities assumed 23,708,377
Goodwill (1,893,556)
Cash paid for purchase of Fontana National Bank $ (5,043,323)
Purchase of Mid City Bank, N.A.:
Cash and cash equivalents acquired $ (6,580,408)
Fair value of other assets acquired (25,466,359)
Fair value of liabilities assumed 79,273,984
Goodwill (50,000)
Cash received for purchase of Mid City Bank,
N.A. from the FDIC $ 47,177,217
The $79,273,984 of liabilities assumed in the Mid City Bank
acquisition includes $62,695,886 of time certificates of
deposit, of which $48,691,023 was withdrawn within 30 days of
acquisition date and is not reflected in the statement of cash flows.
See accompanying notes to the consolidated financial statements.
56
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE-YEAR PERIOD ENDED DECEMBER 31, 1993
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, Chino Valley Bank (the "Bank"), Community Trust Deed
Services and Premier Results, Inc., after elimination of all material
intercompany transactions and balances.
Investment Securities Held for Sale - The Bank has identified those
investment securities which may be sold prior to maturity. These assets
have been classified as held for sale on the accompanying consolidated
balance sheet and are recorded at the lower of amortized cost or market
value on an aggregate basis by type of asset.
Investment Securities Held for Investment - Investment securities,
excluding those held for sale, are carried at amortized cost, adjusted for
amortization of premiums and accretion of discounts over the estimated
terms of the assets using the interest method. Such amortization and
accretion are included in interest income. Sales of certain of these
assets could occur if unforeseen circumstances arise, and any gain or loss
on sale would be calculated based on the specific identification method.
The carrying value of these assets is not adjusted for temporary declines
in market value because the Bank intends and has the ability to hold them
to maturity. Equity securities are accounted for at the lower of aggregate
cost or market.
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.
57
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 computed principally on the
straight-line method over the estimated useful lives of the assets.
Property under capital lease and leasehold improvements are amortized over
the shorter of their economic lives or the initial term of the lease.
Other Real Estate Owned - Other real estate owned, shown net of an
allowance for losses of $1,650,903 and $100,000 at December 31, 1993 and
1992, respectively, represents real estate acquired through foreclosure in
satisfaction of commercial and real estate loans and is stated at the lower
of the fair value minus estimated costs to sell or cost (fair value at time
of foreclosure). Loan balances in excess of fair value of the real estate
acquired at the date of acquisition are charged against the allowance for
credit losses. Any subsequent operating expenses or income, reduction in
estimated values, and gains or losses on disposition of such properties are
charged to current operations.
Goodwill - Goodwill of $2.1 million, net of amortization of $116,000
resulting from the acquisition of Fontana First National Bank during March
1993, and the excess purchase premium of $50,000 paid on assuming the
deposits of Mid City Bank, N.A. in October 1993, are included in other
assets. Goodwill is amortized on a straight-line basis over 15 years.
Income Taxes - In the fourth quarter of 1992, the Company adopted
Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting
for Income Taxes." Under SFAS No. 109, deferred income taxes are
recognized for the tax consequences in future years of differences between
the tax basis of assets and liabilities and their financial reporting
amounts at each year-end based on enacted tax laws and statutory tax rates
applicable to the periods in which the differences are expected to affect
taxable income. Prior years' financial statements have not been restated
for the accounting change.
58
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 7,511,884 (1993), 7,357,187 (1992) and 7,220,967 (1991). 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
statement of cash flows include cash and due from banks and federal funds
sold.
Recent Accounting Pronouncements - In May 1993, the Financial
Accounting Standards Board ("FASB") issued SFAS No. 114, "Accounting by
Creditors for Impairment of a Loan." This statement prescribes that a loan
is impaired when it is probable that a creditor will be unable to collect
all amounts due (principal and interest) according to the contractual terms
of the loan agreement. Measurement of the impairment can be based on the
expected future cash flows of an impaired loan, which are to be discounted
at the loan's effective interest rate, or impairment can be measured by
reference to an observable market price, if one exists, or the fair value
of the collateral. Collateral-dependent loans for which foreclosure is
probable must be measured at the fair value of the collateral.
Additionally, the statement prescribes measuring impairment of a
restructured loan by discounting the total expected future cash flows at
the loan's effective rate of interest in the original loan agreement.
Finally, the impact of initially applying the statement is reported as a
part of the provision for credit losses. The Company must adopt this
standard by 1995. The Company has not yet determined the impact of the
adoption of this statement or when the Company will adopt this statement.
In May 1993, the FASB also issued SFAS No. 115, "Accounting for
Certain Investments in Debt and Equity Securities." This statement
addresses the accounting and reporting for investments in equity securities
that have readily determinable fair values, and all investments in debt
securities. Under this statement, securities will be classified into three
categories as follows:
Held-to-Maturity Securities - Debt securities that the Company has the
positive intent and ability to hold to maturity. These securities are to
be reported at amortized cost.
