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EX-21 - EX-21 - CVB FINANCIAL CORPv55365exv21.htm
EX-23 - EX-23 - CVB FINANCIAL CORPv55365exv23.htm
EX-12 - EX-12 - CVB FINANCIAL CORPv55365exv12.htm
EX-32.1 - EX-32.1 - CVB FINANCIAL CORPv55365exv32w1.htm
EX-99.2 - EX-99.2 - CVB FINANCIAL CORPv55365exv99w2.htm
EX-10.7 - EX-10.7 - CVB FINANCIAL CORPv55365exv10w7.htm
EX-31.2 - EX-31.2 - CVB FINANCIAL CORPv55365exv31w2.htm
EX-31.1 - EX-31.1 - CVB FINANCIAL CORPv55365exv31w1.htm
EX-99.1 - EX-99.1 - CVB FINANCIAL CORPv55365exv99w1.htm
EX-32.2 - EX-32.2 - CVB FINANCIAL CORPv55365exv32w2.htm
EX-10.21(A) - EX-10.21(A) - CVB FINANCIAL CORPv55365exv10w21xay.htm
EX-10.21(B) - EX-10.21(B) - CVB FINANCIAL CORPv55365exv10w21xby.htm
Table of Contents

 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
     
þ   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
For the fiscal year ended December 31, 2009
or
     
o   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
For the transition period from N/A to N/A
Commission file number 1-10140
CVB FINANCIAL CORP.
(Exact name of registrant as specified in its charter)
     
California   95-3629339
(State or other jurisdiction of incorporation
or organization)
  (I.R.S. Employer Identification No.)
     
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 class   Name of Each Exchange on Which Registered
Common Stock, no par value   NASDAQ Stock Market, LLC
Preferred Stock Purchase Rights   NASDAQ Stock Market, LLC
Securities registered pursuant to Section 12(g) of the Act:

None
     Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No þ
     Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No þ
     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 þ No o
     Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). o Yes o 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. o
      Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
             
Large accelerated filer o   Accelerated filer þ   Non-accelerated filer o   Smaller reporting company o
        (Do not check if a smaller reporting company)    
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No þ
     As of June 30, 2009, the aggregate market value of the common stock held by non-affiliates of the registrant was approximately $398,384,452.
     Number of shares of common stock of the registrant outstanding as of February 15, 2010: 106,288,979.
     
DOCUMENTS INCORPORATED BY REFERENCE
  PART OF
Definitive Proxy Statement for the Annual Meeting of Stockholders which will be filed within 120 days of the fiscal year ended December 31, 2009
  Part III of Form 10-K
 
 

 


 

CVB FINANCIAL CORP.
2009 ANNUAL REPORT ON FORM 10-K
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 EX-10.7
 EX-10.21(A)
 EX-10.21(B)
 EX-12
 EX-21
 EX-23
 EX-31.1
 EX-31.2
 EX-32.1
 EX-32.2
 EX-99.1
 EX-99.2

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INTRODUCTION
Cautionary Note Regarding Forward-Looking Statements
Certain statements in this report constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities and Exchange Act of 1934, as amended, or Exchange Act, and as such involve risk and uncertainties. These forward-looking statements relate to, among other things, expectations of the environment in which we operate, projections of future performance, perceived opportunities in the market and strategies regarding our mission and vision. Our actual results may differ significantly from the results discussed in such forward-looking statements.
Factors that could cause actual results to differ from those discussed in the forward-looking statements include but are not limited to:
Local, regional, national and international economic conditions and events and the impact they may have on us and our customers;
Ability to attract deposits and other sources of liquidity;
Oversupply of inventory and continued deterioration in values of California real estate, both residential and commercial;
A prolonged slowdown in construction activity;
Accounting adjustments in connection with our acquisition of assets and assumptions of liabilities from San Joaquin Bank;
Changes in the financial performance and/or condition of our borrowers;
Changes in the level of non-performing assets and charge-offs;
Effects of acquisitions we may make;
The effect of changes in laws and regulations (including laws and regulations concerning taxes, banking, securities, executive compensation and insurance) with which we and our subsidiaries must comply;
Changes in estimates of future reserve requirements based upon the periodic review thereof under relevant regulatory and accounting requirements;
Inflation, interest rate, securities market and monetary fluctuations;
Political instability;
Acts of war or terrorism, or natural disasters, such as earthquakes, or the effects of pandemic flu;
The timely development and acceptance of new banking products and services and perceived overall value of these products and services by users;
Changes in consumer spending, borrowing and savings habits;
Technological changes;
The ability to increase market share and control expenses;
Changes in the competitive environment among financial and bank holding companies and other financial service providers;

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Continued volatility in the credit and equity markets and its effect on the general economy;
The effect of changes in accounting policies and practices, as may be adopted by the regulatory agencies, as well as the Public Company Accounting Oversight Board, the Financial Accounting Standards Board and other accounting standard setters;
Changes in our organization, management, compensation and benefit plans;
The costs and effects of legal and regulatory developments including the resolution of legal proceedings or regulatory or other governmental inquiries and the results of regulatory examinations or reviews; and
Our success at managing the risks involved in the foregoing items.
For additional information concerning risks we face, see “Item 1A. Risk Factors” and any additional information we set forth in our periodic reports filed pursuant to the Exchange Act, including this Annual Report on Form 10-K. We do not undertake any obligation to update our forward-looking statements to reflect occurrences or unanticipated events or circumstances arising after the date of such statements except as required by law.
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 “we” or 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 “Bank Holding Company Act”). The Company commenced business on December 30, 1981 when, pursuant to a reorganization, it acquired all of the voting stock of Chino Valley Bank. On March 29, 1996, Chino Valley Bank changed its name to Citizens Business Bank (the “Bank”). The Bank is our principal asset. The Company has three other inactive subsidiaries: CVB Ventures, Inc.; Chino Valley Bancorp; and ONB Bancorp. The Company is also the common stockholder of CVB Statutory Trust I, CVB Statutory Trust II, CVB Statutory Trust III, and FCB Trust II. CVB Statutory Trusts I and II were created in December 2003 and CVB Statutory Trust III was created in January 2006 to issue trust preferred securities in order to raise capital for the Company. The Company acquired FCB Trust II (which was also created to raise capital) through the acquisition of First Coastal Bancshares (“FCB”) in June 2007.
     CVB’s principal business is to serve as a holding company for the Bank and for other banking or banking related subsidiaries, which the Company may establish or acquire. We have not engaged in any other material 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 the Bank and capital raised directly by CVB. 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 — Dividends and Other Transfers of Funds.” At December 31, 2009, the Company had $6.74 billion in total consolidated assets, $3.97 billion in net loans and $4.44 billion in deposits.
     On October 16, 2009, we acquired substantially all of the assets and assumed substantially all of the liabilities of San Joaquin Bank (“SJB”) headquartered in Bakersfield, California, in an FDIC-assisted transaction. We acquired all five branches of SJB, one of which we intend to consolidate with our existing Bakersfield business financial center in March 2010. Through this acquisition, we acquired $489.1 million in loans, $25.3 million in investment securities, $530.0 million in deposits, and $121.4 million in borrowings. The foregoing amounts are reflected at fair value as of the acquisition date.
     The principal executive offices of CVB and the Bank are located at 701 North Haven Avenue, Suite 350, Ontario, California. Our phone number is (909) 980-4030.

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Citizens Business Bank
     The Bank commenced operations as a California state-chartered bank on August 9, 1974. The Bank’s deposit accounts are insured under the Federal Deposit Insurance Act up to applicable limits. The Bank is not a member of the Federal Reserve System. At December 31, 2009, the Bank had $6.72 billion in assets, $3.97 billion in net loans and $4.46 billion in deposits.
     As of December 31, 2009, we had 46 Business Financial Centers located in the Inland Empire, Los Angeles County, Orange County and the Central Valley areas of California. Of the 46 offices, we opened thirteen as de novo branches and acquired the other thirty-three in acquisition transactions.
     We also had five Commercial Banking Centers, of which four were opened in 2008 and one was opened in 2009. Although able to take deposits, these centers operate primarily as sales offices and focus on business clients and their principals, professionals, and high net-worth individuals. One of these centers is located in the San Fernando Valley. The other four centers are located within a Business Financial Center in each of San Bernardino, Los Angeles, and Orange Counties.
     Through our network of banking offices, we emphasize personalized service combined with a full range of banking and trust services for businesses, professionals and individuals located in the service areas of our offices. Although we focus the marketing of our services to small-and medium-sized businesses, a full range of retail banking services are made available to the local consumer market.
     We offer a wide range of deposit instruments. These include checking, savings, money market and time certificates of deposit for both business and personal accounts. We also serve as a federal tax depository for our business customers.
     We provide a full complement of lending products, including commercial, agribusiness, consumer, real estate loans and equipment and vehicle leasing. Commercial products include lines of credit and other working capital financing, accounts receivable lending and letters of credit. Agribusiness products are loans to finance the operating needs of wholesale dairy farm operations, cattle feeders, livestock raisers, and farmers. We provide lease financing for municipal governments. Financing products for consumers include automobile leasing and financing, lines of credit, and home improvement and home equity lines of credit. Real estate loans include mortgage and construction loans.
     We also offer a wide range of specialized services designed for the needs of our commercial accounts. These services include cash management systems for monitoring cash flow, a credit card program for merchants, courier pick-up and delivery, payroll services, remote deposit capture, electronic funds transfers by way of domestic and international wires and automated clearinghouse, and on-line account access. We make available investment products to customers, including mutual funds, a full array of fixed income vehicles and a program to diversify our customers’ funds in federally insured time certificates of deposit of other institutions.
     We offer a wide range of financial services and trust services through CitizensTrust. These services include fiduciary services, mutual funds, annuities, 401K plans and individual investment accounts.
Business Segments
     We are a community bank with two reportable operating segments: (i) Business Financial and Commercial Banking Centers and (ii) Treasury Department. Our Business Financial and Commercial Banking Centers (“Centers”) are the focal points for customer sales and services. As such, these Centers comprise the biggest segment of the Company. Our other reportable segment, Treasury Department

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manages all of the investments for the Company. All administrative and other smaller operating departments are combined into the “Other” category for reporting purposes. See the sections captioned “Results by Segment Operations” in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations and Note 20 — Business Segments in the notes to consolidated financial statements.
Competition
     The banking and financial services business is highly competitive. The increasingly competitive environment faced by banks is a result primarily of changes in laws and regulation, changes in technology and product delivery systems, and the accelerating pace of consolidation among financial services providers. We compete for loans, deposits, and customers with other commercial banks, savings and loan associations, savings banks, securities and brokerage companies, mortgage companies, insurance companies, finance companies, money market funds, credit unions, and other nonbank financial service providers. Many competitors are much larger in total assets and capitalization, have greater access to capital markets, including foreign-ownership, and/or offer a broader range of financial services.
Economic Conditions, Government Policies, Legislation, and Regulation
     Our profitability, like most financial institutions, is primarily dependent on interest rate differentials. In general, the difference between the interest rates paid by the Bank on interest-bearing liabilities, such as deposits and other borrowings, and the interest rates received by the Bank on interest-earning assets, such as loans extended to customers and securities held in the investment portfolio, will comprise the major portion of our earnings. These rates are highly sensitive to many factors that are beyond our control, such as inflation, recession and unemployment, and the impact which future changes in domestic and foreign economic conditions might have on us cannot be predicted.
     Our business is also influenced by the monetary and fiscal policies of the federal government and the policies of regulatory agencies, particularly the Board of Governors of the Federal Reserve System (the “FRB”). The FRB implements national monetary policies (with objectives such as curbing inflation and combating recession) through its open-market operations in U.S. Government securities by adjusting the required level of reserves for depository institutions subject to its reserve requirements, and by varying the target federal funds and discount rates applicable to borrowings by depository institutions. The actions of the FRB in these areas influence the growth of bank loans, investments, and deposits and also affect interest earned on interest-earning assets and paid on interest-bearing liabilities. The nature and impact of any future changes in monetary and fiscal policies on us cannot be predicted.
     From time to time, federal and state legislation is enacted which may have the effect of materially increasing the cost of doing business, limiting or expanding permissible activities, or affecting the competitive balance between banks and other financial services providers. Several proposals for legislation that could substantially intensify the regulation of the financial services industry (including a possible comprehensive overhaul of the financial institutions regulatory system, the creation of a new consumer financial protection agency and potential new restrictions on executive compensation) are expected to be introduced and possibly enacted in the new Congress or adopted by regulation. We cannot predict whether or when potential legislation or regulations will be enacted, and if enacted, the effect that it, or any implemented regulations and supervisory policies, would have on our financial condition or results of operations. In addition, the outcome of examinations, any litigation or any investigations initiated by state or federal authorities may result in necessary changes in our operations and increased compliance costs.
     Negative developments beginning in the latter half of 2007 in the sub-prime mortgage market and the securitization markets for such loans, together with volatility in oil prices and other factors, have resulted in uncertainty in the financial markets in general and a related general economic downturn, which continued through 2009 and is anticipated to continue in 2010. Dramatic declines in the housing market, with decreasing home prices and increasing delinquencies and foreclosures, have negatively impacted the

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credit performance of mortgage and construction loans and resulted in significant write-downs of assets by many financial institutions. In addition, the values of real estate collateral supporting many commercial and residential loans have declined and may continue to decline and additional weakness in commercial real estate is expected to have an adverse impact on financial institutions. General downward economic trends, reduced availability of commercial credit and increasing unemployment have negatively impacted the credit performance of commercial and consumer credit, resulting in additional write-downs. Concerns over the stability of the financial markets and the economy have resulted in decreased lending by financial institutions to their customers and to each other. These economic trends, market turmoil, and tightening of credit has led to increased commercial and consumer delinquencies, lack of customer confidence, increased market volatility and widespread reduction in general business activity. Competition among depository institutions for deposits has increased significantly. Bank and bank holding company stock prices have been significantly negatively affected as has the ability of banks and bank holding companies to raise capital or borrow in the debt markets compared to recent years. Moreover, especially in the current economic environment, bank regulatory agencies have been very aggressive in responding to concerns and trends identified in examinations, and this has resulted in the increased issuance of enforcement actions to financial institutions requiring action to address credit quality, liquidity and risk management and capital adequacy, as well as other safety and soundness concerns.
     Through its authority under the Emergency Economic Stabilization Act of 2008 (the “EESA”), as amended by the American Recovery and Reinvestment Act of 2009 (the “ARRA”), the U.S. Treasury (“Treasury”) implemented the TARP Capital Purchase Program (the “CPP”), a program designed to bolster eligible healthy institutions by injecting capital into these institutions. We participated in the CPP in December 2008 so that we could continue to lend and support our current and prospective clients, especially during this unstable economic environment. Under the terms of our participation, we received $130 million in exchange for the issuance of preferred stock and a warrant to purchase common stock and thereby became subject to various requirements, including certain restrictions on paying dividends on our common stock and repurchasing our equity securities, unless the U.S. Treasury has consented. Additionally, in order to participate in the CPP, we were required to adopt certain standards for executive compensation and corporate governance. We repurchased the preferred stock and the warrant issued to the U.S. Treasury during 2009. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Cash Flow and —Capital Resources” in Part II, Item 7 herein.
Supervision and Regulation
     General
     We and our subsidiaries are extensively regulated under both federal and state laws. Regulation and supervision by the federal and state banking agencies is intended primarily for the protection of depositors and the Deposit Insurance Fund (“DIF”) administered by the FDIC and not for the benefit of stockholders. Set forth below is a brief description of key laws and regulations which relate to our operations. These descriptions are qualified in their entirety by reference to the applicable laws and regulations. The federal and state agencies regulating the financial services industry also frequently adopt changes to their regulations.
     The Company
     As a bank holding company, we are subject to regulation and examination by the FRB under the Bank Holding Company Act of 1956, as amended (the “BHCA”). Under the BHCA, the Company is subject to the Federal Reserve’s regulations and its authority to:
Require periodic reports and such additional information as the Federal Reserve may require;

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Require bank holding companies to maintain increased levels of capital (See “Regulatory Capital” below);
Require that bank holding companies serve as a source of financial and managerial strength to subsidiary banks and commit resources as necessary to support each subsidiary bank. 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 to be an unsafe and unsound banking practice or a violation of Federal Reserve regulations or both;
Restrict the ability of bank holding companies to obtain dividends on other distributions from their subsidiary banks;
Terminate an activity or terminate control of or liquidate or divest certain subsidiaries, affiliates or investments if the Federal Reserve believes the activity or the control of the subsidiary or affiliate constitutes a significant risk to the financial safety, soundness or stability of any bank subsidiary;
Require the prior approval of senior executive officer or director changes;
Regulate provisions of certain bank holding company debt, including the authority to impose interest ceilings and reserve requirements on such debt and require prior approval to purchase or redeem our securities in certain situations;
Approve acquisitions and mergers with banks and consider certain competitive, management, financial and other factors in granting these approvals in addition to similar California or other state banking agency approvals which may also be required.
     Nonbanking and Financial Activities Subject to certain prior notice or FRB approval requirements, bank holding companies may engage in any, or acquire shares of companies engaged in, those nonbanking activities determined by the FRB to be so closely related to banking or managing or controlling banks as to be a proper incident thereto. Companies which elect to be treated as “financial holding companies” may also engage in broader securities, insurance, merchant banking and other activities that are determined to be “financial in nature” or are incidental or complementary to activities that are financial in nature without prior FRB approval. Pursuant to the Gramm-Leach-Bliley Act of 1999 (“GLBA”), in order to elect and retain financial holding company status, all depository institution subsidiaries of a bank holding company must be well capitalized, well managed, and, except in limited circumstances, be in satisfactory compliance with the Community Reinvestment Act (“CRA”). Failure to sustain compliance with these requirements or correct any non-compliance within a fixed time period could lead to divestiture of subsidiary banks or require all activities to conform to those permissible for a bank holding company. We have not currently elected to be treated as a financial holding company.
     The Company is also a bank holding company within the meaning of the California Financial Code. As such, the Company and its subsidiaries are subject to examination by, and may be required to file reports with, the California Department of Financial Institutions (“DFI”).
     Securities Registration — Our securities are registered with the Securities Exchange Commission (“SEC”) under the Exchange Act of 1934, as amended (the “Exchange Act”). As such, we are subject to the information, proxy solicitation, insider trading, corporate governance, and other requirements and restrictions of the Exchange Act.
     The Sarbanes-Oxley Act — The Company is subject to the accounting oversight and corporate governance requirements of the Sarbanes-Oxley Act of 2002, including:
  .   required executive certification of financial presentations;
 
  .   increased requirements for board audit committees and their members;

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  .   enhanced disclosure of controls and procedures and internal control over financial reporting;
 
  .   enhanced controls over, and reporting of, insider trading; and
 
  .   increased penalties for financial crimes and forfeiture of executive bonuses in certain circumstances.
     The Bank
     The federal and California regulatory structure gives the bank regulatory agencies extensive discretion in connection with their supervisory and enforcement activities and examination policies, including policies with respect to the classification of assets and the establishment of adequate loan loss reserves for regulatory purposes. The regulatory agencies have adopted guidelines to assist in identifying and addressing potential safety and soundness concerns before an institution’s capital becomes impaired. The guidelines establish operational and managerial standards generally relating to: (1) internal controls, information systems, and internal audit systems; (2) loan documentation; (3) credit underwriting; (4) interest-rate exposure; (5) asset growth and asset quality; and (6) compensation, fees, and benefits. Further, the regulatory agencies have adopted safety and soundness guidelines for asset quality and for evaluating and monitoring earnings to ensure that earnings are sufficient for the maintenance of adequate capital and reserves. If, as a result of an examination, the DFI or the FDIC should determine that the financial condition, capital resources, asset quality, earnings prospects, management, liquidity, or other aspects of the Bank’s operations are unsatisfactory or that the Bank or its management is violating or has violated any law or regulation, the DFI and the FDIC, and separately the FDIC as insurer of the Bank’s deposits, have residual authority to:
Require affirmative action to correct any conditions resulting from any violation or practice;
Direct an increase in capital and the maintenance of higher specific minimum capital ratios, which may preclude the Bank from being deemed well capitalized and restrict its ability to accept certain brokered deposits;
Restrict the Bank’s growth geographically, by products and services, or by mergers and acquisitions;
Enter into informal or formal enforcement orders, including memoranda of understanding, written agreements and consent or cease and desist orders or prompt corrective action orders to take corrective action and cease unsafe and unsound practices;
Require prior approval of senior executive officer or director changes; remove officers and directors and assess civil monetary penalties; and
Take possession of and close and liquidate the Bank.
     Permissible Activities and Subsidiaries — California law permits state chartered commercial banks to engage in any activity permissible for national banks. Therefore, the Bank may form subsidiaries to engage in the many so-called “closely related to banking” or “nonbanking” activities commonly conducted by national banks in operating subsidiaries or conduct such activities themselves.
     Interstate Banking and Branching — Under the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994, bank holding companies and banks generally have the ability to acquire or merge with banks in other states; and, subject to certain state restrictions, banks may also acquire or establish new branches outside their home state. Interstate branches are subject to certain laws of the states in which they are located. The Bank presently does not have any interstate branches.

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     Federal Home Loan Bank System — The Bank is a member of the Federal Home Loan Bank (“FHLB”) of San Francisco. Among other benefits, each FHLB serves as a reserve or central bank for its members within its assigned region and makes available loans or advances to its members. Each FHLB is financed primarily from the sale of consolidated obligations of the FHLB system. As an FHLB member, the Bank is required to own a certain amount of capital stock in the FHLB. At December 31, 2009, the Bank was in compliance with the FHLB’s stock ownership requirement and our investment in FHLB capital stock totaled $97.6 million. We received $195,000 and $4.6 million from the FHLB in dividends on FHLB capital stock for the year ended December 31, 2009 and 2008, respectively. There can be no assurance that the FHLB will pay dividends at the same rate it has paid in the past, or that it will pay any dividends in the future.
     Federal Reserve System — The Federal Reserve Board requires all depository institutions to maintain interest bearing reserves at specified levels against their transaction accounts. At December 31, 2009, the Bank was in compliance with these requirements.
     Dividends and Other Transfers of Funds
     Dividends from the Bank constitute the principal source of income to the Company. The Bank is subject to various statutory and regulatory restrictions on its ability to pay dividends. Under such restrictions, the amount available for payment of dividends to the Company by the Bank totaled $108.8 million at December 31, 2009. In addition, the banking agencies have the authority to prohibit or limit the Bank from paying dividends, depending upon the Bank’s financial condition, if such payment is deemed to constitute an unsafe or unsound practice. Furthermore, under the federal Prompt Corrective Action regulations, the FRB or the FDIC may prohibit a bank holding company from paying any dividends if the holding company’s bank subsidiary is classified as “undercapitalized.” See “Capital Standards.”
     Additionally, it is FRB policy that bank holding companies should generally pay dividends on equity securities and distributions on trust preferred securities only out of income available over the past year, and only if prospective earnings retention is consistent with the organization’s expected future needs and financial condition. It is also Fed policy that bank holding companies should not maintain dividend levels that undermine the company’s ability to be a source of strength to its banking subsidiaries or which could raise supervisory concerns. Additionally, in consideration of the current financial and economic environment, the FRB has indicated that bank holding companies should carefully review their dividend policy and has discouraged payment ratios that are at maximum allowable levels unless both asset quality and capital are very strong.
     Capital Standards
     Bank holding companies and banks are subject to various regulatory capital requirements administered by state and federal banking agencies. Capital adequacy guidelines and, additionally for banks, prompt corrective action regulations, involve quantitative measures of assets, liabilities, and certain off-balance-sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators about components, risk weighting and other factors. Federal banking agencies have the authority to change capital adequacy guidelines. At December 31, 2009, the Company’s and the Bank’s capital ratios exceed the minimum capital adequacy guideline percentage requirements of the federal banking agencies and the prompt corrective action regulations for “well capitalized” institutions. See Note 17 to the consolidated financial statements for further information regarding the regulatory capital guidelines as well as the Company’s and the Bank’s actual capitalization as of December 31, 2009.
     The federal banking agencies have adopted risk-based minimum capital adequacy guidelines for bank holding companies and banks which are intended to provide a measure of capital that reflects the degree

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of risk associated with a banking organization’s operations for both transactions reported on the balance sheet as assets and transactions which are recorded as off-balance sheet items. The risk-based capital ratio is determined by classifying assets and certain off-balance sheet financial instruments into weighted categories, with higher levels of capital being required for those categories perceived as representing greater risk. Bank holding companies and banks engaged in significant trading activity may also be subject to the market risk capital guidelines and be required to incorporate additional market and interest rate risk components into their risk-based capital standards. Under the capital adequacy guidelines, a banking organization’s total capital is divided into tiers. “Tier I capital” includes common equity and trust-preferred securities, subject to certain criteria and quantitative limits. “Tier II capital” includes hybrid capital instruments, other qualifying debt instruments, a limited amount of the allowance for loan and lease losses, and a limited amount of unrealized holding gains on equity securities. “Tier III capital” consists of qualifying unsecured debt. The sum of Tier II and Tier III capital may not exceed the amount of Tier I capital. The risk-based capital guidelines require a minimum ratio of qualifying total capital to risk-weighted assets of 8% and a minimum ratio of Tier I capital to risk-weighted assets of 4%.
     Bank holding companies and banks are also required to comply with minimum leverage ratio requirements. The leverage ratio is the ratio of a banking organization’s Tier 1 capital to its total adjusted quarterly average assets (as defined for regulatory purposes). The requirements necessitate a minimum leverage ratio of 4.0%, unless a different minimum is specified by an appropriate regulatory authority. For a depository institution to be considered “well capitalized” under the regulatory framework for prompt corrective action, its leverage ratio must be at least 5.0%.
     The following table presents the amounts of regulatory capital and the capital ratios for the Company, compared to its minimum regulatory capital requirements as of December 31, 2009:
                                                 
    As of December 31, 2009  
    Actual     Required     Excess  
    Amount     Ratio     Amount     Ratio     Amount     Ratio  
                    ( amounts in thousands )                  
Leverage ratio
  $ 655,569       9.6 %   $ 272,303       4.0 %   $ 383,266       5.6 %
Tier 1 risk-based ratio
  $ 655,569       14.9 %   $ 175,992       4.0 %   $ 479,577       10.9 %
Total risk-based ratio
  $ 716,182       16.3 %   $ 351,500       8.0 %   $ 364,682       8.3 %

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     The following table presents the amounts of regulatory capital and the capital ratios for the Bank, compared to its minimum regulatory capital requirements as of December 31, 2009:
                                                 
    As of December 31, 2009  
    Actual     Required     Excess  
    Amount     Ratio     Amount     Ratio     Amount     Ratio  
                    ( amounts in thousands )                  
Leverage ratio
  $ 652,992       9.6 %   $ 272,080       4.0 %   $ 380,912       5.6 %
Tier 1 risk-based ratio
  $ 652,992       14.9 %   $ 175,300       4.0 %   $ 477,692       10.9 %
Total risk-based ratio
  $ 708,457       16.2 %   $ 349,855       8.0 %   $ 358,602       8.2 %
     Basel and Basel II Capital Requirements
     The current risk-based capital guidelines which apply to the Company and the Bank are based upon the 1988 capital accord of the International Basel Committee on Banking Supervision, a committee of central banks and bank supervisors and regulators from the major industrialized countries that develops broad policy guidelines for use by each country’s supervisors in determining the supervisory policies they apply. A new international accord, referred to as Basel II, became mandatory for large or “core” international banks outside the U.S. in 2009 (total assets of $250 billion or more or consolidated foreign exposures of $10 billion or more) and emphasizes internal assessment of credit, market and operational risk, as well as supervisory assessment and market discipline in determining minimum capital requirements. It is optional for other banks. The Basel Committee is currently reconsidering regulatory-capital standards, supervisory and risk-management requirements and additional disclosures to further strengthen the Basel II framework in response to recent worldwide economic developments. It is expected the Basel Committee may reinstitute a minimum leverage ratio requirement. The U.S. banking agencies have indicated separately that they will retain the minimum leverage requirement for all U.S. banks. It also is possible that a new tangible common equity ratio standard will be added.
     Prompt Corrective Action
     The FDIA provides a framework for regulation of depository institutions and their affiliates, including parent holding companies, by their federal banking regulators. Among other things, it requires the relevant federal banking regulator to take “prompt corrective action” with respect to a depository institution if that institution does not meet certain capital adequacy standards, including requiring the prompt submission of an acceptable capital restoration plan. Supervisory actions by the appropriate federal banking regulator under the prompt corrective action rules generally depend upon an institution’s classification within five capital categories as defined in the regulations. The relevant capital measures are the total capital ratio, the Tier 1 capital ratio and the leverage ratio. However, the federal banking agencies have also adopted non-capital safety and soundness standards to assist examiners in identifying and addressing potential safety and soundness concerns before capital becomes impaired. These include operational and managerial standards relating to: (i) internal controls, information systems and internal audit systems, (ii) loan documentation, (iii) credit underwriting, (iv) asset quality and growth, (v) earnings, (vi) risk management, and (vii) compensation and benefits.
     A depository institution’s capital tier under the prompt corrective action regulations will depend upon how its capital levels compare with various relevant capital measures and the other factors established by the regulation. A bank will be: (i) ”well capitalized” if the institution has a total risk-based capital ratio of 10.0% or greater, a Tier 1 risk-based capital ratio of 6.0% or greater, and a leverage ratio of 5.0% or greater, and is not subject to any order or written directive by any such regulatory authority to meet and maintain a specific capital level for any capital measure; (ii) ”adequately capitalized” if the institution has a total risk-based capital ratio of 8.0% or greater, a Tier 1 risk-based capital ratio of 4.0% or greater, and a leverage ratio of 4.0% or greater and is not “well capitalized”; (iii) ”undercapitalized” if the institution has a total risk-based capital ratio that is less than 8.0%, a Tier 1 risk-based capital ratio of less than 4.0%

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or a leverage ratio of less than 4.0%; (iv) ”significantly undercapitalized” if the institution has a total risk-based capital ratio of less than 6.0%, a Tier 1 risk-based capital ratio of less than 3.0% or a leverage ratio of less than 3.0%; and (v) ”critically undercapitalized” if the institution’s tangible equity is equal to or less than 2.0% of average quarterly tangible assets. An institution may be downgraded to, or deemed to be in, a capital category that is lower than indicated by its capital ratios if it is determined to be in an unsafe or unsound condition or if it receives an unsatisfactory examination rating with respect to certain matters.
     The FDIA generally prohibits a depository institution from making any capital distributions (including payment of a dividend) or paying any management fee to its parent holding company if the depository institution would thereafter be “undercapitalized.” “Undercapitalized” institutions are subject to growth limitations and are required to submit a capital restoration plan. The agencies may not accept such a plan without determining, among other things, that the plan is based on realistic assumptions and is likely to succeed in restoring the depository institution’s capital. In addition, for a capital restoration plan to be acceptable, the depository institution’s parent holding company must guarantee that the institution will comply with such capital restoration plan. The bank holding company must also provide appropriate assurances of performance. The aggregate liability of the parent holding company is limited to the lesser of (i) an amount equal to 5.0% of the depository institution’s total assets at the time it became undercapitalized and (ii) the amount which is necessary (or would have been necessary) to bring the institution into compliance with all capital standards applicable with respect to such institution as of the time it fails to comply with the plan. If a depository institution fails to submit an acceptable plan, it is treated as if it is “significantly undercapitalized.” “Significantly undercapitalized” depository institutions may be subject to a number of requirements and restrictions, including orders to sell sufficient voting stock to become “adequately capitalized,” requirements to reduce total assets, and cessation of receipt of deposits from correspondent banks. “Critically undercapitalized” institutions are subject to the appointment of a receiver or conservator.
     The appropriate federal banking agency may, under certain circumstances, reclassify a well capitalized insured depository institution as adequately capitalized. The FDIA provides that an institution may be reclassified if the appropriate federal banking agency determines (after notice and opportunity for hearing) that the institution is in an unsafe or unsound condition or deems the institution to be engaging in an unsafe or unsound practice. The appropriate agency is also permitted to require an adequately capitalized or undercapitalized institution to comply with the supervisory provisions as if the institution were in the next lower category (but not treat a significantly undercapitalized institution as critically undercapitalized) based on supervisory information other than the capital levels of the institution.
     Premiums for Deposit Insurance
     The FDIC insures our customer deposits through the Deposit Insurance Fund (the “DIF”) up to prescribed limits for each depositor. Pursuant to the EESA, the maximum deposit insurance amount has been increased from $100,000 to $250,000 through the end of 2013. The amount of FDIC assessments paid by each DIF member institution is based on its relative risk of default as measured by regulatory capital ratios and other supervisory factors. During 2008 and 2009, there have been higher levels of bank failures which has dramatically increased resolution costs of the FDIC and depleted the deposit insurance fund. In order to maintain a strong funding position and restore reserve ratios of the deposit insurance fund, the FDIC has increased assessment rates of insured institutions and may continue to do so in the future. On May 30, 2009, the FDIC imposed special assessments on financial institutions to increase reserves in the deposit insurance fund; the Bank’s assessment was $3.0 million. As of December 31, 2009, the Bank’s assessment rate was between 5 and 7 cents per $100 in assessable deposits. On November 12, 2009, the FDIC adopted a requirement for institutions to prepay in 2009 their estimated quarterly risk-based assessments for the fourth quarter of 2009 and for all of 2010, 2011 and 2012. We prepaid $22.4 million in the fourth quarter of 2009 in accordance with this requirement.
     We are generally unable to control the amount of premiums that we are required to pay for FDIC insurance. If there are additional bank or financial institution failures or if the FDIC otherwise determines, we may be required to pay even higher FDIC premiums than the recently increased levels.

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These announced increases and any future increases in FDIC insurance premiums may have a material and adverse affect on our earnings. Further, all FDIC-insured institutions are required to pay assessments to the FDIC to fund interest payments on bonds issued by the Financing Corporation (“FICO”), an agency of the Federal government established to recapitalize the predecessor to the DIF. The FICO assessment rates, which are determined quarterly, averaged 0.0140% of insured deposits in fiscal 2009. These assessments will continue until the FICO bonds mature in 2017.
     The FDIC implemented two temporary programs under the Temporary Liquidity Guaranty Program (“TLGP”) to provide deposit insurance for the full amount of most non-interest bearing transaction accounts through June 30, 2010 and to guarantee certain unsecured debt of financial institutions and their holding companies through June 2012. The Bank is participating in the deposit insurance program.
     The FDIC may terminate a depository institution’s deposit insurance upon a finding that the institution’s financial condition is unsafe or unsound or that the institution has engaged in unsafe or unsound practices that pose a risk to the DIF or that may prejudice the interest of the bank’s depositors. The termination of deposit insurance for a bank would also result in the revocation of the bank’s charter by the DFI.
     Loans-to-One Borrower Limitations
     With certain limited exceptions, the maximum amount of obligations, secured or unsecured, that any borrower (including certain related entities) may owe to a California state bank at any one time may not exceed 25% of the sum of the shareholders’ equity, allowance for loan losses, capital notes and debentures of the bank. Unsecured obligations may not exceed 15% of the sum of the shareholders’ equity, allowance for loan losses, capital notes and debentures of the bank. The Bank has established internal loan limits which are lower than the legal lending limits for a California bank.
     Extensions of Credit to Insiders and Transactions with Affiliates
     The Federal Reserve Act and FRB Regulation O place limitations and conditions on loans or extensions of credit to:
  .   a bank or bank holding company’s executive officers, directors and principal shareholders (i.e., in most cases, those persons who own, control or have power to vote more than 10% of any class of voting securities);
 
  .   any company controlled by any such executive officer, director or shareholder; or
 
  .   any political or campaign committee controlled by such executive officer, director or principal shareholder.
     Such loans and leases:
  .   must comply with loan-to-one-borrower limits;
 
  .   require prior full board approval when aggregate extensions of credit to the person exceed specified amounts;
 
  .   must be made on substantially the same terms (including interest rates and collateral) and follow credit-underwriting procedures no less stringent than those prevailing at the time for comparable transactions with non-insiders;
 
  .   must not involve more than the normal risk of repayment or present other unfavorable features; and
 
  .   in the aggregate limit not exceed the bank’s unimpaired capital and unimpaired surplus.
     California has laws and the DFI has regulations which adopt and also apply Regulation O to the Bank.

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     The Bank also is subject to certain restrictions imposed by Federal Reserve Act Sections 23A and 23B and FRB Regulation W on any extensions of credit to, or the issuance of a guarantee or letter of credit on behalf of, any 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 any affiliates. Affiliates include parent holding companies, sister banks, sponsored and advised companies, financial subsidiaries and investment companies whereby the Bank’s affiliate serves as investment advisor. Sections 23A and 23B and Regulation W generally:
  .   prevent any affiliates from borrowing from the Bank unless the loans are secured by marketable obligations of designated amounts;
 
  .   limit such loans and investments to or in any affiliate individually to 10.0% of the Bank’s capital and surplus;
 
  .   limit such loans and investments to or in any affiliate in the aggregate to 20.0% of the Bank’s capital and surplus; and
 
  .   requires such loans and investments to or in any affiliate to be on terms and under conditions substantially the same or at least as favorable to the Bank as those prevailing for comparable transactions with nonaffiliated parties.
     Additional restrictions on transactions with affiliates may be imposed on the Bank under the FDIA prompt corrective action provisions and the supervisory authority of the federal and state banking agencies.
     USA PATRIOT Act and Anti-Money Laundering Compliance
     The USA PATRIOT Act of 2001 and its implementing regulations significantly expanded the anti-money laundering and financial transparency laws, including the Bank Secrecy Act. The Bank has adopted comprehensive policies and procedures to address the requirements of the USA PATRIOT Act. Material deficiencies in anti-money laundering compliance can result in public enforcement actions by the banking agencies, including the imposition of civil money penalties and supervisory restrictions on growth and expansion. Such enforcement actions could also have serious reputation consequences for the Company and the Bank.
     Operations and Consumer Compliance Laws
     The Bank must comply with numerous federal anti-money laundering and consumer protection statutes and implementing regulations, including the, the Bank Secrecy Act, the Community Reinvestment Act, the Equal Credit Opportunity Act, the Truth in Lending Act, the National Flood Insurance Act and various federal and state privacy protection laws. Noncompliance with these laws could subject the Bank to lawsuits and could also result in administrative penalties, including, fines and reimbursements. The Bank and the Company are also subject to federal and state laws prohibiting unfair or fraudulent business practices, untrue or misleading advertising and unfair competition.
     Regulation of Nonbank Subsidiaries
     Nonbank subsidiaries are subject to additional or separate regulation and supervision by other state, federal and self-regulatory bodies.
     Employees
     At February 15, 2010, we employed 825 persons, 583 on a full-time and 242 on a part-time basis. We believe that our employee relations are satisfactory.

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     Available Information
     Reports filed with the Securities and Exchange Commission (the “Commission”) include our proxy statements, annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K. These reports and other information on file can be inspected and copied on official business days between 10:00 a.m. and 3:00 p.m. at the public reference facilities of the Commission on file at 100 F Street, N.E., Washington D.C., 20549. The public may obtain information on the operation of the public reference rooms by calling the SEC at 1-800-SEC-0330. The Commission maintains a Web Site that contains the reports, proxy and information statements and other information we file with them. The address of the site is http://www.sec.gov. The Company also maintains an Internet website at http://www.cbbank.com. We make available, free of charge through our website, our Proxy Statement, Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, and current Report on Form 8-K, and any amendment there to, as soon as reasonably practicable after we file such reports with the SEC. None of the information contained in or hyperlinked from our website is incorporated into this Form 10-K.
     Executive Officers of the Company
     The following sets forth certain information regarding our executive officers as of February 15, 2010:
Executive Officers:
             
Name   Position   Age
Christopher D. Myers
  President and Chief Executive Officer of the Company and the Bank     47  
Edward J. Biebrich Jr.
 