Trading Securities - Debt and equity securities that are bought and
held principally for the purpose of selling them in the near term. These
securities are to be reported at fair value with unrealized gains and
losses included in earnings.
59
Available-for-Sale Securities - Debt and equity securities not
classified as either held-to-maturity or trading securities. These
securities are to be reported at fair value, with unrealized gains and
losses excluded from earnings and reported as a separate component of
stockholders' equity (net of tax effects).
The Company has elected to adopt SFAS No. 115 as of January 1, 1994.
If the Company had adopted SFAS No. 115 as of December 31, 1993,
stockholders' equity would have been increased by approximately $620,000,
net of $394,000 of applicable income taxes.
Reclassifications - Certain reclassifications were made to prior
years' presentations to conform them to the current-year presentation.
These reclassifications are of a normal recurring nature.
2.INVESTMENT SECURITIES
The amortized cost and estimated market value of investment
securities held for investment and investment securities held for sale are
shown below. All securities held are publicly traded, and estimated
market value was obtained from an independent pricing service.
December 31, 1993
Gross Gross
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
Investment Securities Held
for Investment:
Mortgage-backed securities $ 3,296,842 $ 247,589 $ (2,431) $ 3,542,000
Municipal bonds 5,857,074 106,926 5,964,000
$ 9,153,916 $ 354,515 $ (2,431) $ 9,506,000
Investment Securities Held
for Sale:
U.S. Treasury securities $32,923,410 $1,343,442 $ (4,852) $34,262,000
Mortgage-backed securities 22,579,203 76,253 (13,456) 22,642,000
CMO/REMIC 69,862,334 26,886 (420,220) 69,469,000
Government Agency Fund 15,000,000 5,000 15,005,000
$140,364,947 $1,451,581 $ (438,528) $141,378,000
60
December 31, 1992
Gross Gross
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
Investment Securities Held
for Investment:
U.S. Treasury securities $ 71,628,597 $ 3,736,403 $ 75,365,000
Auction rate preferred stock 10,800,000 10,800,000
Mortgage-backed securities 21,536,523 473,836 $(230,359) 21,780,000
$103,965,120 $ 4,210,239 $(230,359) $107,945,000
Investment Securities Held for Sale -
U.S. Treasury securities $ 17,088,577 $ 373,423 $ - $ 17,462,000
The CMO/REMIC securities noted above represent collateralized mortgage
obligations and real estate mortgage investment conduits. All are issues
of U.S. government agencies that guarantee payment of principal and
interest of the underlying mortgages. All CMO/REMIC securities in the
Bank's investment portfolio have met or surpassed the Federal Financial
Institutions Examination Council's three-part test.
At December 31, 1993 and 1992, investment securities having an
amortized cost of approximately $38,780,000 and $42,553,000, respectively,
were pledged to secure public deposits and for other purposes as required
or permitted by law.
The amortized cost and market value of debt securities at December 31,
1993, by contractual maturity, are shown below. Although mortgage-backed
securities/CMO/REMIC have contractual maturities through 2019, expected
maturities will differ from contractual maturities because borrowers may
have the right to prepay such obligations without penalty.
Weighted
Amortized Market Average
Cost Value Yield
Due in one year or less $ 27,997,692 $ 28,185,000 6.40 %
Due after one year through five years 25,782,792 27,046,000 7.10 %
53,780,484 55,231,000 6.74%
Mortgage-backed securities/CMO/REMIC 95,738,379 95,653,000 5.67 %
$149,518,863 $150,884,000 6.05 %
61
3.LOANS AND LEASE FINANCE RECEIVABLES
The Bank grants loans to its customers throughout its primary market
in the San Gabriel Valley and Inland Empire areas of Southern California,
which has recently experienced adverse economic conditions, including
declining real estate values. These factors have adversely affected
certain borrowers' ability to repay loans. Although management believes the
level of allowances for loan losses is adequate to absorb losses inherent
in the loan portfolio, additional declines in the local economy may result
in increasing loan losses that cannot be reasonably predicted at December
31, 1993.
The Bank makes loans to borrowers in a number of different industries.
No industry had aggregate loan balances exceeding 10% of the December 31,
1993 or 1992 loan and lease finance receivables balance. At December 31,
1993 the Bank's loan portfolio included approximately $322.9 million of
loans secured by commercial and residential real estate properties.
The following is a summary of the components of loan and lease
finance receivables:
December 31
1993 1992
Commercial, financial and industrial $282,177,282 $260,321,437
Real estate:
Construction 56,358,172 43,879,362
Mortgage 79,929,218 61,618,937
Loans to individuals for household, family and
other consumer expenditures 12,516,627 11,642,170
Municipal lease finance receivables 21,555,980 5,500,997
452,537,279 382,962,903
Less:
Allowance for credit losses (Note 5) 8,849,442 6,461,345
Deferred net loan origination fees 1,603,989 1,840,020
$442,083,848 $374,661,538
The following is a summary of nonperforming loans at December
31, 1993 and 1992:
62
December 31
1993 1992
Loans contractually past due 90 or more
days and continuing to accrue interest $ 272,000
Nonaccrual $12,492,000 6,642,000
Troubled debt restructurings 770,000 3,291,000
$13,262,000 $10,205,000
Interest foregone on nonperforming loans outstanding during the years
ended December 31, 1993, 1992 and 1991 amounted to approximately
$1,186,000, $698,600, and $1,037,200, respectively.
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:
December 31
1993 1992
Outstanding balance, beginning of year $ 3,415,000 $2,971,000
Credit granted, including renewals 3,088,000 802,000
Repayments 3,430,000 (358,000)
Outstanding balance, end of year $ 3,073,000 $3,415,000
63
5.ALLOWANCE FOR CREDIT AND OTHER REAL ESTATE OWNED LOSSES
Activity in the allowance for credit losses was as follows:
December 31
1993 1992 1991
Balance, beginning of year $ 6,461,345 $5,262,614 $5,091,679
Provision charged to operations 1,720,000 1,772,109 604,000
Loans charged off (1,018,370) (687,360) (478,038)
Additions to allowance resulting from
acquisitions 1,586,995
Recoveries on loans previously charged off 99,472 113,982 44,973
Balance, end of year $ 8,849,442 $6,461,345 $5,262,614
Activity in the allowance for other real estate owned losses was
as follows:
December 31,
1993 1992
Balance, beginning of year $ 100,000
Provision charged to operations 2,830,000 $100,000
Charge-offs of real estate owned (1,279,097)
$ 1,650,903 $100,000
The Company incurred expenses of $1,004,015 (1993), $205,768
(1992) and $103,651 (1991) related to the holding and disposition of
other real estate owned.
6.PREMISES AND EQUIPMENT
Premises and equipment consist of:
December 31
1993 1992
Land $ 911,845 $ 911,845
Bank premises 3,846,426 3,846,426
64
Furniture and equipment 13,010,578 10,773,059
Leased property under capital lease 649,330 649,330
18,418,179 16,180,660
Less accumulated depreciation and
amortization 9,352,229 8,324,344
$ 9,065,950 $ 7,856,316
7.INCOME TAXES
In 1992, the Company adopted SFAS No. 109, "Accounting for Income Taxes."
Under the provisions of SFAS No. 109, the Company elected not to restate
prior year financial statements, and has determined that the cumulative
effect of implementation was immaterial.
65
Income tax expense (benefit) comprised the following:
Year Ended December 31,
1993 1992 1991
Current provision:
Federal $5,088,401 $4,792,091 $4,059,546
State 1,895,830 1,725,555 1,457,744
6,984,231 6,517,646 5,517,290
Deferred provision (benefit):
Federal (728,828) (601,578) (245,004)
State (215,225) (204,623) (54,906)
(944,053) (806,201) (299,910)
$6,040,178 $5,711,445 $5,217,380
Income tax liability (asset) comprised the following:
December 31,
1993 1992
Current:
Federal $ (348,630) $ 850,125
State 30,332 105,799
(318,298) 955,924
Deferred:
Federal (2,765,334) (2,036,506)
State (846,040) (630,815)
(3,611,374) (2,667,321)
$(3,929,672) $(1,711,397)
66
The components of the net deferred tax asset are as follows:
Year Ended December 31,
1993 1992
Federal
Deferred tax liabilities:
Depreciation $ 339,666 $ 309,929
Leases 220,959 228,252
Other 9,605
Gross deferred tax liability 570,230 538,181
Deferred tax assets:
California franchise tax 367,426 389,235
Bad debt and credit loss deduction 2,390,322 1,925,299
Other real estate owned reserves 577,816
Other 260,153
Gross deferred tax asset 3,335,564 2,574,687
Net deferred tax asset - federal $2,765,334 $2,036,506
Year Ended December 31,
1993 1992
State
Deferred tax liabilities -
Depreciation $ 128,818 $ 103,734
Gross deferred tax liability 128,818 103,734
Deferred tax assets:
Bad debt and credit loss deduction 743,848 724,222
Other real estate owned reserves 183,366
Other 47,644 10,327
Gross deferred tax asset 974,858 734,549
Net deferred tax asset - state $ 846,040 $ 630,815
67
No valuation allowance under SFAS No. 109 was required. Deferred tax
assets would be fully realized as an offset against reversing temporary
differences, which create net future tax liabilities, or through loss
carrybacks. Therefore, even if no future income was expected, deferred tax
assets would still be fully realized.