Chief Financial Officer of the Company and Executive Vice President and Chief Financial Officer of the Bank
    66  
James F. Dowd
  Executive Vice President/Credit Management Division of the Bank     57  
Todd E. Hollander
  Executive Vice President/Sales Division of the Bank     43  
David C. Harvey
  Executive Vice President/Chief Operations Officer     42  
Christopher A. Walters
  Executive Vice President/CitizensTrust Division of the Bank     46  
     Mr. Myers assumed the position of President and Chief Executive Officer of the Company and the Bank on August 1, 2006. Prior to that, Mr. Myers served as Chairman of the Board and Chief Executive Officer of Mellon First Business Bank from 2004 to 2006. From 1996 to 2003, Mr. Myers held several management positions with Mellon First Business Bank, including Executive Vice President, Regional Vice President, and Vice President/Group Manager.
     Mr. Biebrich assumed the position of Chief Financial Officer of the Company and Executive Vice President/Chief Financial Officer of the Bank on February 2, 1998.
     Mr. Dowd assumed the position of Executive Vice President and Chief Credit Officer of the Bank on June 30, 2008. From 2006 to 2008, he served as Executive Vice President and Chief Credit Officer for Mellon First Business Bank. From 1991 to 2006, Mr. Dowd held several management positions with City National Bank, including Senior Vice President and Manager of Special Assets, Deputy Chief Credit Officer, and Interim Chief Credit Officer.

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     Mr. Hollander assumed the position of Executive Vice President of the Bank on May 15, 2008. From 2005 to 2008, he served as Executive Vice President for the Community Banking Group of California National Bank. From 2003 to 2005, he served as Executive Vice President for the Commercial Banking Group of U.S. Bank. From 1990 to 2003, Mr. Hollander held various management positions with Wells Fargo & Company, Inc. including Executive Vice President, Senior Vice President, and Vice President of the Business Banking Group.
     Mr. Harvey assumed the position of Executive Vice President of the Bank on December 31, 2009. From 2000 to 2008, he served as Senior Vice President and Operations Manager at Bank of the West. From 2008 to 2009 he served as Executive Vice President and Commercial and Treasury Services Manager at Bank of the West.
     Mr. Walters assumed the position of Executive Vice President of the Bank on June 27, 2007. From 2005 to 2006, he served as Senior Vice President for Atlantic Trust. From 2002 to 2004, he was Director of Private Banking for Citigroup. From 1994 to 2002, he served as a member of the Executive Committee and held a variety of management positions for Mellon Private Wealth Management.

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ITEM 1A. RISK FACTORS
     Risk Factors That May Affect Future Results — Together with the other information on the risks we face and our management of risk contained in this Annual Report or in our other SEC filings, the following presents significant risks which may affect us. Events or circumstances arising from one or more of these risks could adversely affect our business, financial condition, operating results and prospects and the value and price of our common stock could decline. The risks identified below are not intended to be a comprehensive list of all risks we face and additional risks that we may currently view as not material may also impair our business operations and results.
     Risk Relating to Recent Economic Conditions and Government Response Efforts
     Difficult economic and market conditions have adversely affected our industry
     Dramatic declines in the housing market, with decreasing home prices and increasing delinquencies and foreclosures, have negatively impacted the credit performance of mortgage and construction loans and resulted in significant write-downs of assets by many financial institutions. General downward economic trends, reduced availability of commercial credit and increasing unemployment have negatively impacted the credit performance of commercial and consumer credit, resulting in additional write-downs. Concerns over the stability of the financial markets and the economy have resulted in decreased lending by financial institutions to their customers and to each other. These economic conditions, market turmoil, and tightening of credit has led to increased commercial and consumer deficiencies, lack of customer confidence, increased market volatility and widespread reduction in general business activity. Financial institutions have experienced decreased access to deposits and borrowings. The resulting economic pressure on consumers and businesses and the lack of confidence in the economy and financial markets may adversely affect our business, financial condition, results of operations and stock price. A worsening of these conditions would likely exacerbate the adverse effects of these difficult market conditions on us and others in the financial institutions industry. In particular, we may face the following risks in connection with these events:
    We potentially face increased regulation of our industry. Compliance with such regulation may increase our costs and limit our ability to pursue business opportunities.
 
    The process we use to estimate losses inherent in our credit exposure requires difficult, subjective and complex judgments, including forecasts of economic conditions and how these economic conditions might impair the ability of our borrowers to repay their loans. The level of uncertainty concerning economic conditions may adversely affect the accuracy of our estimates which may, in turn, impact the reliability of the process.
 
    The value of the portfolio of investment securities that we hold may be adversely affected.
 
    We may be required to pay significantly higher FDIC premiums because market developments have significantly depleted the insurance fund of the FDIC and reduced the ratio of reserves to insured deposits.
     If economic conditions do not significantly improve, or current levels of market disruption and volatility continue or worsen, there can be no assurance that we will not experience an adverse effect, which may be material, on our business, financial condition and results of operations.
     Legislative and regulatory initiatives to address difficult market and economic conditions may not stabilize the U.S. banking system, including EESA and ARRA. Future legislation and regulations may be adopted which could result in a comprehensive overhaul of the U.S. banking system. There can be no assurance, however, as to the actual impact that legislation and regulations will have on the financial markets, including the extreme levels of volatility and limited credit availability currently being

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experienced. The failure of legislation and regulations to help stabilize the financial markets and a continuation or worsening of current financial market conditions could have a material, adverse effect on our business, financial condition, results of operations, access to credit or the value of our securities.
     U.S. and international financial markets and economic conditions could adversely affect our liquidity, results of operations and financial condition
     As described in “Business — Economic Conditions, Government Policies, Legislation and Regulation”, recent turmoil and downward economic trends have been particularly acute in the financial sector. Although the Company and the Bank remain well capitalized and have not suffered any significant liquidity issues as a result of these recent events, the cost and availability of funds may be adversely affected by illiquid credit markets and the demand for our products and services may decline as our borrowers and customers continue to realize the impact of an economic slowdown and recession including high unemployment rates. In view of the concentration of our operations and the collateral securing our loan portfolio in Central and Southern California, we may be particularly susceptible to the adverse economic conditions in the state of California, where our business is concentrated. In addition, the severity and duration of these adverse conditions is unknown and may exacerbate our exposure to credit risk and adversely affect the ability of borrowers to perform under the terms of their lending arrangements with us.
     We may be required to make additional provisions for credit losses and charge off additional loans in the future, which could adversely affect our results of operations
     For the year ended December 31, 2009, we recorded an $80.5 million provision for credit losses and charged off $26.3 million, net of $803,000 in recoveries. There has been a significant slowdown in the real estate markets in portions of Los Angeles, Riverside, San Bernardino and Orange counties and the Central Valley area of California where a majority of our loan customers, including our largest borrowing relationships, are based. This slowdown reflects declining prices in real estate, excess inventories of homes and increasing vacancies in commercial and industrial properties, all of which have contributed to financial strain on real estate developers and suppliers. In addition, the Federal Reserve Board and other government officials have expressed concerns about banks’ concentration in commercial real estate lending and the ability of commercial real estate borrowers to perform pursuant to the terms of their loans. As of December 31, 2009, we had $2.6 billion in real estate loans (including $2.3 billion in commercial real estate loans) and $401.5 million in construction loans. Continuing deterioration in the real estate market, and in particular the commercial real estate market, could affect the ability of our loan customers, including our largest borrowing relationships, to service their debt, which could result in loan charge-offs and provisions for credit losses in the future, which could have a material adverse effect on our financial condition, net income and capital.
     Declines in commodity prices may adversely affect our results of operations.
     As of December 31, 2009, approximately twelve percent (12%) of our loan portfolio was comprised of dairy and livestock loans. Recent declines in commodity prices, including milk prices, could adversely impact the ability of those to whom we have made dairy and livestock loans to perform under the terms of their borrowing arrangements with us. In particular, declines in commodity prices could result in additional loan charge-offs and provisions for credit losses in the future, which could have a material adverse effect on our financial condition, net income and capital.
     Risks Related to Our Market and Business
     Our allowance for credit losses may not be adequate to cover actual losses
     A significant source of risk arises from the possibility that we could sustain losses because borrowers, guarantors, and related parties may fail to perform in accordance with the terms of their loans and leases. The underwriting and credit monitoring policies and procedures that we have adopted to address this risk may not prevent unexpected losses that could have a material adverse effect on our business, financial

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condition, results of operations and cash flows. We maintain an allowance for credit losses to provide for loan and lease defaults and non-performance. The allowance is also appropriately increased for new loan growth. While we believe that our allowance for credit losses is adequate to cover inherent losses, we cannot assure you that we will not increase the allowance for credit losses further or that regulators will not require us to increase this allowance.
     Liquidity risk could impair our ability to fund operations and jeopardize our financial condition
     Liquidity is essential to our business. An inability to raise funds through deposits, borrowings, the sale of loans and other sources could have a material adverse effect on our liquidity. Our access to funding sources in amounts adequate to finance our activities could be impaired by factors that affect us specifically or the financial services industry in general. Factors that could detrimentally impact our access to liquidity sources include a decrease in the level of our business activity due to a market downturn or adverse regulatory action against us. Our ability to acquire deposits or borrow could also be impaired by factors that are not specific to us, such as a severe disruption of the financial markets or negative views and expectations about the prospects for the financial services industry as a whole as the recent turmoil faced by banking organizations in the domestic and worldwide credit markets deteriorates.
     Our loan portfolio is predominantly secured by real estate and thus we have a higher degree of risk from a downturn in our real estate markets
     A further downturn in our real estate markets could hurt our business because many of our loans are secured by real estate. Real estate values and real estate markets are generally affected by changes in national, regional or local economic conditions, fluctuations in interest rates and the availability of loans to potential purchasers, changes in tax laws and other governmental statutes, regulations and policies and acts of nature, such as earthquakes and national disasters particular to California. Substantially all of our real estate collateral is located in California. If real estate values, including values of land held for development, continue to decline, the value of real estate collateral securing our loans, including loans to our largest borrowing relationships, could be significantly reduced. Our ability to recover on defaulted loans by foreclosing and selling the real estate collateral would then be diminished and we would be more likely to suffer losses on defaulted loans. Additional risks associated with our construction loan portfolio include failure of contractors to complete construction on a timely basis or at all, market deterioration during construction, cost overruns and failure to sell or lease the security underlying the construction loans so as to generate the cash flow anticipated by our borrower. Continued declines in real estate values coupled with the current economic downturn and an associated increase in unemployment may result in higher than expected loan delinquencies or problem assets, a decline in demand for our products and services, or a lack of growth or decrease in deposits, which may cause us to incur losses, adversely affect our capital or hurt our business.
     We are exposed to risk of environmental liabilities with respect to properties to which we take title
     In the course of our business, we may foreclose and take title to real estate, and could be subject to environmental liabilities with respect to these properties. We may be held liable to a governmental entity or to third parties for property damage, personal injury, investigation and clean-up costs incurred by these parties in connection with environmental contamination, or may be required to investigate or clean-up hazardous or toxic substances, or chemical releases at a property. The costs associated with investigation or remediation activities could be substantial. In addition, if we are the owner or former owner of a contaminated site, we may be subject to common law claims by third parties based on damages and costs resulting from environmental contamination emanating from the property. If we become subject to significant environmental liabilities, our business, financial condition, results of operations and prospects could be adversely affected.

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     We may experience goodwill impairment
     If our estimates of segment fair value change due to changes in our businesses or other factors, we may determine that impairment charges on goodwill recorded as a result of acquisitions are necessary. Estimates of fair value are determined based on our earnings, the fair value of our Company as determined by our stock price, and company comparisons. If the fair value of the Company declines, we may need to recognize goodwill impairment in the future which would have a material adverse affect on our results of operations and capital levels.
     Our business is subject to interest rate risk and variations in interest rates may negatively affect our financial performance
     A substantial portion of our income is derived from the differential or “spread” between the interest earned on loans, securities and other interest-earning assets, and interest paid on deposits, borrowings and other interest-bearing liabilities. Because of the differences in the maturities and repricing characteristics of our interest-earning assets and interest-bearing liabilities, changes in interest rates do not produce equivalent changes in interest income earned on interest-earning assets and interest paid on interest-bearing liabilities. At December 31, 2009 our balance sheet was liability sensitive and, as a result, our net interest margin tends to decline in a rising interest rate environment and expand in a declining interest rate environment. Accordingly, fluctuations in interest rates could adversely affect our interest rate spread and, in turn, our profitability. In addition, loan origination volumes are affected by market interest rates. Rising interest rates, generally, are associated with a lower volume of loan originations while lower interest rates are usually associated with higher loan originations. Conversely, in rising interest rate environments, loan repayment rates may decline and in falling interest rate environments, loan repayment rates may increase. In addition, in a rising interest rate environment, we may need to accelerate the pace of rate increases on our deposit accounts as compared to the pace of future increases in short-term market rates. Accordingly, changes in levels of market interest rates could materially and adversely affect our net interest spread, asset quality and loan origination volume.
     We are subject to extensive government regulation that could limit or restrict our activities, which, in turn, may hamper our ability to increase our assets and earnings
     Our operations are subject to extensive regulation by federal, state and local governmental authorities and are subject to various laws and judicial and administrative decisions imposing requirements and restrictions on part or all of our operations. Because our business is highly regulated, the laws, rules, regulations and supervisory guidance and policies applicable to us are subject to regular modification and change. Perennially various laws, rules and regulations are proposed, which, if adopted, could impact our operations by making compliance much more difficult or expensive, restricting our ability to originate or sell loans or further restricting the amount of interest or other charges or fees earned on loans or other products.
     The short term and long term impact of the new Basel II capital standards and the forthcoming new capital rules to be proposed for non-Basel II U.S. banks is uncertain
     As a result of the recent deterioration in the global credit markets and the potential impact of increased liquidity risk and interest rate risk, it is unclear what the short term impact of the implementation of Basel II may be or what impact a pending alternative standardized approach to Basel II option for non-Basel II U.S. banks may have on the cost and availability of different types of credit and the potential compliance costs of implementing the new capital standards.
     Failure to manage our growth may adversely affect our performance
     Our financial performance and profitability depend on our ability to manage past and possible future growth. Future acquisitions and our continued growth may present operating, integration and other issues that could have a material adverse effect on our business, financial condition, results of operations and cash flows.

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     We may engage in FDIC-assisted transactions, which could present additional risks to our business.
     On October 16, 2009, we acquired substantially all of the assets and assumed substantially all of the liabilities of San Joaquin Bank from the FDIC. We may have opportunities to acquire the assets and liabilities of additional failed banks in FDIC-assisted transactions. Although these FDIC-assisted transactions typically provide for FDIC assistance to an acquiror to mitigate certain risks, such as sharing exposure to loan losses and providing indemnification against certain liabilities of the failed institution, we are (and would be in future transactions) subject to many of the same risks we would face in acquiring another bank in a negotiated transaction, including risks associated with maintaining customer relationships and failure to realize the anticipated acquisition benefits in the amounts and within the timeframes we expect. In addition, because these acquisitions are structured in a manner that would not allow us the time and access to information normally associated with preparing for and evaluating a negotiated acquisition, we may face additional risks in FDIC-assisted transactions, including additional strain on management resources, management of problem loans, problems related to integration of personnel and operating systems and impact to our capital resources requiring us to raise additional capital. We cannot assure you that we will be successful in overcoming these risks or any other problems encountered in connection with FDIC-assisted transactions. Although we have entered into a loss sharing agreement with the FDIC in connection with our acquisition of loans from San Joaquin Bank, we cannot guarantee that we will be able to adequately manage the loan portfolio within the limits of the loss protections provided by the FDIC from the San Joaquin Bank acquisition or any other FDIC-assisted acquisition we may make. Our inability to overcome these risks could have a material adverse effect on our business, financial condition and net income
     We face strong competition from financial services companies and other companies that offer banking services
     We conduct most of our operations in California. The banking and financial services businesses in California are highly competitive and increased competition in our primary market area may adversely impact the level of our loans and deposits. Ultimately, we may not be able to compete successfully against current and future competitors. These competitors include national banks, regional banks and other community banks. We also face competition from many other types of financial institutions, including savings and loan associations, finance companies, brokerage firms, insurance companies, credit unions, mortgage banks and other financial intermediaries. In particular, our competitors include major financial companies whose greater resources may afford them a marketplace advantage by enabling them to maintain numerous locations and mount extensive promotional and advertising campaigns. Areas of competition include interest rates for loans and deposits, efforts to obtain loan and deposit customers and a range in quality of products and services provided, including new technology driven products and services. If we are unable to attract and retain banking customers, we may be unable to continue our loan growth and level of deposits.
     We rely on communications, information, operating and financial control systems technology from third-party service providers, and we may suffer an interruption in those systems
     We rely heavily on third-party service providers for much of our communications, information, operating and financial control systems technology, including our internet banking services and data processing systems. Any failure or interruption of these services or systems or breaches in security of these systems could result in failures or interruptions in our customer relationship management, general ledger, deposit, servicing and/or loan origination systems. The occurrence of any failures or interruptions may require us to identify alternative sources of such services, and we cannot assure you that we could negotiate terms that are as favorable to us, or could obtain services with similar functionality as found in our existing systems without the need to expend substantial resources, if at all.

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     We are dependent on key personnel and the loss of one or more of those key personnel may materially and adversely affect our prospects
     Competition for qualified employees and personnel in the banking industry is intense and there are a limited number of qualified persons with knowledge of, and experience in, the California community banking industry. The process of recruiting personnel with the combination of skills and attributes required to carry out our strategies is often lengthy. In addition, legislation and regulations which impose restrictions on executive compensation may make it more difficult for us to retain and recruit key personnel. Our success depends to a significant degree upon our ability to attract and retain qualified management, loan origination, finance, administrative, marketing and technical personnel and upon the continued contributions of our management and personnel. In particular, our success has been and continues to be highly dependent upon the abilities of key executives, including our President and Chief Executive Officer, and certain other employees. In addition, our success has been and continues to be highly dependent upon the services of our directors, many of whom are at or nearing retirement age, and we may not be able to identify and attract suitable candidates to replace such directors.
     Managing reputational risk is important to attracting and maintaining customers, investors and employees
     Threats to our reputation can come from many sources, including adverse sentiment about financial institutions generally, unethical practices, employee misconduct, failure to deliver minimum standards of service or quality, compliance deficiencies, and questionable or fraudulent activities of our customers. We have policies and procedures in place to protect our reputation and promote ethical conduct, but these policies and procedures may not be fully effective. Negative publicity regarding our business, employees, or customers, with or without merit, may result in the loss of customers, investors and employees, costly litigation, a decline in revenues and increased governmental regulation.
     Federal and state laws and regulations may restrict our ability to pay dividends
     The ability for the Bank to pay dividends to us and for us to pay dividends to our shareholders is limited by applicable federal and California law and regulations. See “Business—Supervision and Regulation” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Cash Flow.”
     The price of our common stock may be volatile or may decline
     The trading price of our common stock may fluctuate widely as a result of a number of factors, many of which are outside our control. In addition, the stock market is subject to fluctuations in the share prices and trading volumes that affect the market prices of the shares of many companies. These broad market fluctuations could adversely affect the market price of our common stock. Among the factors that could affect our stock price are:
    actual or anticipated quarterly fluctuations in our operating results and financial condition;
 
    changes in revenue or earnings estimates or publication of research reports and recommendations by financial analysts;
 
    failure to meet analysts’ revenue or earnings estimates;
 
    speculation in the press or investment community;
 
    strategic actions by us or our competitors, such as acquisitions or restructurings;
 
    actions by institutional shareholders;
 
    fluctuations in the stock price and operating results of our competitors;

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    general market conditions and, in particular, developments related to market conditions for the financial services industry;
 
    proposed or adopted regulatory changes or developments;
 
    pending investigations, proceedings or litigation that involve or affect us; or
 
    domestic and international economic factors unrelated to our performance.
     The stock market and, in particular, the market for financial institution stocks, has experienced significant volatility recently. As a result, the market price of our common stock may be volatile. In addition, the trading volume in our common stock may fluctuate more than usual and cause significant price variations to occur. The trading price of the shares of our common stock and the value of our other securities will depend on many factors, which may change from time to time, including, without limitation, our financial condition, performance, creditworthiness and prospects, future sales of our equity or equity related securities, and other factors identified above in “Cautionary Note Regarding Forward-Looking Statement”. The capital and credit markets have been experiencing volatility and disruption for more than two years. In some cases, the markets have produced downward pressure on stock prices and credit availability for certain issuers without regard to those issuers’ underlying financial strength. A significant decline in our stock price could result in substantial losses for individual shareholders and could lead to costly and disruptive securities litigation.
     Anti-takeover provisions and federal law may limit the ability of another party to acquire us, which could cause our stock price to decline
     Various provisions of our articles of incorporation and by-laws and certain other actions we have taken could delay or prevent a third-party from acquiring us, even if doing so might be beneficial to our shareholders. These include, among other things, a shareholder rights plan and the authorization to issue “blank check” preferred stock by action of the board of directors acting alone, thus without obtaining shareholder approval. The Bank Holding Company Act of 1956, as amended, and the Change in Bank Control Act of 1978, as amended, together with federal regulations, require that, depending on the particular circumstances, either Federal Reserve approval must be obtained or notice must be furnished to the Federal Reserve and not disapproved prior to any person or entity acquiring “control” of a state member bank, such as the Bank. These provisions may prevent a merger or acquisition that would be attractive to shareholders and could limit the price investors would be willing to pay in the future for our common stock.
     Changes in stock market prices could reduce fee income from our brokerage, asset management and investment advisory businesses
     We earn substantial wealth management fee income for managing assets for our clients and also providing brokerage and investment advisory services. Because investment management and advisory fees are often based on the value of assets under management, a fall in the market prices of those assets could reduce our fee income. Changes in stock market prices could affect the trading activity of investors, reducing commissions and other fees we earn from our brokerage business.
     We may face other risks
     From time to time, we detail other risks with respect to our business and/or financial results in our filings with the Securities and Exchange Commission.
     For further discussion on additional areas of risk, see “Item 7. Management’s Discussion and Analysis of Financial Condition and the Results of Operations – Risk Management.”