A reconciliation of the statutory income tax rate to the consolidated
effective income tax rate follows:
Year Ended December 31,
1993 1993 1992 1992 1991 1991
Amount Percent Amount Percent Amount Percent
Federal income
tax at
statutory rate $5,342,369 34.3% $5,007,012 34.0% $4,483,260 34.0%
State franchise
taxes, net of
federal income
tax benefit 1,140,830 7.3 1,069,825 7.3 926,261 7.0
Other, net (443,021) (2.8) (365,392) (2.5) (192,141) (1.5)
$6,040,178 38.8% $5,711,445 38.8% $5,217,380 39.5%
8.DEPOSITS
Time certificates of deposit with balances of $100,000 or more
amounted to approximately $45,862,000 and $43,887,000 at December 31, 1993
and 1992, respectively. Interest expense on such deposits amounted to
approximately $1,804,000 (1993), $2,044,000 (1992) and $2,856,000 (1991).
68
9.COMMITMENTS AND CONTINGENCIES
The Bank leases land and buildings under operating leases for varying
periods extending to 2014, at which time the Bank can exercise options that
could extend the leases to 2027. The future minimum annual rental payments
required, which have initial or remaining noncancelable lease terms in
excess of one year as of December 31, 1993, excluding property taxes and
insurance, are approximately as follows:
1994 $ 1,548,000
1995 1,498,000
1996 1,458,000
1997 1,444,000
1998 1,461,000
Succeeding years 6,475,000
Total minimum payments required $13,884,000
Total rental expense was approximately $1,449,000 (1993), $1,460,000
(1992) and $1,223,000 (1991).
At December 31, 1993, the Bank had commitments to extend credit of
approximately $61,543,000 and obligations under letters of credit of
$7,182,000. Commitments to extend credit are agreements to lend to
customers provided there is no violation of any condition established in
the contract. Commitments generally have fixed expiration dates or other
termination clauses and may require payment of a fee. Commitments are
generally variable rate, and many of these commitments are expected to
expire without being drawn upon. As such, the total commitment amounts do
not necessarily represent future cash requirements. The Company uses the
same credit underwriting policies in granting or accepting such commitments
or contingent obligations as it does for on-balance-sheet instruments,
evaluating customers' creditworthiness individually.
Standby letters of credit written are conditional commitments issued
by the Company to guarantee the financial performance of a customer to a
third party. Those guarantees are primarily issued to support private
borrowing arrangements. The credit risk involved in issuing letters of
credit is essentially the same as that involved in extending loan
facilities to customers. When deemed necessary, the Company holds
appropriate collateral supporting those commitments. Management does not
anticipate any material losses as a result of these transactions.
In the ordinary course of business, the Company becomes involved in
litigation. In the opinion of management and based upon discussions with
legal counsel, the disposition of such litigation will not have a material
effect on the Company's consolidated financial position.
69
During 1993 the Company executed a definitive agreement that provides
for its acquisition of Western Industrial National Bank ("WIN") through a
merger of WIN and the Bank. At December 31, 1993, WIN had deposits, loans
and shareholders' equity of $36.3 million, $36.6 million and $8.4 million,
respectively. Management currently expects the acquisition to be
consummated during the second quarter of 1994.
10.EMPLOYEE PROFIT SHARING PLAN
The Bank sponsors a noncontributory 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. Contributions to the plan are
determined by the Board of Directors. Contributions are limited to 15% of
the compensation of eligible participants. The Bank contributed
approximately $680,000 (1993), $639,000 (1992) and $760,000 (1991).
11.STOCK OPTION PLANS
The Company has a plan under which options to purchase shares of the
Company's common stock have been and may be granted to certain officers and
directors. The plan authorizes the issuance of up to 1,028,500 shares.
Option prices under the plan are to be at the fair market value of such
shares on the date of grant, and options are exercisable in such
installments as determined by the Board of Directors. Each option shall
expire no later than ten years from the grant date. Additional options
have been granted to certain officers and directors under a plan that
expired during 1991. Although no more options can be granted under the
expired plan, the options granted thereunder will remain outstanding until
they are exercised or canceled pursuant to their terms.
70
At December 31, 1993, options for the purchase of 482,555 shares of
the Company's common stock were outstanding, of which options to purchase
119,143 shares were exercisable at prices ranging from $2.66 to $14.50;
573,271 shares of common stock were available for the granting of future
options. Status of all optioned shares is as follows:
Shares Price Range
Outstanding at January 1, 1991 641,570 $ 2.66 - $16.14
Granted 348,810 $ 11.71 - $12.62
Exercised (88,312) $ 2.66 - $ 3.97
Canceled (285,718) $ 3.99 - $16.14
Outstanding at December 31, 1991 616,350 $ 2.66 - $12.62
Granted 348,398 $ 7.50 - $10.45
Exercised (159,645) $ 2.66 - $ 7.50
Canceled (350,460) $ 2.66 - $10.68
Outstanding at December 31, 1992 454,643 $ 2.66 - $12.62
Granted 55,745 $ 10.88 - $14.50
Exercised (13,753) $ 7.50 - $11.70
Canceled (14,080) $ 7.50 - $11.71
Outstanding at December 31, 1993 482,555 $ 2.66 - $14.50
In 1993 and 1992, the Company granted to a key executive 22,000 and
10,000 shares, respectively, of the Company's common stock in accordance
with his compensation agreement. The agreement also provides for the
granting of an additional 60,500 shares through 1996 for which the
executive is entitled to receive stock and cash dividends.
12.REGULATORY MATTERS
Section 23A of the Federal Reserve Act restricts the Bank from making
loans or advances to the Company and other affiliates in excess of 20% of
the Bank's capital stock and surplus.
In addition, California Banking Law limits the amount of dividends
that a bank can pay without obtaining prior approval from bank regulators.
Under this law, the Bank could, as of December 31, 1993, declare and pay
dividends of approximately $18,025,000 to the Company. The remaining
amount of Bank equity of approximately $41,265,000 is restricted with
respect to dividends and represents 70% of consolidated stockholders'
equity.
71
As of December 31, 1993, the Company and the Bank were required to
meet the risk-based capital standard set by the respective regulatory
authorities. The risk-based capital standards require the achievement of a
minimum ratio of total capital to risk-weighted assets of 8.0% (of which at
least 4.0% must be Tier 1 capital, which consists primarily of common stock
and retained earnings, less goodwill). Additionally, the regulatory
authorities require the highest rated institutions to maintain a minimum
leverage ratio of 3% as of December 31, 1993. The leverage ratio basically
consists of Tier 1 capital divided by average total assets. Institutions
experiencing or anticipating significant growth or those with high or
inordinate levels of risk are expected to maintain a leverage ratio well
above the minimum level, e.g., 4% or 5%. The leverage ratio will operate
in conjunction with the risk-based capital guidelines. The capital ratios
of the Company and Bank at December 31, 1993 and 1992 are as follows:
Company Bank Minimum
1993
Risk-Based Capital Ratio:
Tier 1 11.8% 11.7% 4.00%
Total 13.1% 13.0% 8.00%
Leverage Ratio 8.4% 8.3% 3.00%
1992
Risk-Based Capital Ratio:
Tier 1 12.4% 12.1% 4.00%
Total 13.7% 13.3% 8.00%
Leverage Ratio 9.2% 8.9% 3.00%
Banking regulations require that all banks maintain a percentage of
their deposits as reserves at the Federal Reserve Bank. During the year
ended December 31, 1993, required reserve balances averaged approximately
$11,099,000.
72
13.CONDENSED FINANCIAL INFORMATION OF PARENT COMPANY
BALANCE SHEETS
(In thousands)
December 31,
1993 1992
Assets:
Investment in Chino Valley Bank $59,290 $50,410
Other assets, net 782 1,628
Total assets $60,072 $52,038
Liabilities $ 114
Stockholders' equity 59,958 $52,038
Total liabilities and stockholders' equity $60,072 $52,038
STATEMENTS OF EARNINGS
(In thousands, except per-share amounts)
Year Ended December 31,
1993 1992 1991
Equity in earnings of Chino Valley Bank $9,935 $8,941 $8,075
Other (expense) income, net (413) 74 (106)
Net earnings $9,522 $9,015 $7,969
Dividends received from Chino Valley Bank $6,098 $ 956 $1,872
73
STATEMENTS OF CASH FLOWS
(In thousands)
Year Ended December 31,
1993 1992 1991
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 9,522 $ 9,015 $ 7,969
Adjustments to reconcile net earnings to cash
provided by (used in) operating activities:
Earnings of Chino Valley Bank (9,935) (8,941) (8,075)
Other operating activities, net 1,405 (599) (382)
Total adjustments (8,530) (9,540) (8,457)
Net cash provided by
(used in) operating activities 992 525 (488)
CASH FLOWS FROM INVESTING ACTIVITIES:
Distributed earnings of Chino Valley Bank 6,098 956 1,872
Investment in subsidiaries (4,693)
Net cash provided by
investing activities 1,405 956 1,872
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash dividends on common stock (2,111) (1,938) (1,678)
Repurchases of common shares (919)
Proceeds from exercise of stock options 106 477 248
Net cash used in financing activities (2,005) (1,461) (2,349)
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 392 (1,030) (965)
CASH AND CASH EQUIVALENTS,
BEGINNING OF YEAR 170 1,200 2,165
CASH AND CASH EQUIVALENTS,
END OF YEAR $ 562 $ 170 $ 1,200
74
14.QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data follows:
(In thousands, except per-share amounts)
Three Months Ended
March 31 June 30 September 30 December 31
1993
Net interest income $8,439 $8,791 $9,053 $9,608
Investment securities gains, net 574 1,705 1,411 31
Provision for credit losses 420 375 450 475
Net earnings 2,171 2,316 2,490 2,545
Earnings per common share 0.29 0.31 0.33 0.34
1992
Net interest income $7,613 $7,825 $8,129 $8,453
Investment securities gains, net 69 - - 193
Provision for credit losses 547 300 225 700
Net earnings 2,079 2,107 2,288 2,541
Earnings per common share 0.28 0.29 0.31 0.35
75
15.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, 1993 and 1992. The use of different market assumptions
and/or estimation methodologies may have a material effect on the estimated
fair value amounts.