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ITEM 1B. UNRESOLVED STAFF COMMENTS
     None
ITEM 2. PROPERTIES
     The principal executive offices of the Company and the Bank are located in Ontario, California, and are owned by the Company.
     At December 31, 2009, the Bank occupied the premises for 42 of its Business Financial and Commercial Banking Centers under leases expiring at various dates from 2010 through 2020, at which time we can exercise options that could extend certain leases through 2026. We own the premises for nine of our offices which include seven Business Financial Centers, and our Corporate Headquarters and Operations Center, both located in Ontario, California.
     At December 31, 2009, our consolidated investment in premises and equipment, net of accumulated depreciation and amortization totaled $41.4 million. Our total occupancy expense, exclusive of furniture and equipment expense, for the year ended December 31, 2009, was $11.6 million. We believe that our existing facilities are adequate for our present purposes. The Company believes that if necessary, it could secure suitable alternative facilities on similar terms without adversely affecting operations. For additional information concerning properties, see Notes 7 and 12 of the Notes to the Consolidated Financial Statements included in this report. See “Item 8. Financial Statements and Supplemental Data.”
ITEM 3. LEGAL PROCEEDINGS
     From time to time the Company and the Bank are parties to claims and legal proceedings arising in the ordinary course of business. After taking into consideration information furnished by counsel, we believe that the ultimate aggregate liability represented thereby, if any, will not have a material adverse effect on our consolidated financial position or results of operations.
ITEM 4. RESERVED

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PART II
ITEM 5. MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
     Our common stock is traded on the Nasdaq Global Select National Market under the symbol “CVBF.” The following table presents the high and low sales prices and dividend information for our common stock during each quarter for the past two years. The Company had approximately 1,912 shareholders of record as of February 15, 2010.
                     
Two Year Summary of Common Stock Prices
  Quarter            
    Ended   High   Low   Dividends
3/31/2008
  $ 11.45     $ 8.40     $0.085 Cash Dividend
6/30/2008
  $ 12.62     $ 9.18     $0.085 Cash Dividend
9/30/2008
  $ 20.00     $ 7.12     $0.085 Cash Dividend
12/31/2008
  $ 14.75     $ 8.58     $0.085 Cash Dividend
 
                   
3/31/2009
  $ 12.11     $ 5.31     $0.085 Cash Dividend
6/30/2009
  $ 7.77     $ 5.69     $0.085 Cash Dividend
9/30/2009
  $ 8.70     $ 4.90     $0.085 Cash Dividend
12/31/2009
  $ 9.00     $ 6.93     $0.085 Cash Dividend
     For information on the statutory and regulatory limitations on the ability of the Company to pay dividends to its shareholders and on the Bank to pay dividends to the Company, see “Item 1. Business-Supervision and Regulation—Dividends and Other Transfers of Funds” and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Cash Flow”.
     Issuer Purchases of Equity Securities
     On July 16, 2008, our Board of Directors approved a program to repurchase up to 5,390,482 shares of our common stock. This program was combined with the 4,609,518 shares remaining from our previous stock repurchase program, approved in August 2007. As of December 31, 2009, we have the authority to repurchase up to 10,000,000 shares of our common stock (such number will not be adjusted for stock splits, stock dividends, and the like) in the open market or in privately negotiated transactions, at times and at prices considered appropriate by us, depending upon prevailing market conditions and other corporate and legal considerations. We made no repurchases of our common stock during the year ended December 31, 2009. There is no expiration date for our current stock repurchase program.
     Performance Graph
     The following Performance Graph and related information shall not be deemed “soliciting material” or be “filed” with the Securities and Exchange Commission, nor shall such information be incorporated by reference into any future filing under the Securities Act of 1933 or Securities Exchange Act of 1934, each as amended, except to the extent that the Company specifically incorporates it by reference into such filing.
     The following graph compares the yearly percentage change in CVB Financial Corp.’s cumulative total shareholder return (stock price appreciation plus reinvested dividends) on common stock (i) the cumulative total return of the Nasdaq National Market; and (ii) a published index comprised by Hemscott, Inc. of banks and bank holding companies in the Pacific region (the industry group line depicted below). The graph assumes an initial investment of $100 on December 31, 2003, and reinvestment of dividends through December 31, 2009. Points on the graph represent the performance as of the last business day of each of the years indicated. The graph is not necessarily indicative of future price performance.

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COMPARISON OF 5-YEAR CUMULATIVE TOTAL RETURN
AMONG CVB FINANCIAL CORP., NASDAQ MARKET INDEX AND HEMSCOTT GROUP INDEX
(PERFORMANCE GRAPH)
                                                                 
 
  Company/Index/Market     2004       2005       2006       2007       2008       2009    
 
CVB Financial Corporation
    $ 100.00       $ 97.25       $ 88.55       $ 71.76       $ 85.71       $ 65.28    
 
NASDAQ Market Index
    $ 100.00       $ 102.20       $ 112.68       $ 124.57       $ 74.71       $ 108.56    
 
Hemscott Group Index
    $ 100.00       $ 104.73       $ 109.26       $ 78.40       $ 53.72       $ 48.91    
 

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ITEM 6. SELECTED FINANCIAL DATA
     The following table reflects selected financial information at and for the five years ended December 31. Throughout the past five years, the Company has acquired other banks. This may affect the comparability of the data.
Item 6. Selected Financial Data
                                         
    At December 31,  
    2009     2008     2007     2006     2005  
    ( Amounts and numbers in thousands except per share amounts)  
Interest Income
  $ 310,759     $ 332,518     $ 341,277     $ 316,091     $ 246,884  
Interest Expense
    88,495       138,839       180,135       147,464       77,436  
 
   
Net Interest Income
    222,264       193,679       161,142       168,627       169,448  
 
   
Provision for Credit Losses
    80,500       26,600       4,000       3,000        
Other Operating Income
    81,071       34,457       31,325       33,258       27,505  
Other Operating Expenses
    133,586       115,788       105,404       95,824       90,053  
 
                             
Earnings Before Income Taxes
    89,249       85,748       83,063       103,061       106,900  
Income Taxes
    23,830       22,675       22,479       32,481       36,710  
 
                             
NET EARNINGS
  $ 65,419     $ 63,073     $ 60,584     $ 70,580     $ 70,190  
 
                             
Basic Earnings Per Common Share (1)
  $ 0.56     $ 0.75     $ 0.72     $ 0.84     $ 0.83  
 
                             
Diluted Earnings Per Common Share (1)
  $ 0.56     $ 0.75     $ 0.72     $ 0.83     $ 0.83  
 
                             
Cash Dividends Declared Per Common Share
  $ 0.340     $ 0.340     $ 0.340     $ 0.355     $ 0.420  
 
                             
Cash Dividends paid on Common Shares
    32,228       28,317       28,479       27,876       27,963  
Dividend Pay-Out Ratio (3)
    49.26 %     44.90 %     47.01 %     39.50 %     39.60 %
Weighted Average Common Shares (1):
                                       
Basic
    92,955,172       83,120,817       83,600,316       84,154,216       84,139,254  
Diluted
    93,055,801       83,335,503       84,005,941       84,813,875       84,911,893  
Common Stock Data:
                                       
Common shares outstanding at year end (1)
    106,231,511       83,270,263       83,164,906       84,281,722       84,073,227  
Book Value Per Share (1)
  $ 6.01     $ 5.92     $ 5.11     $ 4.60     $ 4.07  
Financial Position:
                                       
Assets
  $ 6,739,769     $ 6,649,651     $ 6,293,963     $ 6,092,248     $ 5,422,283  
Investment Securities available-for-sale
    2,108,463       2,493,476       2,390,566       2,582,902       2,369,892  
Net Non-Covered Loans
    3,499,455       3,682,878       3,462,095       3,042,459       2,640,660  
Covered Loans (6)
    455,285                          
Deposits
    4,438,654       3,508,156       3,364,349       3,406,808       3,424,045  
Borrowings
    1,488,250       2,345,473       2,339,809       2,139,250       1,496,000  
Junior Subordinated debentures
    115,055       115,055       115,055       108,250       82,476  
Stockholders’ Equity
    638,228       614,892       424,948       387,325       342,189  
Equity-to-Assets Ratio (2)
    9.47 %     9.25 %     6.75 %     6.36 %     6.31 %
Financial Performance:
                                       
Net Income to Beginning Equity
    10.64 %     14.84 %     15.64 %     20.63 %     22.13 %
Net Income to Average Equity (ROE)
    10.00 %     13.75 %     15.00 %     19.45 %     20.77 %
Net Income to Average Assets (ROA)
    0.98 %     0.99 %     1.00 %     1.22 %     1.44 %
Net Interest Margin (TE) (4)
    3.75 %     3.41 %     3.03 %     3.30 %     3.86 %
Efficiency Ratio (5)
    59.95 %     57.45 %     55.93 %     48.18 %     45.72 %
Credit Quality (Non-covered Loans):
                                       
Allowance for Credit Losses
  $ 108,924     $ 53,960     $ 33,049     $ 27,737     $ 23,204  
Allowance/Net Non-Covered Loans
    3.02 %     1.44 %     0.95 %     0.90 %     0.87 %
Total Non-Covered Non-Accrual Loans
  $ 69,779     $ 17,684     $ 1,435     $     $  
Non-Covered Non-Accrual Loans/Total Non-Covered Loans
    1.93 %     0.47 %     0.04 %     0.00 %     0.00 %
Allowance/Non-Covered Non-Accrual Loans
    156.10 %     305.13 %     2,303 %            
Net (Recoveries)/Charge-offs
  $ 25,536     $ 5,689     $ 1,358     $ (1,533 )   $ 46  
Net (Recoveries)/Charge-Offs/Average Loans
    0.68 %     0.16 %     0.04 %     -0.05 %     0.00 %
Regulatory Capital Ratios
                                       
For the Company:
                                       
Leverage Ratio
    9.6 %     9.8 %     7.6 %     7.8 %     7.7 %
Tier 1 Capital
    14.9 %     14.2 %     11.0 %     12.2 %     11.3 %
Total Capital
    16.3 %     15.5 %     12.0 %     13.0 %     12.0 %
For the Bank:
                                       
Leverage Ratio
    9.6 %     9.7 %     7.1 %     7.0 %     7.3 %
Tier 1 Capital
    14.9 %     13.9 %     10.5 %     11.0 %     10.8 %
Total Capital
    16.2 %     15.2 %     11.3 %     11.8 %     11.5 %
 
(1)   All per share information has been retroactively adjusted to reflect the 10% stock dividend declared December 20, 2006 and paid January 19, 2007 and the 5-for-4 stock split declared on December 21, 2005, which became effective January 10, 2006. Cash dividends declared per share are not restated in accordance with generally accepted accounting principles.
 
(2)   Stockholders’ equity divided by total assets.
 
(3)   Cash dividends on common stock divided by net earnings.
 
(4)   Net interest income (TE) divided by total average earning assets
 
(5)   Noninterest expense divided by total revenue (net interest income, after provision for credit losses, and other operating income).
 
(6)   Covered loans are those loans acquired from SJB and covered by a loss sharing agreement with the FDIC.

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND THE RESULTS OF OPERATIONS
GENERAL
     Management’s discussion and analysis is written to provide greater detail of the results of operations and the financial condition of CVB Financial Corp. and its subsidiaries. This analysis should be read in conjunction with the audited financial statements contained within this report including the notes thereto.
OVERVIEW
     We are a bank holding company with one bank subsidiary, Citizens Business Bank. We have three other inactive subsidiaries: CVB Ventures, Inc.; Chino Valley Bancorp and ONB Bancorp. We are also the common stockholder of CVB Statutory Trust I, CVB Statutory Trust II and CVB Statutory Trust III which were formed to issue trust preferred securities in order to increase the capital of the Company. Through our acquisition of First Coastal Bancshares (“FCB”) in June 2007, we acquired FCB Capital II. We are based in Ontario, California in what is known as the “Inland Empire”. Our geographical market area encompasses the City of Stockton (the middle of the Central Valley) in the center of California to the City of Laguna Beach (in Orange County) in the southern portion of California. Our mission is to offer the finest financial products and services to professionals and businesses in our market area.
     Our primary source of income is from the interest earned on our loans and investments and our primary area of expense is the interest paid on deposits and borrowings, and salaries and benefits expense. As such our net income is subject to fluctuations in interest rates which impact our income statement. We are also subject to competition from other financial institutions, which may affect our pricing of products and services, and the fees and interest rates we can charge on them.
     Economic conditions in our California service area impact our business. We have seen a significant decline in the housing market resulting in slower growth in construction loans. Unemployment is high in our market areas and areas of our marketplace have been significantly impacted by adverse economic conditions, both nationally and in California. Approximately 21% of our total non-covered loan portfolio of $3.6 billion is located in the Inland Empire region of California. The balance of the portfolio is from outside of this region. Our provision for credit losses for 2009, which was significantly higher than our provision for credit losses for 2008, reflects an increase in our classified loans, as we continued to see the impact of deteriorating economic conditions on our loan portfolio. Continued weaknesses in the local and state economy, including the effects of the high unemployment rate, could adversely affect us through diminished loan demand, credit quality deterioration, and increases in loan delinquencies and defaults.
     Over the past few years, we have been active in both acquisitions and organic growth. Since 2000, we have acquired five banks and a leasing company, and we have opened four de novo branches: Bakersfield, Fresno, Madera, and Stockton, California. We also opened five Commercial Banking Centers since 2008. In October 2009, we acquired San Joaquin Bank in an FDIC-assisted acquisition. Through this acquisition, we acquired $489.1 million in loans, $25.3 million in investment securities, $530.0 million in deposits, and $121.4 million in borrowings. The foregoing amounts are reflected at fair value as of the acquisition date. The acquisition has been accounted for under the purchase accounting method which resulted in an after-tax gain of $12.3 million which is included in 2009 earnings. The gain is based on fair values. The determination of fair values and calculation of after-tax gain is described more fully in Note 2 – Federally Assisted Acquisition of San Joaquin Bank in the notes to the consolidated financial statements.
     We will continue to consider both organic growth and acquisition opportunities in the future, including FDIC-assisted acquisitions, which will enable us to meet our business objectives and enhance shareholder value.

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     In connection with the acquisition of San Joaquin Bank, the Bank entered into a loss sharing agreement with the FDIC, whereby the FDIC will cover a substantial portion of any future losses on certain acquired assets from San Joaquin Bank. The acquired assets subject to the loss sharing agreement are referred to herein collectively as “covered assets,” which consist of OREO and loans. The loans we acquired are referred to herein as “covered loans”. Under the terms of such loss sharing agreement, the FDIC will absorb 80% of losses and share in 80% of loss recoveries up to $144.0 million with respect to covered assets, after a first loss amount of $26.7 million, which is assumed by the Company. The FDIC will reimburse the Bank for 95% of losses and share in 95% of loss recoveries in excess of $144.0 million with respect to covered assets. The loss sharing agreement is in effect for 5 years for commercial loans and 10 years for single-family residential loans from the October 16, 2009 acquisition date and the loss recovery provisions are in effect for 8 and 10 years, respectively for commercial and single-family residential loans from the acquisition date.
     Our net interest income before provision for credit losses of $222.3 million in 2009, increased by $28.6 million or 14.76%, compared to net interest income before provision for credit losses of $193.7 million for 2008. The Bank has always had an excellent base of interest free deposits primarily due to our specialization in businesses and professionals as customers. As of December 31, 2009, 35.2% of our deposits are interest-free. This has allowed us to have a low cost of deposits, currently 0.63% for 2009, which contributed to a reduction in interest expense for 2009 compared to the same period last year.
     Our net income increased to $65.4 million in 2009 compared with $63.1 million in 2008, an increase of $2.3 million or 3.72%. The increase of $2.3 million in net income is primarily the result of a substantial decrease in interest expense, offset by a decline in interest income, and a $53.9 million increase in our provision for credit losses.
     Diluted earnings per common share decreased $0.19, from $0.75 in 2008 to $0.56 in 2009 as a result of TARP preferred stock dividends, which amounted to $4.3 million in the aggregate in 2009 and an increase in the number of our outstanding shares of common stock as a result of our completion of an underwritten stock offering in July, 2009 in which we received $132.5 million in gross proceeds ($126.1 million net proceeds). The net proceeds were used, along with other funds, to repurchase the preferred stock and outstanding warrant issued to the United States Treasury as part of our participation in the Capital Purchase Program.
CRITICAL ACCOUNTING ESTIMATES
     Critical accounting estimates are defined as those that are reflective of significant judgments and uncertainties, and could potentially result in materially different results under different assumptions and conditions. We believe that our most critical accounting estimates upon which our financial condition depends, and which involve the most complex or subjective decisions or assessment, are as follows:
     Allowance for Credit Losses: Arriving at an appropriate level of allowance for credit losses involves a high degree of judgment. Our allowance for credit losses provides for probable losses based upon evaluations of known and inherent risks in the loan and lease portfolio. The determination of the balance in the allowance for credit losses is based on an analysis of the loan and lease finance receivables portfolio using a systematic methodology and reflects an amount that, in our judgment, is adequate to provide for probable credit losses inherent in the portfolio, 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 inherent credit losses. The provision for credit losses is charged to expense. For a full discussion of our methodology of assessing the adequacy of the allowance for credit losses, see “Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operation - Risk Management”.