December 31, 1993
Carrying Estimated
Amount Fair Value
Assets
Cash and due from banks $ 45,852,849 $ 45,852,849
Federal funds sold 15,000,000 15,000,000
Investment securities held for investment 9,153,916 9,506,000
Investment securities held for sale 140,364,947 141,378,000
Loans and lease finance receivables, net 442,083,848 447,680,000
Liabilities
Deposits:
Noninterest-bearing 221,552,597 221,552,597
Interest-bearing 374,403,704 375,948,000
December 31, 1992
Carrying Estimated
Amount Fair Value
Assets
Cash and due from banks $ 58,939,035 $ 58,939,035
Federal funds sold 12,290,000 12,290,000
Investment securities held for investment 103,965,120 107,945,000
Investment securities held for sale 17,088,577 17,462,000
Loans and lease finance receivables, net 374,661,538 379,940,000
Liabilities
Deposits:
Noninterest-bearing 157,428,049 157,428,049
Interest-bearing 369,495,372 369,840,000
76
The methods and assumptions used to estimate the fair value of each
class of financial instruments for which it is practicable to estimate that
value are explained below:
For federal funds sold and cash and due from banks, the carrying
amount is considered to be a reasonable estimate of fair value. For
investment securities, fair values are based on quoted market prices,
dealer quotes and prices obtained from an independent pricing service (see
also Notes 1 and 2).
The carrying amount of loans and lease financing receivables is their
contractual amounts outstanding reduced by deferred net loan origination
fees and the allocable portion of the allowance for credit losses (see also
Notes 1 and 3). Variable rate loans are composed primarily of loans whose
interest rates float with changes in the prime interest rate. The carrying
amount of variable rate loans (other than such loans in nonaccrual status)
is considered to be their estimated fair value.
The fair value of fixed rate loans (other than such loans in
nonaccrual status) was estimated by discounting the remaining contractual
cash flows using the estimated current rate at which similar loans would be
made to borrowers with similar credit risk characteristics and for the same
remaining maturities, reduced by deferred net loan origination fees and the
allocable portion of the allowance for credit losses.
Accordingly, in determining the estimated current rate for discounting
purposes, no adjustment has been made for any change in borrowers' credit
risks since the origination of such loans. Rather, the allocable portion
of the allowance for credit losses is considered to provide for such
changes in estimating fair value.
The fair value of loans on nonaccrual status (see Note 3) has not been
specifically estimated because it is not practicable to reasonably assess
the credit risk adjustment that would be applied in the market place for
such loans. As such, the estimated fair value of total loans at December
31, 1993 and 1992 includes the carrying amount of nonaccrual loans at each
respective date.
The amounts payable to depositors for demand, savings, and money
market accounts are considered to be stated at fair value. The fair value
of fixed-maturity certificates of deposit is estimated using the rates
currently offered for deposits of similar remaining maturities.
The fair value estimates presented herein are based on pertinent
information available to management as of December 31, 1993 and 1992.
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.
16.ACQUISITION OF BRANCH AND PURCHASE OF ASSETS AND LIABILITIES
77
On March 8, 1993, the Company purchased Fontana First National Bank,
assuming approximately $23.7 million in deposits and acquiring
approximately $18.3 million in loans. Fontana First National Bank was
purchased by the Company for $5.0 million, which resulted in the recording
of $1.9 million in goodwill. The assets and liabilities were contributed
to the Bank by the Company.
On October 21, 1993, the Bank assumed the deposits and purchased
certain assets of the failed Mid City Bank, N.A. from the Federal Deposit
Insurance Corporation (the "FDIC"). The acquisition was structured under
a written agreement between the FDIC and the Bank that allowed the Bank
certain rights in regard to repricing deposits and purchasing additional
assets, as well as providing the Bank with indemnification from prior
activities of the failed bank. The Bank assumed approximately $79.3
million in deposits and purchased $4.6 million in investments and $20.8
million in loans.
17.SUBSEQUENT EVENT
In January 1994, the greater Los Angeles area was affected by a major
earthquake and series of aftershocks which were centered in the San
Fernando Valley. The Company is not located in the San Fernando Valley,
nor is the San Fernando Valley part of the Company's service area.
However, it is not yet possible to assess the effect of the earthquake on
the Company's borrowers' primary or secondary repayment sources, or its
overall effect on the local economy in general. The Company's facilities
and other real estate owned suffered no significant damage, and management
is not aware of any effects from the earthquake which would materially
impact its financial condition.
78
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, 1993 and 1992, and the
related consolidated statements of earnings, stockholders' equity, and
cash flows for each of the three years in the period ended December 31,
1993. These financial statements are the responsibility of CVB Financial
Corp.'s management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We have 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
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, 1993 and 1992, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1993, in conformity with generally accepted accounting
principles.
/s/ Deloitte & Touche
Delloite & Touche
Los Angeles, California
January 27, 1994
79
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Except as hereinafter noted, the information concerning directors and
executive officers of the Company is incorporated by reference from the
section entitled "DIRECTORS AND EXECUTIVE OFFICERS - Election of Directors"
and "COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934"
of the Company's definitive Proxy Statement to be filed pursuant to
Regulation 14A within 120 days after the end of the last fiscal year. For
information concerning executive officers of the Company, see "Item 4(A).
EXECUTIVE OFFICERS OF THE REGISTRANT" above.
ITEM 11. EXECUTIVE COMPENSATION
Information concerning management remuneration and transactions is
incorporated by reference from the section entitled "DIRECTORS AND
EXECUTIVE OFFICERS -Compensation of Executive Officers and Directors -
Executive Compensation, - Employment Agreements and Termination of
Employment Arrangements, - Stock Options, - Option Exercises and Holdings
and - Compensation Committee Interlocks and Insider Participation" of the
Company's definitive Proxy Statement to be filed pursuant to Regulation
14A within 120 days after the end of the last fiscal year.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information concerning security ownership of certain beneficial owners
and management is incorporated by reference from the sections entitled
"INTRODUCTION -Principal Shareholders" and "DIRECTORS AND EXECUTIVE
OFFICERS - Election of Directors" of the Company's definitive Proxy
Statement to be filed pursuant to Regulation 14A within 120 days after the
end of the last fiscal year.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information concerning certain relationships and related transactions
with management and others is incorporated by reference from the section
entitled "DIRECTORS AND EXECUTIVE OFFICERS--Certain Transactions" of the
Company's definitive Proxy Statement to be filed pursuant to Regulation
14A within 120 days after the end of the last fiscal year.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K
80
Financial Statements
Reference is made to the index to Financial Statements at
page 50 for a list of financial statements filed as part of this
Report.
Exhibits
See Index to Exhibits at Page 85 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 85 to this Form 10-K.
Reports on Form 8-K
The Company filed a Report on Form 8-K, on November 4, 1993
reporting under Item 5.
Undertaking for Registration Statement on Form S-8
For the purpose of complying with the amendments to the rules
governing Form S-8 (effective July 13, 1990) under the Securities
Act of 1933, the undersigned registrant hereby undertakes as
follows, which undertaking shall be incorporated by reference
into registrant's Registration Statement on Form S-8 No. 2-76121
(filed February 18, 1982):
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers
and controlling persons of the registrant pursuant to the
foregoing provisions, or otherwise, the registrant has been
advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as
expressed in the Securities Act of 1933 and is, therefore,
unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of
any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities
being registered, the registrant will, unless in the opinion of
81
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.
82
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 16th day of March, 1994.
CVB FINANCIAL CORP.
(Registrant)
By /s/ D. Linn Wiley
D. LINN WILEY
President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the registrant in the capacities and on the dates
indicated.