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     Investment Portfolio: The investment portfolio is an integral part of our financial performance. We invest primarily in fixed income securities. Accounting estimates are used in the presentation of the investment portfolio and these estimates do impact the presentation of our financial condition and results of operations. We classify securities as held-to-maturity those debt securities that we have the positive intent and ability to hold to maturity. Securities classified as trading are those securities that are bought and held principally for the purpose of selling them in the near term. All other debt and equity securities are classified as available-for-sale. Securities held-to-maturity are accounted for at cost and adjusted for amortization of premiums and accretion of discounts. Trading securities are accounted for at fair value with the unrealized holding gains and losses being included in current earnings. Securities available-for-sale are accounted for at fair value, with the net unrealized gains and losses, net of income tax effects, presented as a separate component of stockholders’ equity. At each reporting date, securities are assessed to determine whether there is an other-than-temporary impairment. Such impairment, if any, is required to be recognized in current earnings rather than as a separate component of stockholders’ equity. Realized gains and losses on sales of securities are recognized in earnings at the time of sale and are determined on a specific-identification basis. Purchase premiums and discounts are recognized in interest income using the effective-yield method over the terms of the securities. Our investment in Federal Home Loan Bank (“FHLB”) stock is carried at cost.
     Income Taxes: We account for income taxes using the asset and liability method by deferring income taxes based on estimated future tax effects of differences between the tax and book basis of assets and liabilities considering the provisions of enacted tax laws. These differences result in deferred tax assets and liabilities, which are included in our balance sheets. We must also assess the likelihood that any deferred tax assets will be recovered from future taxable income and establish a valuation allowance for those assets determined to not likely be recoverable. Our judgment is required in determining the amount and timing of recognition of the resulting deferred tax assets and liabilities, including projections of future taxable income. Although we have determined a valuation allowance is not required for any of our deferred tax assets, there is no guarantee that these assets are recoverable.
     Goodwill and Intangible Assets: We have acquired entire banks and branches of banks. Those acquisitions accounted for under the purchase method of accounting have given rise to goodwill and intangible assets. We record the assets acquired and liabilities assumed at their fair value. These fair values are arrived at by use of internal and external valuation techniques. The excess purchase price is allocated to assets and liabilities respectively, resulting in identified intangibles. The identified intangibles are amortized over the estimated lives of the assets or liabilities. Any excess purchase price after this allocation results in goodwill. Goodwill is tested on an annual basis for impairment.
     Acquired Loans: Loans acquired from SJB were recorded at fair value as of the acquisition date. In estimating the fair value, the portfolio was segregated into two groups: credit-impaired covered loans and other covered loans. Credit-impaired loans are those loans showing evidence of credit deterioration since origination and it is probable, at the date of acquisition, that the Company will not collect all contractually required principal and interest payments. For the credit-impaired loans, the fair value was estimated by using observable market data for similar types of loans. For the other covered loans, the fair value was estimated by calculating the undiscounted expected cash flows based on estimated levels of prepayments, default factors, and loss severities and discounting the expected cash flows at a market rate. Significant estimates are used in calculating the fair value of acquired loans; as a result, actual results may be different than estimates.
     Fair Value of Financial Instruments: We use fair value measurements to record fair value adjustments to certain financial instruments and to determine fair value disclosures. Investments securities available-for-sale and interest-rate swaps are financial instruments recorded at fair value on a recurring basis. Additionally, from time to time, we may be required to record at fair value other financial assets on a non-recurring basis, such as impaired loans and OREO. These nonrecurring fair value adjustments typically involve application of lower-of-cost-or-market accounting or write-downs of individual assets. Further, we include in the Notes to Financial Statements information about the extent to which fair value is used to measure assets and liabilities, the valuation methodologies used and its impact to earnings. Additionally, for financial instruments not recorded at fair value we disclose the estimate of their fair value.
ANALYSIS OF THE RESULTS OF OPERATIONS
     The following table summarizes net earnings, earnings per common share, and key financial ratios for the periods indicated.

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    For the years ended December 31,
    2009   2008   2007
    (Dollars in thousands,
    except per share amounts)
Net earnings
  $ 65,419     $ 63,073     $ 60,584  
Earnings per common share:
                       
Basic (1)
  $ 0.56     $ 0.75     $ 0.72  
Diluted (1)
  $ 0.56     $ 0.75     $ 0.72  
Return on average assets
    0.98 %     0.99 %     1.00 %
Return on average shareholders’ equity
    10.00 %     13.75 %     15.00 %
 
(1)   Of the decrease in earnings and diluted earnings per common share for 2009, $0.14 is due to the preferred stock dividend and discount amortization and $0.07 is due to the increase in weighted common shares outstanding as a result of our capital offering.
Earnings
     We reported net earnings of $65.4 million for the year ended December 31, 2009. This represented an increase of $2.3 million, or 3.72%, over net earnings of $63.1 million for the year ended December 31, 2008. Net earnings for 2008 increased $2.5 million to $63.1 million, or 4.11%, from net earnings of $60.6 million for the year ended December 31, 2007. Basic and diluted earnings per common share were $0.56 in 2009, as compared to $0.75 in 2008, and $0.72 in 2007.
     The increase in net earnings for 2009 compared to 2008 was primarily the result of an increase in net interest income before provision for credit losses, gain on sale of investment securities and gain on acquisition of SJB, offset by an increase in loan loss provision and other operating expenses. The increase in net earnings for 2008 compared to 2007 was primarily the result of an increase in net interest income and other operating income, offset by an increase in loan loss provision and other operating expenses. The net earnings in 2009 and 2008 reflect the decrease in interest rates during those years and the impact on our net interest margin.
     For 2009, our return on average assets was 0.98%, compared to 0.99% for 2008, and 1.00% for 2007. Our return on average stockholders’ equity was 10.00% for 2009, compared to a return of 13.75% for 2008, and 15.00% for 2007. The decrease in return on average assets is due to an increase in total average assets over 2008. The decrease in return on average stockholders’ equity is due to the outstanding preferred stock during 2009 and increase in common stock from the capital stock offering in 2009.
Net Interest Income
     The principal component of our earnings is net interest income, which is the difference between the interest and fees earned on loans and investments (earning assets) and the interest paid on deposits and borrowed funds (interest-bearing liabilities). Net interest margin is the taxable-equivalent of net interest income as a percentage of average earning assets for the period. The level of interest rates and the volume and mix of earning assets and interest-bearing liabilities impact net interest income and net interest margin. The net interest spread is the yield on average earning assets minus the cost of average interest-bearing liabilities. Our net interest income, interest spread, and net interest margin are sensitive to general business and economic conditions. These conditions include short-term and long-term interest rates, inflation, monetary supply, and the strength of the economy, in general, and the local economies in which we conduct business. Our ability to manage net interest income during changing interest rate environments will have a significant impact on our overall performance. Our balance sheet is currently liability-sensitive; meaning interest-bearing liabilities will generally reprice more quickly than earning assets. Therefore, our net interest margin is likely to decrease in sustained periods of rising interest rates and increase in sustained periods of declining interest rates. We manage net interest income through affecting changes in the mix of earning assets as well as the mix of interest-bearing liabilities, changes in the level of interest-bearing liabilities in proportion to earning assets, and in the growth of earning assets.

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     Our net interest income, before provision for credit losses totaled $222.3 million for 2009. This represented an increase of $28.6 million, or 14.76%, over net interest income of $193.7 million for 2008. Net interest income for 2008 increased $32.5 million, or 20.19%, over net interest income of $161.1 million for 2007. The increase in net interest income of $28.6 million for 2009 resulted from a decrease of $50.3 million in interest expense overshadowed by a decrease of $21.7 million in interest income. The decrease in interest expense of $50.3 million resulted from the decrease in average rate paid on interest-bearing liabilities to 1.97% in 2009 from 3.01% in 2008, and a decrease in average interest-bearing liabilities of $116.9 million. The decrease of $21.7 million in interest income resulted from the decrease in the average yield on interest-earning assets to 5.17% in 2009 from 5.71% in 2008, offset by an increase of $194.3 million in average interest-earning assets. Our loan portfolio includes loans with interest rate floors which mitigate the risk of significant future decline.
     The increase in net interest income before provision for credit losses of $32.5 million for 2008 as compared to 2007 resulted from a decrease of $41.3 million in interest expense which overshadowed an $8.8 million decrease in interest income. The decrease in interest expense of $41.3 million resulted from the decrease in average rate paid on interest-bearing liabilities to 3.01% in 2008 from 4.11% in 2007, offset by an increase of average interest-bearing liabilities of $259.1 million. The decrease of $8.8 million in interest income resulted from the decrease in the average yield on interest-earning assets to 5.71% in 2008 from 6.17% in 2007, offset by an increase of $341.6 million in average interest-earning assets.
     Interest income totaled $310.8 million for 2009. This represented a decrease of $21.8 million, or 6.54%, compared to total interest income of $332.5 million for 2008. For 2008, total interest income decreased $8.8 million, or 2.57%, from total interest income of $341.3 million for 2007. The decrease in total interest income during 2009 and 2008 was primarily due to the decrease in interest rates, partially offset by the growth in average earning assets.
     Interest income includes dividends earned on our investment in FHLB capital stock. For the year ended December 31, 2009, 2008 and 2007, our interest income from dividends earned on FHLB stock totaled $195,000, $4.6 million and $4.2 million, respectively. The FHLB announced that there can be no assurance that the FHLB will pay dividends at the same rate it has paid in the past, or that it will pay any dividends in the future, which, in both cases, would adversely affect our interest income as compared to prior periods.
     Interest expense totaled $88.5 million for 2009. This represented a decrease of $50.3 million, or 36.26%, from total interest expense of $138.8 million for 2008. For 2008, total interest expense decreased $41.3 million, or 22.93%, from total interest expense of $180.1 million for 2007. The decrease in interest expense during 2009 and 2008 was due to the decrease in interest rates on deposits and borrowed funds, partially offset by the change in average borrowed funds.
     Table 1 represents the composition of average interest-earning assets and average interest-bearing liabilities by category for the periods indicated, including the changes in average balance, composition, and yield/rate between these respective periods:

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TABLE 1 — Distribution of Average Assets, Liabilities, and Stockholders’ Equity; Interest Rates and Interest Differentials
                                                                         
    Twelve-month period ended December 31,  
    2009     2008     2007  
    Average             Average     Average             Average     Average             Average  
    Balance     Interest     Yield/Rate     Balance     Interest     Yield/Rate     Balance     Interest     Yield/Rate  
                            (amounts in thousands)                                
ASSETS
                                                                       
Investment Securities
                                                                       
Taxable
  $ 1,651,983     $ 76,771       4.67 %   $ 1,766,754     $ 86,930       4.97 %   $ 1,722,605     $ 85,899       4.99 %
Tax preferenced (1)
    675,799       27,356       5.71 %     675,309       28,371       5.91 %     666,278       29,231       5.88 %
Investment in FHLB stock
    93,989       195       0.21 %     89,601       4,552       5.08 %     80,789       4,229       5.23 %
Federal Funds Sold & Interest Bearing
                                                                       
Deposits with other institutions
    76,274       358       0.47 %     1,086       39       3.59 %     1,876       109       5.81 %
Loans HFS
    153       5       3.27 %                 0.00 %                 0.00 %
Loans (2) (3)
    3,735,339       206,074       5.52 %     3,506,510       212,626       6.06 %     3,226,086       221,809       6.88 %
 
                                                           
Total Earning Assets
    6,233,537       310,759       5.17 %     6,039,260       332,518       5.71 %     5,697,634       341,277       6.17 %
Total Non Earning Assets
    408,945                       355,653                       382,869                  
 
                                                                 
Total Assets
  $ 6,642,482                     $ 6,394,913                     $ 6,080,503                  
 
                                                                 
 
                                                                       
LIABILITIES AND STOCKHOLDERS’ EQUITY
                                                                       
 
                                                                       
Savings Deposits (4)
  $ 1,366,355     $ 10,336       0.76 %   $ 1,238,810     $ 16,413       1.32 %   $ 1,288,745     $ 31,764       2.46 %
Time Deposits
    1,195,378       14,620       1.22 %     769,827       19,388       2.52 %     844,667       37,533       4.44 %
 
                                                           
Total Deposits
    2,561,733       24,956       0.97 %     2,008,637       35,801       1.78 %     2,133,412       69,297       3.25 %
Other Borrowings
    1,927,923       63,539       3.30 %     2,597,943       103,038       3.97 %     2,214,108       110,838       5.01 %
 
                                                           
Interest Bearing Liabilities
    4,489,656       88,495       1.97 %     4,606,580       138,839       3.01 %     4,347,520       180,135       4.11 %
 
                                                           
Non-interest bearing deposits
    1,431,204                       1,268,548                       1,285,857                  
Other Liabilities
    67,741                       61,119                       43,285                  
Stockholders’ Equity
    653,881                       458,666                       403,841                  
 
                                                                 
Total Liabilities and Stockholders’ Equity
  $ 6,642,482                     $ 6,394,913                     $ 6,080,503                  
 
                                                                 
 
                                                                       
Net interest income
          $ 222,264                     $ 193,679                     $ 161,142          
 
                                                                 
 
                                                                       
Net interest spread — tax equivalent
                    3.20 %                     2.70 %                     2.06 %
Net interest margin
                    3.57 %                     3.22 %                     2.86 %
Net interest margin — tax equivalent
                    3.75 %                     3.41 %                     3.03 %
Net interest margin excluding loan fees
                    3.52 %                     3.13 %                     2.76 %
Net interest margin excluding loan fees — tax equivalent
                    3.70 %                     3.32 %                     2.93 %
 
(1)   Non tax-equivalent rate was 4.06% for 2009, 4.20% for 2008 and 4.39% for 2007
 
(2)   Loan fees are included in total interest income as follows, (000)s omitted: 2009, $3,197; 2008, $5,399 and 2007, $5,584
 
(3)   Non performing loans are included in net loans as follows: 2009, $69.8 million non-covered loans and $163.2 million covered loans; 2008, $17.7 million, 2007 $1,435
 
(4)   Includes interest bearing demand and money market accounts
     As stated above, the net interest margin measures net interest income as a percentage of average earning assets. Our tax effected (TE) net interest margin was 3.75% for 2009, compared to 3.41% for 2008, and 3.03% for 2007. The increase in the net interest margin in 2009 and 2008 was primarily the result of the changing interest rate environment, which impacted interest earned and interest paid as a percent of earning assets. This was partially offset by changes in the mix of assets and liabilities as discussed in the following paragraphs. Generally, our net interest margin improves in a decreasing interest rate environment as our deposits and borrowings reprice much faster than our loans and securities.
     The net interest spread is the difference between the yield on average earning assets less the cost of average interest-bearing liabilities. The net interest spread is an indication of our ability to manage interest rates received on loans and investments and paid on deposits and borrowings in a competitive and changing interest rate environment. Our net interest spread (TE) was 3.20% for 2009, 2.70% for 2008, and 2.06% for 2007. The increase in the net interest spread for 2009 as compared to 2008 resulted from a 104 basis point decrease in the cost of interest-bearing liabilities offset by a 54 basis point decrease in the yield on earning assets, thus generating a 50 basis point increase in the net interest spread. The decrease in rates during 2009 had a smaller impact on our assets since a majority of our assets are fixed rate; while deposits and borrowings benefited from the rate decrease. The increase in the net interest spread for 2008 as compared to 2007 resulted from a 110 basis point decrease in the cost of interest-bearing liabilities offset by a 46 basis point decrease in the yield on earning assets, thus generating a 64 basis point increase in the net interest spread.
     The yield (TE) on earning assets decreased to 5.17% for 2009, from 5.71% for 2008, and reflects a decreasing interest rate environment and a change in the mix of earning assets. Investments as a percent of earning assets decreased to 37.34% in 2009 from 40.44% in 2008. The yield on loans for 2009 decreased to 5.52% as compared to 6.06% for 2008. The yield on investments for 2009 decreased slightly to 4.98% as compared to 5.23% in 2008. The yield on loans for 2008 decreased to 6.06% as compared to 6.88% for 2007. The yield on investments for 2008 decreased slightly to 5.23% as compared to 5.24% in 2007.

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     The cost of average interest-bearing liabilities decreased to 1.97% for 2009 as compared to 3.01% for 2008 and 4.11% for 2007. These variations reflected the decreasing interest rate environment in 2009 and 2008, as well as the change in the mix of interest-bearing liabilities. Borrowings as a percent of interest-bearing liabilities decreased to 42.94% for 2009 as compared to 56.40% for 2008 and 50.93% for 2007. Borrowings typically have a higher cost than interest-bearing deposits. The cost of interest-bearing deposits for 2009 was 0.97% as compared to 1.78% for 2008 and 3.25% for 2007, reflecting a decreasing interest rate environment in 2009 and 2008. The cost of borrowings for 2009 was 3.30% as compared to 3.97% for 2008, and 5.01% for 2007, also reflecting the same fluctuating interest rate environment. The FDIC has approved the payment of interest on certain demand deposit accounts. This could have a negative impact on our net interest margin, net interest spread, and net earnings, should this be implemented fully. Currently, the only deposits for which we pay interest on are NOW, Money Market and TCD Accounts.
     Table 2 presents a comparison of interest income and interest expense resulting from changes in the volumes and rates on average earning assets and average interest-bearing liabilities for the years indicated. Changes in interest income or expense attributable to volume changes are calculated by multiplying the change in volume by the initial average interest rate. The change in interest income or expense attributable to changes in interest rates is calculated by multiplying the change in interest rate by the initial volume. The changes attributable to interest rate and volume changes are calculated by multiplying the change in rate times the change in volume.
TABLE 2 — Rate and Volume Analysis for Changes in Interest Income, Interest Expense and Net Interest Income
                                                                 
    Comparison of twelve months ended December 31,  
    2009 Compared to 2008     2008 Compared to 2007  
    Increase (Decrease) Due to     Increase (Decrease) Due to  
                    Rate/                             Rate/        
    Volume     Rate     Volume     Total     Volume     Rate     Volume     Total  
                            ( amounts in thousands )                          
Interest Income:
                                                               
Taxable investment securities
  $ (5,359 )   $ (5,251 )   $ 477     $ (10,133 )   $ 1,457     $ (344 )   $ (82 )   $ 1,031  
Tax-advantaged securities
    (62 )     (986 )     7       (1,041 )     581       200       (1,641 )     (860 )
Fed funds sold & interest-bearing
                                                               
deposits with other institutions
    2,699       (34 )     (2,346 )     319       (46 )     (42 )     18       (70 )
Investment in FHLB stock
    223       (4,364 )     (216 )     (4,357 )     461       (121 )     (17 )     323  
Loans HFS
                5       5                   0       0  
Loans
    13,829       (18,883 )     (1,499 )     (6,553 )     19,293       (26,454 )     (2,022 )     (9,183 )
 
                                               
Total interest on earning assets
    11,330       (29,518 )     (3,572 )     (21,760 )     21,746       (26,761 )     (3,744 )     (8,759 )
 
                                               
 
                                                               
Interest Expense:
                                                               
Savings deposits
    1,679       (6,918 )     (804 )     (6,043 )     (1,228 )     (14,692 )     528       (15,392 )
Time deposits
    10,695       (9,980 )     (5,517 )     (4,802 )     (3,323 )     (16,218 )     1,437       (18,104 )
Other borrowings
    (26,969 )     (17,648 )     5,118       (39,499 )     19,277       (21,835 )     (5,242 )     (7,800 )
 
                                               
Total interest on interest-bearing liabilities
    (14,595 )     (34,546 )     (1,203 )     (50,344 )     14,726       (52,745 )     (3,277 )     (41,296 )
 
                                               
 
                                                               
Net Interest Income
  $ 25,925     $ 5,028     $ (2,369 )   $ 28,584     $ 7,020     $ 25,984     $ (467 )   $ 32,537  
 
                                               
Interest and Fees on Loans
     Our major source of revenue is interest and fees on loans, which totaled $206.1 million for 2009. This represented a decrease of $6.5 million, or 3.08%, from interest and fees on loans of $212.6 million for 2008. For 2008, interest and fees on loans decreased $9.2 million, or 4.14%, from interest and fees on loans of $221.8 million for 2007. The decrease in interest and fees on loans for 2009 and 2008 reflects the decreases in loan yields, offset by the increases in average loan balances. The yield on loans decreased to 5.52% for 2009, compared to 6.06% for 2008 and 6.88% 2007.
     In general, we stop accruing interest on a loan after its principal or interest becomes 90 days or more past due. When a loan is placed on non-accrual, all interest previously accrued but not collected is charged against earnings. There was no interest income that was accrued and not reversed on non-accrual loans at December 31, 2009, 2008, and 2007. For 2009, 2008 and 2007, we had $69.8 million, $17.7 million and $1.4 million of non-covered non-accrual loans, respectively. Had non-covered non-accrual loans for which interest was no longer accruing complied with the original terms and conditions, interest income would have been $4.1 million, $370,000 and $90,000 greater for 2009, 2008 and 2007, respectively.