Signature Title Date
/s/ George A. Borba Chairman of the Board March 28, 1994
George A. Borba
/s/ John A. Borba Director March 28, 1994
John A. Borba
/s/ Ronald O. Kruse Director March 28, 1994
Ronald O. Kruse
/s/ John J. LoPorto Director March 28, 1994
John J. LoPorto
/s/ Charles M. Magistro Director March 28, 1994
Charles M. Magistro
/s/ John Vander Schaaf Director March 28, 1994
John Vander Schaaf
/s/ Robert J. Schurheck Chief Financial Officer March 28, 1994
Robert J. Schurheck (Principal Financial
and Accounting Officer)
/s/ D. Linn Wiley Director, President and March 28, 1994
D. Linn Wiley Chief Executive Officer
(Principal Executive Officer)
83
INDEX TO EXHIBITS
Exhibit No. Page
3.1 Articles of Company, as amended.(1) *
3.2 Bylaws of Company, as amended.(2) *
10.1 1981 Stock Option Plan, as amended.(1) *
10.2 Agreement by and among D. Linn Wiley, CVB
Financial Corp. and Chino Valley Bank dated
August 8, 1991.(2) *
10.3 Chino Valley Bank Profit Sharing Plan, as amended.(3) *
10.4 Definitive Agreement by and between CVB Financial
Corp. and Huntington Bank dated January 6, 1987.(4) *
10.5 Transam One Shopping Center Lease dated May 20, 1986,
by and between Transam One and Chino Valley Bank for
the East Chino Office.(4) *
10.6 Sublease dated November 1, 1986, by and between
Eldorado Bank and Chino Valley Bank for the East
Highland Office.(4) *
10.7 Lease Assignment, Acceptance and Assumption and
Consent dated December 23, 1986, executed by the
FDIC, Receiver of Independent National Bank, Covina,
California, as Assignor, Chino Valley Bank, as
Assignee, and INB Bancorp, as Landlord under that
certain Ground Lease dated September 30, 1983 by and
between INB Bancorp and Independent National Bank for
the Covina Office.(4) *
10.8 Lease Assignment dated May 15, 1987 and Consent of
Lessor dated April 21, 1987 executed by Huntington
Bank, as Assignor, Chino Valley Bank as Assignee and
Gerald G. Myers and Lynn H. Myers as Lessors under
that certain lease dated March 1, 1979 between
Lessors and Huntington Bank for the Arcadia Office.(5) *
10.9 Lease Assignment dated May 15, 1987 and Consent of
Lessor dated March 18, 1987 executed by Huntington
Bank, as Assignor, Chino Valley Bank as Assignee and
George R. Meeker as Lessor under that certain
Memorandum of Lease dated May 1, 1982 between Lessor
and Huntington Bank for the South Arcadia Office.(5) *
10.10 Lease Assignment dated May 15, 1987 and Consent of
84
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.(6) *
10.13 Form of Indemnification Agreement.(7) *
10.14 Office Building Lease between Chicago Financial
Association I, a California Limited Partnership and
CVB Financial Corp. dated October 17, 1989, as
amended, for the Riverside Branch.(1) *
10.15 Office Building Lease between Lobel Financial
Corporation and Chino Valley Bank dated June 12,
1990, for the Premier Results data processing center.(3) *
10.16 Office Space Lease between Rancon Realty Fund IV
and Chino Valley Bank dated September 6, 1990, for
the Tri-City Business Center Branch.(3) *
10.17 1991 Stock Option Plan.(6) *
10.18 Severance Agreement between John Cavallucci, Chino Valley
Bank and CVB Financial Corp. dated March 26, 1991 and
Waiver Agreement dated October 4, 1991.(2) *
10.19 Key Employee Stock Grant Plan.(8) *
10.20 Lease by and between Allan G. Millew and William F.
Kragness and Chino Valley Bank dated March 5, 1993
for the Fontana Office. (9) *
10.21 Office Lease by and between Mulberry Properties
and Chino Valley Bank dated October 12, 1992. (9) *
10.22 First Amended and Restated Agreement and Plan of
Reorganization by and between CVB Financial Corp.,
Chino Valley Bank and Fontana First National Bank,
dated October 8, 1992 88
85
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 181
10.25 Lease by and between Bank of America and Chino Valley
Bank dated October 15, 1993, for the West Arcadia Office 230
10.26 Lease be and between RCI Loring and CVB Financial Corp
dated March 11, 1993, for the Riverside Office. 250
22 Subsidiaries of Company. (9) *
23 Consent of Independent Certified Public Accountants. 283
86
__________________________
*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 0-10140, 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 0-10140, 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 0-10140, 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 0-10140, 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 0-
10140, 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 0-10140, which is incorporated
herein by this reference.
(8) Filed as Exhibit 4.1 to Registrant's Registration Statement on
Form S-8 (33-50442) filed with the Commission on August 1,
1992, which is incorporated herein by this reference.
(9) Filed as Exhibit 10.20, 10.21 and 22 to Registrant's Annual
Report on Form 10-K for the fiscal year ended December 31,
1992, Commission file number 0-10140, 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.
87