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     Fees collected on loans are an integral part of the loan pricing decision. Loan fees and the direct costs associated with the origination of loans are deferred and deducted from total loans on our balance sheet. Deferred net loan fees are recognized in interest income over the term of the loan using the effective-yield method. We recognized loan fee income of $3.2 million for 2009, $5.4 million for 2008 and $5.6 million for 2007. The decrease in loan fee income during 2009 was due to a decrease in loan originations as a result of weakening economy and diminished loan demand.
Interest on Investments
     Another component of interest income is interest on investments, which totaled $104.7 million for 2009. This represented a decrease of $15.2 million, or 12.69%, from interest on investments of $119.9 million for 2008. For 2008, interest on investments increased $423,000, or 0.35%, over interest on investments of $119.5 million for 2007. The decrease in interest on investments for 2009 as compared to 2008 reflected the decreases in average balances and decrease in yield on investments. The interest rate environment and the investment strategies we employ directly affect the yield on the investment portfolio. We continually adjust our investment strategies in response to the changing interest rate environments in order to maximize the rate of total return consistent within prudent risk parameters, and to minimize the overall interest rate risk of the Company. The weighted-average yield on investments was 4.98% for 2009, compared to 5.23% for 2008 and 5.24% for 2007.
Interest on Deposits
     Interest on deposits totaled $25.0 million for 2009. This represented a decrease of $10.8 million, or 30.29%, from interest on deposits of $35.8 million for 2008. The decrease is due to the decrease in interest rates on deposits offset by an increase in average interest-bearing deposit balances. The cost of interest-bearing deposits decreased to 0.97% in 2009 from 1.78% in 2008 and average interest-bearing deposits increased $553.1 million, or 27.54% from 2008. Interest on deposits decreased in 2008 by $33.5 million, from interest on deposits of $69.3 million during 2007. Our cost of total deposits was 0.63%, 1.09%, 2.03% for the years ended December 31, 2009, 2008, and 2007, respectively.
Interest on Borrowings
     Interest on borrowings totaled $59.6 million for 2009. This represents a decrease of $36.5 million, or 37.97%, from interest on borrowings of $96.0 million for 2008. The decrease is primarily due to the decrease in average borrowings and decrease in interest rates on borrowings. Average borrowings decreased $670.0 million during 2009 compared to 2008. As a result of the increase in deposits, it was possible for us to reduce our reliance on borrowed funds. Interest rates on borrowings decreased 58 basis points during 2009 to 3.29% from 3.87% during 2008. Interest on borrowings decreased $7.3 million for 2008, from $103.3 million for 2007. The decrease from 2007 to 2008 is primarily due to the decrease in interest rates on borrowings, offset by an increase in average borrowings.
Provision for Credit Losses
     We maintain an allowance for inherent credit losses that is increased by a provision for credit losses charged against operating results. Provision for credit losses is determined by management as the amount to be added to the allowance for credit losses after net charge-offs have been deducted to bring the allowance to an adequate level which, in management’s best estimate, is necessary to absorb probable credit losses within the existing loan portfolio. The nature of this process requires considerable judgment. As such, we made a provision for credit losses on non-covered loans of $80.5 million in 2009, $26.6 million in 2008 and $4.0 million in 2007. The increase in allowance during 2009 and 2008 was due to the increase in classified loans and the increase in qualitative factors which is consistent with the current economic environment. We believe the allowance is currently appropriate. The ratio of the allowance for credit losses to total non- covered loans as of December 31, 2009, 2008, and 2007 was 3.02%, 1.44% and

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0.95%, respectively. No assurance can be given that economic conditions which adversely affect the Company’s service areas or other circumstances will not be reflected in increased provisions for credit losses in the future. The net charge-offs totaled $25.5 million in 2009, $5.7 million in 2008, and $1.4 million in 2007. See “Risk Management — Credit Risk” herein.
     SJB loans acquired in the FDIC-assisted transaction were initially recorded at their fair value and are covered by a loss sharing agreement with the FDIC. Due to the timing of the acquisition and the October 16, 2009 fair value estimate, there was no provision for credit losses on the covered SJB loans.
Other Operating Income
     The components of other operating income were as follows:
                         
    For the years ended December 31,  
    2009     2008     2007  
    (Dollars in thousands)  
Service charges on deposit accounts
  $ 14,889     $ 15,228     $ 13,381  
CitizensTrust
    6,657       7,926       7,226  
Bankcard services
    2,338       2,329       2,530  
BOLI Income
    2,792       5,000       3,839  
Other
    5,150       3,974       4,349  
Gain on sale of securities
    28,446              
Impairment charge on investment security
    (323 )            
Gain on SJB acquisition
    21,122              
 
                 
Total other operating income
  $ 81,071     $ 34,457     $ 31,325  
 
                 
     Other operating income, totaled $81.1 million for 2009. This represents an increase of $46.6 million, or 135.28%, over other operating income of $34.5 million in 2008. The increase is due to gain on sale of securities and gain on SJB acquisition, offset by decreases in income from CitizensTrust and Bank-Owned Life Insurance (BOLI). During 2008, other operating income increased $3.1 million, or 10.00%, from other operating income of $31.3 million for 2007.
     During 2009, we sold certain securities with relatively short maturities and recognized a gain on sale of securities of $28.4 million. We also recognized an other-than-temporary impairment on a private-label mortgage-backed investment security. The total impairment of $2.0 million was reduced by $1.7 million for the non-credit portion which was reflected in other comprehensive income. The remaining $323,000 loss was recognized as an offset to other operating income.
     During the fourth quarter of 2009, we recorded a pre-tax bargain purchase gain of $21.1 million in connection with our acquisition of SJB. For a detailed discussion on this acquisition and calculation of the gain see Note 2 — Federally Assisted Acquisition of San Joaquin Bank in the notes to the consolidated financial statements. This gain represents about 26% other operating income.
     CitizensTrust consists of Trust Services and Investment Services income. Trust Services provides a variety of services, which include asset management services (both full management services and custodial services), estate planning, retirement planning, private and corporate trustee services, and probate services. Investment Services provides mutual funds, certificates of deposit, and other non-insured investment products. CitizensTrust generated fees of $6.7 million in 2009. This represents a decrease of $1.3 million, or 16.01% from fees generated of $7.9 million in 2008. The decrease is primarily due to the elimination of Diversifier Fee income, as customer deposits were converted from a product that placed deposits outside of the Bank to a product that keeps deposits within the Bank. Fees generated by CitizensTrust represented 8.21% of other operating income in 2009, as compared to 23.00% in 2008 and 23.07% in 2007.

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     The Bank invests in Bank-Owned Life Insurance (BOLI). BOLI involves the purchasing of life insurance by the Bank on a chosen group of employees. The Bank is the owner and beneficiary of these policies. BOLI is recorded as an asset at cash surrender value. Increases in the cash value of these policies, as well as insurance proceeds received, are recorded in other operating income and are not subject to income tax. Bank Owned Life Insurance income totaled $2.8 million in 2009. This represents a decrease of $2.2 million, or 44.16%, from BOLI income generated of $5.0 million for 2008. BOLI income for 2008 includes a $1.0 million death settlement. The remaining decrease in BOLI income during 2009 reflects a decrease in yield on BOLI assets. BOLI income in 2008 increased $1.2 million, or 30.25% over BOLI income generated of $3.8 million for 2007, due to the $1.0 million death settlement received.
     Other fees and income, which includes wire fees, other business services, international banking fees, check sale, ATM fees, miscellaneous income, etc, generated fees totaling $5.2 million in 2009. This represented an increase of $1.2 million, or 29.59% from other fees and income generated of $4.0 million in 2008. The increase is primarily due to the accretion of FDIC loss sharing asset of $1.4 million.
     Other operating income as a percent of net revenues (net interest income before loan loss provision plus other operating income) was 26.73% for 2009, as compared to 15.10% for 2008 and 16.28% for 2007.
Other Operating Expenses
     The components of other operating expenses were as follows:
                         
    For the years ended December 31,  
    2009     2008     2007  
    (Dollars in thousands,  
    except per share amounts)  
Salaries and employee benefits
  $ 62,985     $ 61,271     $ 55,303  
Occupancy
    11,649       11,813       10,540  
Equipment
    6,712       7,162       7,026  
Stationery and supplies
    6,829       6,913       6,712  
Professional services
    6,965       6,519       6,274  
Promotion
    6,528       6,882       5,953  
Amortization of Intangibles
    3,163       3,591       2,969  
Other
    28,755       11,637       10,627  
 
                 
Total other operating expenses
  $ 133,586     $ 115,788     $ 105,404  
 
                 
     Other operating expenses totaled $133.6 million for 2009. This represents an increase of $17.8 million, or 15.37%, over other operating expenses of $115.8 million for 2008. During 2008, other operating expenses increased $10.4 million, or 9.85%, over other operating expenses of $105.4 million for 2007.
     For the most part, other operating expenses reflect the direct expenses and related administrative expenses associated with staffing, maintaining, promoting, and operating branch facilities. Our ability to control other operating expenses in relation to asset growth can be measured in terms of other operating expenses as a percentage of average assets. Operating expenses measured as a percentage of average assets was 2.01% for 2009, compared to 1.81% for 2008, and 1.73% for 2007.
     Our ability to control other operating expenses in relation to the level of total revenue (net interest income plus other operating income) is measured by the efficiency ratio and indicates the percentage of net revenue that is used to cover expenses. For 2009, the efficiency ratio was 59.95%, compared to 57.45% for 2008 and 55.93% for 2007. The increase in 2008 and 2007 is due to increases in salaries and related expenses and other expenses as discussed below.

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     Salaries and related expenses comprise the greatest portion of other operating expenses. Salaries and related expenses totaled $63.0 million for 2009. This represented an increase of $1.7 million, or 2.80%, over salaries and related expenses of $61.3 million for 2008. In 2008, salary and related expenses increased $6.0 million, or 10.79%, over salaries and related expenses of $55.3 million for 2007. At December 31, 2009, we employed 831 persons, 583 on a full-time and 248 on a part-time basis. This compares to 778 persons, 540 on a full-time and 238 on a part-time basis at December 31, 2008 and 766 persons, 541 on a full-time and 225 on a part-time basis at December 31, 2007. Salaries and related expenses as a percent of average assets increased to 0.95% for 2009, compared to 0.96% for 2008, and 0.91% for 2007.
     Professional services totaled $7.0 million for 2009, $6.5 million for 2008, and $6.3 million for 2007. The increases were primarily due to professional expenses incurred in conjunction with the capital stock offering and SJB acquisition.
     Other operating expenses totaled $28.8 million for 2009. This represented an increase of $17.1 million, or 147.1%, over expense of $11.6 million for 2008. The increase was primarily due to the following: (1) an increase of $7.7 million was due to FDIC deposit insurance which includes a $3.0 million FDIC special assessment, (2) an increase of $4.4 million was due to prepayment penalties on the restructure of FHLB advances, (3) an increase of $2.5 million in the provision for unfunded commitments, and (4) an increase of $1.1 million in OREO expense. For 2008, other operating expenses increased $1.0 million, or 9.50%, over expense of $10.6 million in 2007.
Income Taxes
     Our effective tax rate for 2009 was 26.70%, compared to 26.44% for 2008, and 27.06% for 2007. The effective tax rates are below the nominal combined Federal and State tax rates as a result of the increase in tax-preferenced income from certain investments and municipal loans/leases as a percentage of total income for each period. The majority of tax preferenced income is derived from municipal securities.
RESULTS BY SEGMENT OPERATIONS
     We have two reportable business segments, which are (i) Business Financial and Commercial Banking Centers and (ii) Treasury. The results of these two segments are included in the reconciliation between business segment totals and our consolidated total. Our business segments do not include the results of administration units that do not meet the definition of an operating segment.
Business Financial and Commercial Banking Centers
     Key measures we use to evaluate the Business Financial and Commercial Banking Center’s performance are included in the following table for years ended December 31, 2009, 2008 and 2007. The table also provides additional significant segment measures useful to understanding the performance of this segment.

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    For the Years Ended December 31,  
    2009     2008     2007  
Key Measures:   (Dollars in thousands)  
Statement of Operations
                       
Interest income
  $ 213,106     $ 189,128     $ 234,142  
Interest expense
    40,987       52,140       77,848  
 
                 
Net interest income
  $ 172,119     $ 136,988     $ 156,294  
 
                 
Non-interest income
    19,537       21,593       18,148  
Non-interest expense
    47,860       48,108       44,558  
 
                 
Segment pretax profit
  $ 143,796     $ 110,473     $ 129,884  
 
                 
Balance Sheet
                       
Average loans
  $ 3,735,339     $ 3,506,510     $ 3,226,086  
Average interest-bearing deposits
  $ 2,561,734     $ 2,008,637     $ 2,133,412  
Yield on loans
    5.52 %     6.06 %     6.88 %
Rate paid on deposits
    0.97 %     1.78 %     3.25 %
     For the year ended December 31, 2009, segment profits increased by $33.3 million, or 30.16%, compared to the year ended December 31, 2008. This was primarily due to an increase in interest income of $24.0 million offset by a decrease in interest expense of $11.2 million. The increase in interest income includes a credit for funds provided which is eliminated in the consolidated total. The credit for funds provided increases as deposit balances increase. During 2009 average total deposits increased $715.8 million, or 21.84%, compared to 2008. The decrease in interest expense is due to a decrease in rates paid on deposits offset by increases in average interest-bearing deposits.
     For the year ended December 31, 2008, segment profits decreased by 19.4 million, or 14.94% compared to the year ended December 31, 2007. Interest income decreased $45.0 million, or 19.23%, when compared with interest income during 2007, primarily due to decreases in interest rates during 2008, offset by increases in average loan balances. Interest expense decreased $25.7 million, or 33.02%, compared to interest expense during 2007, primarily due to decreases in interest rates and average interest-bearing deposits.
Treasury
     Key measures we use to evaluate the Treasury’s performance are included in the following table for the years ended December 31, 2009, 2008 and 2007. The table also provides additional significant segment measures useful to understanding the performance of this segment.
                         
    For the Years Ended December 31,  
    2009     2008     2007  
Key Measures:   (Dollars in thousands)  
Statement of Operations
                       
Interest income
  $ 104,778     $ 119,975     $ 119,544  
Interest expense
    83,649       99,714       129,698  
 
                 
Net interest income
  $ 21,129     $ 20,261     $ (10,154 )
 
                 
Non-interest income
    28,124       6       1  
Non-interest expense
    5,945       1,285       1,148  
 
                 
Segment pretax profit (loss)
  $ 43,308     $ 18,982     $ (11,301 )
 
                 
Balance Sheet
                       
Average investments
  $ 2,498,045     $ 2,532,750     $ 2,471,548  
Average borrowings
  $ 1,812,868     $ 2,482,888     $ 2,102,030  
Yield on investments-TE
    4.98 %     5.23 %     5.24 %
Non-tax equivalent yield
    4.06 %     4.20 %     4.39 %
Rate paid on borrowings
    3.29 %     3.87 %     4.85 %

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     For the year ended December 31, 2009, Treasury segment profits increased by $24.3 million over the same period in 2008. The increase is primarily due to the $28.4 million gain on sale of securities recognized during 2009, offset by the $4.4 million in prepayment penalties for the restructure of FHLB advances in 2009. Net interest income increased $868,000, or 4.28%, compared to 2008. The increase is due to a decrease of $16.1 million in interest expense, offset by a decrease of 15.2 million in interest income. During 2009, average investments and borrowings decreased coupled with decreases in interest rates.
     For the year ended December 31, 2008, Treasury segment profits increased by $30.3 million over the same period in 2007. The increase was primarily due to a decrease in interest expense of $30.0 million when compared to 2007. This is due to the 98 basis point decrease in interest rates paid on borrowings during 2008, offset by the increase in average borrowings.
     There are no provisions for credit losses or taxes in the segments as these are accounted for at the Company level.
Other
                         
    For the Years Ended December 31,  
    2009     2008     2007  
Key Measures:   (Dollars in thousands)  
Statement of Operations
                       
Interest income
  $ 69,867     $ 50,279     $ 61,360  
Interest expense
    40,851       13,849       46,358  
 
                 
Net interest income
  $ 29,016     $ 36,430     $ 15,002  
 
                 
Provision for Credit Losses
    80,500       26,600       4,000  
Non-interest income
    33,410       12,858       13,176  
Non-interest expense
    79,781       66,395       59,698  
 
                 
Pre-tax loss
  $ (97,855 )   $ (43,707 )   $ (35,520 )
 
                 
     The Company’s administration and other operating departments reported pre-tax loss of $97.9 million for the year ended December 31, 2009. This represented an increase of $54.1 million over pre-tax loss of $43.7 million for the year ended December 31, 2008. The increase is attributed to an increase in provision for credit losses of $53.9 million and an increase in non-interest expense of $13.4 million offset by an increase in non-interest income of $20.6 million and decrease in net interest income by $7.4 million. Pre-tax loss for 2008 increased $8.2 million to $43.7 million, or 23.05%, from pre-tax loss of $35.5 million for 2007.
ANALYSIS OF FINANCIAL CONDITION
     The Company reported total assets of $6.74 billion at December 31, 2009. This represented an increase of $90.2 million, or 1.36%, over total assets of $6.65 billion at December 31, 2008. The increase is primarily due to an increase in other assets and FDIC loss sharing asset of $158.2 million, offset by a decrease in earning assets of $94.1 million, or 1.50%. Earning assets totaled $6.17 billion at December 31, 2009 as compared to $6.28 billion at December 31, 2008. The decrease in earning assets is primarily attributed to the decrease in total investments of $382.8 million, offset by an increase in net loans of $271.9 million. Total liabilities were $6.10 billion at December 31, 2009, an increase of $66.8 million, or 1.11%, over total liabilities of $6.03 billion. Total equity increased $23.3 million, or 3.80%, to $638.2 million at December 31, 2009, compared to total equity of $614.9 million at December 31, 2008.

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Investment Securities
     The Company maintains a portfolio of investment securities to provide interest income and to serve as a source of liquidity for its ongoing operations. The tables below set forth information concerning the composition of the investment securities portfolio at December 31, 2009, 2008, and 2007, and the maturity distribution of the investment securities portfolio at December 31, 2009. At December 31, 2009, we reported total investment securities of $2.11 billion. This represents a decrease of $388.0 million, or 15.52%, from total investment securities of $2.50 billion at December 31, 2008. During 2009, we sold certain securities with relatively short maturities and recognized a gain on sale of securities of $28.4 million.
     Securities held as “available-for-sale” are reported at current fair value for financial reporting purposes. The related unrealized gain or loss, net of income taxes, is recorded in stockholders’ equity. At December 31, 2009, securities held as available-for-sale had a fair value of $2.11 billion, representing 99.8% of total investment securities. Investment securities available-for-sale had an amortized cost of $2.06 billion at December 31, 2009. At December 31, 2009, the net unrealized holding gain on securities available-for-sale was $47.2 million that resulted in accumulated other comprehensive gain of $26.4 million (net of $20.8 million in deferred taxes).
Composition of the Fair Value of Securities Available-for-Sale:
                                                 
    At December 31,  
    2009     2008     2007  
    Amount     Percent     Amount     Percent     Amount     Percent  
    (amounts in thousands)  
U.S. Treasury Obligations
  $ 507       0.02 %   $ 0.00 %         $ 998       0.04 %
Government agency and government-sponsored enterprises
    21,713       1.03 %     27,778       1.11 %     50,835       2.13 %
Mortgage-backed securities
    647,168       30.70 %     1,184,485       47.50 %     1,023,061       42.80 %
CMO/REMICs
    773,165       36.67 %     596,791       23.94 %     622,806       26.05 %
Municipal bonds
    663,426       31.46 %     684,422       27.45 %     692,866       28.98 %
Other securities
    2,484       0.12 %           0.00 %           0.00 %
 
                                   
TOTAL
  $ 2,108,463       100.00 %   $ 2,493,476       100.00 %   $ 2,390,566       100.00 %
 
                                   
     The maturity distribution of the available-for-sale portfolio at December 31, 2009 consists of the following:
                                                                                         
    Maturing  
            Weighted     After one year     Weighted     After five     Weighted             Weighted     Balance as of     Weighted        
    One year     Average     through Five     Average     years through     Average     After ten     Average     December 31,     Average     % to  
    or less     Yield     Years     Yield     Ten Years     Yield     years     Yield     2009     Yield     Total  
U.S. Treasury Obligations
  $ 507       0.28 %   $ 0.00 %         $ 0.00 %         $ 0.00 %   $     $ 507       0.28 %     0.02 %
Government agency and government-sponsored enterprises
    21,359       2.54 %     354       2.46 %           0.00 %           0.00 %   $ 21,713       2.54 %     1.03 %
Mortgage-backed securities
    2,000       4.16 %     487,990       4.41 %     156,775       4.71 %     403       5.31 %   $ 647,168       4.48 %     30.70 %
CMO/REMICs
    21,460       4.63 %     407,998       4.82 %     343,707       4.54 %           0.00 %   $ 773,165       4.69 %     36.67 %
Municipal bonds (1)
    102,429       5.28 %     148,287       3.64 %     321,624       3.97 %     91,086       3.92 %   $ 663,426       4.09 %     31.46 %
Other Securities
    2,484       5.77 %                                                   $ 2,484       5.77 %     0.12 %
 
                                                                 
TOTAL
  $ 150,239       4.77 %   $ 1,044,629       4.46 %   $ 822,106       4.35 %   $ 91,489       3.92 %   $ 2,108,463       4.41 %     100.00 %
 
                                                                 
 
(1)   The weighted average yield is not tax-equivalent. The tax-equivalent yield is 5.68%.
     The maturity of each security category is defined as the contractual maturity except for the categories of mortgage-backed securities and CMO/REMICs whose maturities are defined as the estimated average life. The final maturity of mortgage-backed securities and CMO/REMICs will differ from their contractual maturities because the underlying mortgages have the right to repay such obligations without penalty. The speed at which the underlying mortgages repay is influenced by many factors, one of which is interest rates. Mortgages tend to repay faster as interest rates fall and slower as interest rate rise. This will either shorten or extend the estimated average life. Also, the yield on mortgage-backed securities and CMO/REMICs are affected by the speed at which the underlying mortgages repay. This is caused by the change in the amount of amortization of premiums or accretion of discount of each security as repayments increase or decrease. The Company obtains the estimated average life of each security from independent third parties.

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     The weighted-average yield on the investment portfolio at December 31, 2009 was 4.41% with a weighted-average life of 4.7 years. This compares to a weighted-average yield of 4.70% at December 31, 2008 with a weighted-average life of 4.9 years. The weighted average life is the average number of years that each dollar of unpaid principal due remains outstanding. Average life is computed as the weighted- average time to the receipt of all future cash flows, using as the weights the dollar amounts of the principal pay-downs.
     Approximately 67% of the securities in the investment portfolio are issued by the U.S. government or U.S. government-sponsored agencies which guarantee payment of principal and interest.
Composition of the Fair Value and Gross Unrealized Losses of Securities:
                                                 
    December 31, 2009  
    Less than 12 months     12 months or longer     Total  
            Gross             Gross             Gross  
            Unrealized             Unrealized             Unrealized  
          Holding           Holding           Holding  
Description of Securities   Fair Value     Losses     Fair Value     Losses     Fair Value     Losses  
                    (amounts in thousands)                  
Held-To-Maturity
                                               
CMO (1)
  $     $     $ 3,838     $ 1,671     $ 3,838     $ 1,671  
 
                                   
Available-for-Sale
                                               
Government agency
  $ 5,022     $ 1     $     $     $ 5,022     $ 1  
Mortgage-backed securities
    73,086       968                   73,086       968  
CMO/REMICs
    179,391       3,025       9,640       286       189,031       3,311  
Municipal bonds
    80,403       2,122       1,785       298       82,188       2,420  
 
                                   
 
  $ 337,902     $ 6,116     $ 11,425     $ 584     $ 349,327     $ 6,700  
 
                                   
 
(1)   For the twelve months ended December 31, 2009, the Company recorded $1.7 million, on a pre-tax basis, of the non-credit portion of OTTI for this security in other comprehensive income, which is included as gross unrealized losses.
                                                 
    December 31, 2008  
    Less than 12 months     12 months or longer     Total  
            Gross             Gross             Gross  
            Unrealized             Unrealized             Unrealized  
          Holding           Holding           Holding  
Description of Securities   Fair Value     Losses     Fair Value     Losses     Fair Value     Losses  
                    (amounts in thousands)                  
Held-To-Maturity
                                               
CMO
  $ 4,770     $ 2,097     $     $     $ 4,770     $ 2,097  
 
                                   
Available-for-Sale
                                               
Mortgage-backed securities
  $ 265     $     $ 13,903     $ 1     $ 14,168     $ 1  
CMO/REMICs
    163,036       4,542       1,853       53       164,889       4,595  
Municipal bonds
    159,370       5,341       37,994       1,596       197,364       6,937  
 
                                   
 
  $ 322,671     $ 9,883     $ 53,750     $ 1,650     $ 376,421     $ 11,533  
 
                                   
     The tables above show the Company’s investment securities’ gross unrealized losses and fair value by investment category and length of time that individual securities have been in a continuous unrealized loss position, at December 31, 2009 and 2008. The Company has reviewed the individual securities to determine whether a decline in fair value below the amortized cost basis is other-than-temporary. A summary of our analysis of these securities and the unrealized losses is described more fully in Note 3 — Investment Securities in the notes to the consolidated financial statements. Economic trends may adversely affect the value of the portfolio of investment securities that we hold.
     During 2009, the Company recognized an other-than-temporary impairment on the held-to-maturity investment security. The total impairment of $2.0 million was reduced by $1.7 million for the non-credit portion which was reflected in other comprehensive income. The remaining $323,000 impairment loss was offset to other income.

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Non-Covered Loans
     At December 31, 2009, the Company reported total non-covered loans, net of deferred loan fees, of $3.61 billion. This represents a decrease of $128.5 million, or 3.44%, from total loans, net of deferred loan fees of $3.74 billion at December 31, 2008. The loan portfolio was affected by real estate trends, diminished loan demand and the weakening of the economy.
     Table 4 presents the distribution of our non-covered loans at the dates indicated.
TABLE 4 — Distribution of Loan Portfolio by Type
(Non-Covered Loans)
                                         
    December 31,  
    2009     2008     2007     2006     2005  
            (amounts in thousands)          
Commercial and Industrial
  $ 413,715     $ 370,829     $ 365,214     $ 264,416     $ 223,330  
Real Estate
                                       
Construction
    265,444       351,543       308,354       299,112       270,436  
Commercial Real Estate
    1,989,644       1,945,706       1,805,946       1,642,370       1,363,516  
SFR Mortgage
    265,543       333,931       365,849       284,725       271,237  
Consumer, net of unearned discount
    67,693       66,255       58,999       54,125       59,801  
Municipal Lease Finance Receivables
    159,582       172,973       156,646       126,393       108,832  
Auto and equipment leases
    30,337       45,465       58,505       51,420       39,442  
Dairy and Livestock
    422,958       459,329       387,488       358,259       338,035  
 
                             
Gross Loans (Non-Covered)
    3,614,916       3,746,031       3,507,001       3,080,820       2,674,629  
 
                             
Less:
                                       
Allowance for Credit Losses
    108,924       53,960       33,049       27,737       23,204  
Deferred Loan Fees
    6,537       9,193       11,857       10,624       10,765  
 
                             
Total Net Loans (Non-Covered)
  $ 3,499,455     $ 3,682,878     $ 3,462,095     $ 3,042,459     $ 2,640,660  
 
                             
     Commercial and industrial loans are loans to commercial entities to finance capital purchases or improvements, or to provide cash flow for operations. Real estate loans are loans secured by conforming first trust deeds on real property, including property under construction, land development, commercial property and single- family and multifamily residences. Consumer loans include installment loans to consumers as well as home equity loans and other loans secured by junior liens on real property. Municipal lease finance receivables are leases to municipalities. Dairy and livestock loans are loans to finance the operating needs of wholesale dairy farm operations, cattle feeders, livestock raisers, and farmers.
     Our loan portfolio is primarily located throughout our marketplace. The following is the breakdown of our total non-covered loans and non-covered commercial real estate loans by region at December 31, 2009.
                                 
    December 31, 2009
                    Non-Covered
                    Commercial
Non-Covered   Total Non-Covered Loans   Real Estate Loans
Loans by Market Area         (amounts in thousands)        
Los Angeles County
  $ 1,176,881       32.6 %   $ 709,960       35.6 %
Inland Empire
    760,009       21.0 %     609,273       30.6 %
Central Valley
    634,492       17.6 %     289,955       14.6 %
Orange County
    535,897       14.8 %     217,932       11.0 %
Other Areas
    507,637       14.0 %     162,524       8.2 %
     
 
  $ 3,614,916       100.0 %   $ 1,989,644       100.0 %
     
     Of particular concern in the current credit and economic environments is our real estate and real estate construction loans. Our real estate loans are comprised of single-family residences, multifamily residences, industrial, office and retail. We strive to have an original loan-to-value ratio of 65-75%. This table breaks down our real estate portfolio, with the exception of construction loans which are addressed in a separate table.

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    December 31, 2009
                    Percent   Average
Non-Covered Real Estate Loans                   Owner-   Loan
(amounts in thousands)   Loan Balance   Percent   Occupied (1)   Balance
Single Family-Direct
  $ 51,307       2.3 %     100.0 %   $ 457  
Single Family-Mortgage Pools
    214,236       9.5 %     100.0 %     337  
Multifamily
    112,411       5.0 %     0.0 %     885  
Industrial
    670,218       29.7 %     36.9 %     880  
Office
    386,602       17.1 %     24.5 %     1,015  
Retail
    234,368       10.4 %     15.0 %     1,051  
Medical
    135,827       6.0 %     42.7 %     1,861  
Secured by Farmland
    153,090       6.8 %     100.0 %     2,097  
Other
    297,128       13.2 %     51.6 %     1,147  
     
 
  $ 2,255,187       100.0 %     44.7 %     1,037  
     
 
(1)   Represents percentage of owner-occupied in each real estate loan category
     In the table above, Single Family-Direct represents those single-family residence loans that we have made directly to our customers. These loans total $51.3 million. In addition, we have purchased pools of owner-occupied single-family loans from real estate lenders, Single Family-Mortgage Pools, totaling $214.2 million. These loans were purchased with average FICO scores predominantly ranging from 700 to over 800 and overall original loan-to-value ratios of 60% to 80%. These pools were purchased to diversify our loan portfolio since we make few single-family loans. Due to market conditions, we have not purchased any mortgage pools since August 2007.
     As of December 31, 2009, the Company had $265.4 million in non-covered construction loans. This represents 7.34% of total non-covered loans outstanding of $3.61 billion. Of this $265.4 million in construction loans, approximately 26%, or $68.5 million, were for single-family residences, residential land loans, and multi-family land development loans. The remaining construction loans, totaling $196.9 million, were related to commercial construction. The average balance of any single construction loan is approximately $3.8 million. Our construction loans are located throughout our marketplace as can be seen in the following table.

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Non-Covered    
Construction Loans   December 31, 2009
  SFR & Multifamily
(amounts in thousands)   Land                                
    Development           Construction           Total        
Inland Empire
  $ 3,408       16.1 %   $ 16,899       35.8 %   $ 20,307       29.7 %
Orange
    5,196       24.5 %           0.0 %     5,196       7.6 %
Los Angeles
          0.0 %     14,685       31.1 %     14,685       21.4 %
Central Valley
    12,604       59.4 %           0.0 %     12,604       18.4 %
San Diego
          0.0 %     4,417       9.3 %     4,417       6.4 %
Other (includes out-of-state)
          0.0 %     11,272       23.8 %     11,272       16.5 %
     
 
  $ 21,208       100.0 %   $ 47,273       100.0 %   $ 68,481       100.0 %
     
                                                 
    Commercial
    Land                                
    Development           Construction           Total        
Inland Empire
  $ 17,402       39.1 %   $ 61,507       40.4 %   $ 78,909       40.1 %
Orange
          0.0 %     3,625       2.4 %     3,625       1.8 %
Los Angeles
    4,700       10.6 %     38,739       25.4 %     43,439       22.1 %
Central Valley
    15,388       34.6 %     19,741       12.9 %     35,129       17.8 %
Other (includes out-of-state)
    6,977       15.7 %     28,884       18.9 %     35,861       18.2 %
     
 
  $ 44,467       100.0 %   $ 152,496       100.0 %   $ 196,963       100.0 %
     
     Of the total SFR and multifamily loans, $32.8 million are for multifamily and the remainder represents single-family loans.
Covered Loans from the SJB Acquisition
     The table below presents the distribution of our covered loans as of December 31, 2009.
Distribution of Loan Portfolio by Type
(Covered Loans)
                 
    December 31, 2009          
    (amounts in thousands)          
Commercial and Industrial
  $ 61,802       9.4 %
Real Estate
               
Construction
    136,065       20.8 %
Commercial Real Estate
    357,140       54.4 %
SFR Mortgage
    17,510       2.7 %
Consumer, net of unearned discount
    11,066       1.7 %
Municipal Lease Finance Receivables
    983       0.2 %
Agribusiness
    70,493       10.8 %
 
             
Gross Loans
    655,059       100.0 %
 
             
Less:
               
Purchases accounting discount
    184,419          
Deferred Loan Fees
    6          
 
             
Total Net Loans
  $ 470,634          
 
             
     The above loans are subject to a loss sharing agreement with the FDIC, the terms of which provide that the FDIC will absorb 80% of losses and share in 80% of loss recoveries up to $144.0 million with respect to covered assets, after a first loss amount of $26.7 million, which is assumed by the Company. The FDIC will reimburse the Bank for 95% of losses and share in 95% of loss recoveries in excess of

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$144.0 million with respect to covered assets. The loss sharing agreement is in effect for 5 years for commercial loans and 10 years for single-family residential loans from the October 16, 2009 acquisition date and the loss recovery provisions are in effect for 8 and 10 years, respectively for commercial and single-family residential loans from the acquisition date.
Non-Covered and Covered Loans
     Table 5 provides the maturity distribution for commercial and industrial loans, real estate construction loans and agribusiness loans as of December 31, 2009. The loan amounts are based on contractual maturities although the borrowers have the ability to prepay the loans. Amounts are also classified according to re-pricing opportunities or rate sensitivity. The following table includes both covered and non-covered loans.
TABLE 5 — Loan Maturities and Interest Rate Category at December 31, 2009
                                 
            After One              
            But              
    Within     Within     After        
    One Year     Five Years     Five Years     Total  
            (amounts in thousands)          
Types of Loans:
                               
Commercial and industrial
  $ 206,655     $ 107,066     $ 161,796     $ 475,517  
Commericial Real Estate
    170,770       712,675       1,463,339       2,346,784  
Construction
    355,609       33,309       12,591       401,509  
Dairy and Livestock/Agribusiness
    433,347       18,939       41,165       493,451  
Other
    24,597       96,803       431,314       552,714  
 
                       
 
  $ 1,190,978     $ 968,792     $ 2,110,205     $ 4,269,975  
 
                       
 
                               
Amount of Loans based upon:
                               
Fixed Rates
  $ 36,866     $ 260,790     $ 1,038,221     $ 1,335,877  
Floating or adjustable rates
    1,154,112       708,002       1,071,984       2,934,098  
 
                       
 
  $ 1,190,978     $ 968,792     $ 2,110,205     $ 4,269,975  
 
                       
     As a normal practice in extending credit for commercial and industrial purposes, we 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 the cash flow from normal operations of the borrower, real property as collateral is not the primary source of repayment but has been taken as an abundance of caution. In these cases, the real property is considered a secondary source of repayment for the loan. Since we lend primarily in Southern and Central California, our real estate loan collateral is concentrated in this region. At December 31, 2009, substantially all of our loans secured by real estate were collateralized by properties located in California. This concentration is considered when determining the adequacy of our allowance for credit losses.
Non-Performing Assets (Non-Covered)
     The following table provides information on non-covered non-performing assets at the dates indicated.

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Non-Performing Assets
(Non-Covered Loans)
                                         
    December 31,  
    2009     2008     2007     2006     2005  
            (amounts in thousands)          
Nonaccrual loans
  $ 69,779     $ 17,684     $ 1,435     $     $  
Loans past due 90 days or more and still
                                       
accruing interest
                             
Other real estate owned (OREO)
    3,936       6,565                    
 
                             
Total nonperforming assets
  $ 73,715     $ 24,249     $ 1,435     $     $  
 
                             
Restructured loans
  $ 3,517     $ 2,500     $     $     $  
 
                             
Percentage of nonperforming assets to total loans outstanding & OREO
    1.81 %     0.65 %     0.04 %     0.00 %     0.00 %
 
                             
Percentage of nonperforming assets to total assets
    1.09 %     0.36 %     0.02 %     0.00 %     0.00 %
 
                             
     Non-covered non-performing assets include OREO, non-accrual loans, and loans 90 days or more past due and still accruing interest (see “Risk Management — Credit Risk” herein). At December 31, 2009, we had $73.7 million in non-covered, non-performing assets. Of this amount, $69.8 million were non-covered non-accrual loans and $3.9 million was non-covered OREO. At December 31, 2008, we had $24.2 million in non-performing assets, of which $17.7 million were non-accrual loans and $6.6 million was OREO. Loans are put on non-accrual after 90 days of non-performance. They can also be put on non-accrual if, in the judgment of management, the collectability is doubtful. All accrued and unpaid interest is reversed. The Bank allocates specific reserves which are included in the allowance for credit losses for potential losses on non-accrual loans. There were no loans greater than 90 days past due still accruing.
     A loan is impaired when, based on current information and events, it is probable that a creditor will be unable to collect all amounts (contractual interest and principal) according to the contractual terms of the loan agreement. At December 31, 2009, we had loans with a balance of $72.3 million classified as impaired. This balance includes the non-accrual loans of $69.8 million and three restructured loans with a balance of $3.5 million as of December 31, 2009. A restructured loan is a loan on which terms or conditions have been modified due to the deterioration of the borrower’s financial condition and a concession has been provided to the borrower. At December 31, 2008 we had loans with a balance of $17.7 million classified as impaired and one restructured loan of $2.5 million.
     At December 31, 2009, we held $3.9 million in non-covered OREO compared to $6.6 million as of December 31, 2008, a decrease of $2.7 million. This was primarily due to the sale of $14.3 million in OREO during 2009 offset by a transfer of $11.5 million from non-performing loans during 2009. The Bank incurred expenses of $1.2 million related to the holding of OREO.
Non-Performing Assets and Delinquencies (Non-Covered)
The table below provides trends in our non-performing assets and delinquencies during 2009 for total, covered and non-covered loans.

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Non-Performing Assets & Delinquency Trends
(Non-Covered Loans)
                                         
    December 31,     September 30,     June 30,     March 31,     December 31,  
    2009     2009     2009     2009     2008  
Non-Performing Loans
                                       
Residential Construction and Land
  $ 13,843     $ 15,729     $ 17,348     $ 20,943     $ 7,524  
Commercial Construction
    23,832       19,636       21,270       22,102        
Residential Mortgage
    11,787       8,102       4,632       2,203       3,116  
Commercial Real Estate
    17,129       13,522       7,041       1,661       4,658  
Commercial and Industrial
    3,173       1,045       859       792       2,074  
Consumer
    15       100       115       336       312  
 
                             
Total
  $ 69,779     $ 58,134     $ 51,265     $ 48,037     $ 17,684  
 
                             
 
                                       
% of Total Loans
    1.93 %     1.61 %     1.42 %     1.31 %     0.47 %
 
                                       
Past Due 30-89 Days
                                       
Residential Construction and Land
  $     $     $     $     $  
Commercial Construction
                             
Residential Mortgage
    4,921       1,510       2,069       3,814       1,931  
Commercial Real Estate
    2,407       190       1,074       8,341       2,402  
Commercial and Industrial
    2,973       5,094       590       1,720       592  
Dairy & Livestock
                3,551              
Consumer
    239       87       8       62       231  
 
                             
Total
  $ 10,540     $ 6,881     $ 7,292     $ 13,937     $ 5,156  
 
                             
 
                                       
% of Total Loans
    0.29 %     0.19 %     0.20 %     0.38 %     0.14 %
 
                                       
OREO
                                       
Residential Construction and Land
  $     $ 1,137     $ 1,789     $ 2,416     $ 6,158  
Commercial Construction
                             
Commercial Real Estate
                1,187       4,612       87  
Commercial and Industrial
    3,936             893       893        
Residential Mortgage
                      745       320  
Consumer
                166              
 
                             
Total
  $ 3,936     $ 1,137     $ 4,035     $ 8,666     $ 6,565  
 
                             
 
                                       
Total Non-Performing, Past Due & OREO
  $ 84,255     $ 66,152     $ 62,592     $ 70,640     $ 29,405  
 
                             
 
                                       
% of Total Loans
    2.33 %     1.84 %     1.73 %     1.93 %     0.79 %
     We had $69.8 million in non-performing, non-covered loans, or 1.93% of total loans at December 31, 2009. This compares to $58.1 million in non-performing loans at September 30, 2009, $51.3 million in non-performing loans at June 30, 2009, $48.0 million in non-performing loans at March 31, 2009, and $17.7 million in non-performing loans at December 31, 2008. At December 31, 2009, non-performing loans consist of $13.9 million in residential real estate construction and land loans, $23.8 million in commercial construction loans, $11.8 million in single-family mortgage loans, $17.1 million in commercial real estate loans, and $3.2 million in other commercial loans.
     Loans acquired through the SJB acquisition, which are contractually past due, are considered accruing and performing as the loans accrete interest income over the estimated life of the loan when cash flows are reasonably estimable. We have $163.2 million in gross loans acquired from SJB which are contractually past due and would normally be reported as nonaccrual. These loans have a carrying value, net of purchase discount, of $30.8 million. We have loans acquired from SJB delinquent 30-89 days with a gross balance of $23.2 million and carrying value, net of purchase discount, of $18.5 million.
     The economic downturn has had an impact on our market area and on our loan portfolio. With the exception of assets discussed above, we are not aware of any other loans as of December 31, 2009 for which known credit problems of the borrower would cause serious doubts as to the ability of such borrowers to comply with their present loan repayment terms, or any known events that would result in the loan being designated as non-performing at some future date. We can anticipate that there will be some losses in the loan portfolio given the current state of the economy. However, we cannot predict the extent to which the deterioration in general economic conditions, real estate values, increase in general rates of interest, change in the financial conditions or business of a borrower may adversely affect a borrower’s ability to pay. See “Risk Management — Credit Risk” herein.

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Deposits
     The primary source of funds to support earning assets (loans and investments) is the generation of deposits from our customer base. The ability to grow the customer base and deposits from these customers are crucial elements in the performance of the Company.
     We reported total deposits of $4.44 billion at December 31, 2009. This represented an increase of $930.5 million, or 26.52%, over total deposits of $3.51 billion at December 31, 2008. This increase was due to organic growth primarily from our Specialty Banking Group and Commercial Banking Centers and due to deposits acquired from the SJB acquisition. The average balance of deposits by category and the average effective interest rates paid on deposits is summarized for the years ended December 31, 2009, 2008 and 2007 in the table below.
                                                 
    Year Ended December 31,  
    2009     2008     2007  
    (Amounts in thousands)  
    Average     Average     Average  
    Balance     Rate     Balance     Rate     Balance     Rate  
Non-interest bearing deposits
                                               
Demand deposits
  $ 1,431,204           $ 1,268,548             1,285,857        
Interest bearing deposits
                                               
Investment Checking
    403,092       0.41 %     341,254       0.73 %     338,923       1.62 %
Money Market
    816,199       0.98 %     780,997       1.71 %     830,042       3.05 %
Savings
    147,065       0.49 %     116,559       0.47 %     119,780       0.78 %
Time deposits
    1,195,378       1.22 %     769,827       2.52 %     844,667       4.44 %
 
                                         
Total deposits
  $ 3,992,938             $ 3,277,185               3,419,269          
 
                                         
     The amount of non-interest-bearing demand deposits in relation to total deposits is an integral element in achieving a low cost of funds. Non-interest-bearing deposits represented 35.19% of total deposits as of December 31, 2009 and 38.03% of total deposits as of December 31, 2008. Non-interest-bearing demand deposits totaled $1.56 billion at December 31, 2009. This represented an increase of $227.7 million, or 17.07%, over total non-interest-bearing demand deposits of $1.33 billion at December 31, 2008.
     Table 7 provides the remaining maturities of large denomination ($100,000 or more) time deposits, including public funds, at December 31, 2009.
     Table 7 — Maturity Distribution of Large Denomination Time Deposits
         
    (Amount in thousands)  
3 months or less
  $ 712,528  
Over 3 months through 6 months
    215,707  
Over 6 months through 12 months
    65,545  
Over 12 months
    10,022  
 
     
Total
  $ 1,003,802  
 
     
Other Borrowed Funds
     To achieve the desired growth in earning assets we fund that growth through the sourcing of funds. The first source of funds we pursue is non-interest-bearing deposits (the lowest cost of funds to the Company), next we pursue growth in interest-bearing deposits and finally we supplement the growth in deposits with borrowed funds. Borrowed funds, as a percent of total funding (total deposits plus demand notes plus borrowed funds), was 25.14% at December 31, 2009, as compared to 40.12% at December 31, 2008.

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     At December 31, 2009, borrowed funds totaled $1.49 billion. This represented a decrease of $860.2 million, or 36.59%, from total borrowed funds of $2.35 billion at December 31, 2008. As a result of the increase in deposits of $930.5 million and net decrease in investment securities of $388.0 million, it was possible for us to reduce our reliance on borrowings. During 2009, we restructured a $300 million advance by paying-off $100 million and extended the maturity of $200 million for seven years at a 4.52% fixed rate. Imbedded in this fixed rate is a rate cap protecting an additional $200 million of interest rate risk. We also prepaid another $100 million advance. The prepayment penalty for the two $100 million advances was $4.4 million, which was recognized in other operating expenses. The prepayment penalty on the $200 million restructured advance was $1.9 million and will be amortized to interest expense over the next seven years. The maximum outstanding borrowings at any month-end were $2.34 billion during 2009 and $2.68 billion during 2008.
     We entered into short-term borrowing agreements with the Federal Home Loan Bank (FHLB). We had no outstanding balance as of December 31, 2009 under these agreements. As of December 31, 2008 we had $776.5 million under these agreements. FHLB held certain investment securities of the Bank as collateral for those borrowings. On December 31, 2009 we had no overnight borrowings with financial institutions compared to $6.2 million at December 31, 2008.
     In November 2006, we began a repurchase agreement product with our customers. This product, known as Citizens Sweep Manager, sells our securities overnight to our customers under an agreement to repurchase them the next day. As of December 31, 2009 and 2008, total funds borrowed under these agreements were $485.1 million and $364.0 million, respectively.
     The following table summarizes the short-term borrowings:
                         
    Federal Funds              
    Purchased and     Other        
    Repurchase     Short-term        
    Agreements     Borrowings     Total  
    (Dollars in thousands)  
At December 31, 2009
                       
Amount outstanding
  $ 485,132     $     $ 485,132  
Weighted-average interest rate
    0.95 %           0.95 %
For the year ended December 31, 2009
                       
Highest amount at month-end
  $ 485,132     $ 857,000     $ 1,342,132  
Daily-average amount outstanding
  $ 449,504     $ 417,959     $ 867,462  
Weighted-average interest rate
    1.05 %     0.46 %     0.76 %
At December 31, 2008
                       
Amount outstanding
  $ 363,973     $ 776,500     $ 1,140,473  
Weighted-average interest rate
    1.28 %     1.39 %     1.35 %
For the year ended December 31, 2008
                       
Highest amount at month-end
  $ 562,190     $ 1,162,000     $ 1,724,190  
Daily-average amount outstanding
  $ 458,993     $ 1,199,757     $ 1,658,750  
Weighted-average interest rate
    2.03 %     3.31 %     2.96 %
     During 2009 and 2008, we entered into long-term borrowing agreements with the FHLB. We had outstanding balances of $750.0 million and $950.0 million under these agreements at December 31, 2009 and 2008, respectively, with weighted-average interest rate of 3.81% in 2009 and 4.1% in 2008. We had an average outstanding balance of $940.4 million and $802.9 million as of December 31, 2009 and 2008, respectively. The FHLB held certain investment securities of the Bank as collateral for those borrowings.
     In June 2006, the Company purchased securities totaling $250.0 million. This purchase was funded by a repurchase agreement of $250.0 million with a double cap embedded in the repurchase agreement. The interest rate on this agreement is tied to three-month LIBOR and reset quarterly and the maturity is September 30, 2012. This repurchase agreement and the customer repurchase agreements discussed

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above are collectively included in Item 15 — Exhibits and Financial Statement Schedules as “repurchase agreements.”
     The Bank acquired subordinated debt of $5.0 million from the acquisition of FCB in June 2007 which is included in borrowings in Item 15 — Exhibits and Financial Statement Schedules. The debt has a variable interest rate which resets quarterly at three-month LIBOR plus 1.65%. The debt matures on January 7, 2016, but becomes callable on January 7, 2011.
     At December 31, 2009 and 2008 junior subordinated debentures totaled $115.1 million.
Aggregate Contractual Obligations
     The following table summarizes the aggregate contractual obligations as of December 31, 2009:
                                         
            Maturity by Period  
            Less Than     One Year     Four Year     After  
            One     to Three     to Five     Five  
    Total     Year     Years     Years     Years  
    (amounts in thousands)  
Deposits
  $ 4,438,654     $ 4,421,564     $ 13,441     $ 489     $ 3,160  
Repurchase Agreements
    735,132       485,132       250,000              
FHLB and Other Borrowings
    757,425       102,425       100,000       100,000       455,000  
Junior Subordinated Debentures
    115,055                         115,055  
Deferred Compensation
    8,524       847       1,613       1,591       4,473  
Operating Leases
    25,361       5,587       9,089       4,697       5,988  
 
                             
Total
  $ 6,080,151     $ 5,015,555     $ 374,143     $ 106,777     $ 583,676  
 
                             
     Deposits represent non-interest bearing, money market, savings, NOW, certificates of deposits, brokered and all other deposits held by the Company.
     FHLB Borrowings represent the amounts that are due to the Federal Home Loan Bank. These borrowings have fixed maturity dates. Other borrowings represent the amounts that are due to overnight Federal funds purchases, repurchase agreements, and Treasury Tax &Loan.
     Junior subordinated debentures represent the amounts that are due from the Company to CVB Statutory Trust I, CVB Statutory Trust II & CVB Statutory Trust III. The debentures have the same maturity as the Trust Preferred Securities. CVB Statutory Trust I which matures in 2033, became callable in whole or in part in December 2008. CVB Statutory Trust II matures in 2034 and becomes callable in whole or in part in January 2009. CVB Statutory Trust III, which matures in 2036, will become callable in whole or in part in 2011. It also represents FCB Capital Trust II which matures in 2033 and became callable in 2008. We have not called any of our debentures as of December 31, 2009.
     Deferred compensation represents the amounts that are due to former employees’ based on salary continuation agreements as a result of acquisitions.
     Operating leases represent the total minimum lease payments due under non-cancelable operating leases.
Off-Balance Sheet Arrangements
     At December 31, 2009, we had commitments to extend credit of approximately $596.6 million, obligations under letters of credit of $69.5 million and available lines of credit totaling $1.1 billion from certain financial institutions. 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

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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. We use the same credit underwriting policies in granting or accepting such commitments or contingent obligations as we do for on-balance sheet instruments, which consist of evaluating customers’ creditworthiness individually. The Company has a reserve for undisbursed commitments of $7.9 million as of December 31, 2009 and $4.2 million as of December 31, 2008.
     Standby letters of credit are conditional commitments issued by the Bank to guarantee the financial performance of a customer to a third party. Those guarantees are primarily issued to support private borrowing arrangements. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. When deemed necessary, we hold appropriate collateral supporting those commitments. We do not anticipate any material losses as a result of these transactions.
     The following table summarizes the off-balance sheet items at December 31, 2009:
                                         
            Maturity by Period  
            Less Than     One Year     Four Year     After  
            One     to Three     to Five     Five  
    Total     Year     Years     Years     Years  
    ( Amounts in thousands )  
2009
                                       
Commitment to extend credit
    596,588       187,847       54,676       50,799       303,266  
Obligations under letters of credit
    69,536       53,449       10,201       5,886        
 
                             
Total
  $ 666,124     $ 241,296     $ 64,877     $ 56,685     $ 303,266  
 
                             
Liquidity and Cash Flow
     Since the primary sources and uses of funds for the Bank are loans and deposits, the relationship between gross loans and total deposits provides a useful measure of the Bank’s liquidity. Typically, the closer the ratio of loans to deposits is to 100%, the more reliant the Bank is on its loan portfolio to provide for short-term liquidity needs. Since repayment of loans tends to be less predictable than the maturity of investments and other liquid resources, the higher the loans to deposit ratio the less liquid are the Bank’s assets. For 2009, the Bank’s loan to deposit ratio averaged 93.55%, compared to an average ratio of 107.00% for 2008 and 94.35% for 2007. The Bank’s ratio of loans to deposits and customer repurchases averaged, 84.26% for 2009, 96.24% for 2008, and 87.43% for 2007.
     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. The remaining cash flow is from rent paid by a third party on office space in our corporate headquarters. There are statutory and regulatory provisions that could limit the ability of the Bank to pay dividends to CVB. Management of CVB believes that such restrictions will not have an impact on the ability of CVB to meet its ongoing cash obligations.
     Under applicable California law, the Bank cannot make any distribution (including a cash dividend) to its shareholder (CVB) in an amount which exceeds the lesser of: (i) the retained earnings of the Bank or (ii) the net income of the Bank for its last three fiscal years, less the amount of any distributions made by the Bank to its shareholder during such period. Notwithstanding the foregoing, with the prior approval of the California Commissioner of Financial Institutions, the Bank may make a distribution (including a cash dividend) to CVB in an amount not exceeding the greatest of: (i) the retained earnings of the Bank; (ii) the net income of the Bank for its last fiscal year; or (iii) the net income of the Bank for its current fiscal year.
     At December 31, 2009, approximately $108.8 million of the Bank’s equity was unrestricted and available to be paid as dividends to CVB. See “Item 1. Business — Supervision and Regulation-Dividends

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and Other Transfers of Funds.” As of December 31, 2009, neither the Bank nor CVB had any material commitments for capital expenditures.
     For the Bank, sources of funds normally include principal payments on loans and investments, other borrowed funds, and growth in deposits. Uses of funds include withdrawal of deposits, interest paid on deposits, increased loan balances, purchases, and other operating expenses.
     Net cash provided by operating activities totaled $66.0 million for 2009, $83.6 million for 2008, and $71.1 million for 2007. The decrease in cash provided by operating activities in 2009 compared to 2008 was primarily due to the increase in cash paid to vendors and employees and income taxes paid, offset by decreases in interest and dividends and service charge fees received and interest paid.
     Cash provided by investing activities totaled $562.5 million for 2009, compared to cash used in investing activities of $333.9 million for 2008 and $21.1 million for 2007. The increase in cash provided by investing activities in 2009 was primarily due to the sales, repayment and maturities of investment securities and decrease in loans, offset by purchases of investment securities.
     Net cash used in financing activities totaled $620.5 million compared to net cash provided by financing activities of $256.1 million for 2008, and compared to funds used by financing activities of $106.9 million in 2007. The increase in net cash used in financing activities during 2009 was primarily the result of repayments of FHLB advances and decreases in other borrowings.
     At December 31, 2009, cash and cash equivalents totaled $103.3 million. This represented an increase of $8.0 million, or 8.35%, over a total of $95.3 million at December 31, 2008.
Capital Resources
     Historically, our primary source of capital has been the retention of operating earnings. In order to ensure adequate levels of capital, we conduct an ongoing assessment of projected sources and uses of capital in conjunction with projected increases in assets and the level of risk. As part of this ongoing assessment, the Board of Directors reviews the various components of capital, the costs, benefits and impact of raising additional capital and the availability of alternative sources of capital. Based on the Board of Directors analysis of our capital needs (including any capital needs arising out of our financial condition and results of operations or from any acquisitions we may make) and the input of our regulators, we could determine or, our regulators could require us, to raise additional capital.
     In December 2008, we applied for and received $130.0 million through the issuance to the U.S. Department of Treasury’s Capital Purchase Program of Series B Preferred Stock. In connection with this transaction, we issued a warrant to the U.S. Treasury to purchase 1,669,521 shares of our common stock. Dividends on our outstanding Series B Preferred Stock were payable at a rate of 5% for the first five years of issuance, and 9% thereafter. Dividends were cumulative.
     In July 2009, we raised $132.5 million in gross proceeds ($126.1 million net proceeds) from the issuance of common stock in an underwritten public offering. Because we issued common stock in excess of $130 million, the warrant was reduced to 834,000 shares. The net proceeds were used, along with other funds, to repurchase the preferred stock and outstanding warrant issued to the United States Treasury as part of our participation in the Capital Purchase Program.
     Total stockholders’ equity was $638.2 million at December 31, 2009. This represented an increase of $23.3 million, or 3.80%, over total stockholders’ equity of $614.9 million at December 31, 2008.

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     For further information about our capital ratios, see “Item 1. Business — Capital Standards.”
     During 2009, the Board of Directors of the Company declared quarterly common stock cash dividends that totaled $0.34 per share for the full year and paid preferred stock dividends totaling $4.8 million in the aggregate. Dividends are payable at the discretion of the Board of Directors and there can be no assurance that the Board of Directors will continue to pay dividends at the same rate, or at all, in the future. CVB’s ability to pay cash dividends to its shareholders is subject to restrictions under federal and California law, including restrictions imposed by the FRB.
RISK MANAGEMENT
     We have adopted a Risk Management Plan to ensure the proper control and management of all risk factors inherent in the operation of the Company and the Bank. Specifically, credit risk, interest rate risk, liquidity risk, transaction risk, compliance risk, strategic risk, reputation risk, price risk and foreign exchange risk, can all affect the market risk exposure of the Company. These specific risk factors are not mutually exclusive. It is recognized that any product or service offered by us may expose the Bank to one or more of these risks. Our Risk Management Committee and Risk Management Department monitors these risks to minimize exposure to the Company.
Credit Risk
     Credit risk is defined as the risk to earnings or capital arising from an obligor’s failure to meet the terms of any contract or otherwise fail to perform as agreed. Credit risk is found in all activities where success depends on counter party, issuer, or borrower performance. Credit risk arises through the extension of loans and leases, certain securities, and letters of credit.
     Credit risk in the investment portfolio and correspondent bank accounts is addressed through defined limits in the Bank’s policy statements. In addition, certain securities carry insurance to enhance credit quality of the bond. Limitations on industry concentration, aggregate customer borrowings, geographic boundaries and standards on loan quality also are designed to reduce loan credit risk. Senior Management, Directors’ Committees, and the Board of Directors are provided with information to appropriately identify, measure, control and monitor the credit risk of the Bank.
     Implicit in lending activities is the risk that losses will occur and that the amount of such losses will vary over time. Consequently, we maintain an allowance for credit losses by charging a provision for credit losses to earnings. Loans determined to be losses are charged against the allowance for credit losses. Our allowance for credit losses is maintained at a level considered by us to be adequate to provide for estimated probable losses inherent in the existing portfolio.
     The allowance for credit losses is based upon estimates of probable losses inherent in the loan and lease portfolio. The nature of the process by which we determine the appropriate allowance for credit losses requires the exercise of considerable judgment. The amount actually realized in respect of these losses can vary significantly from the estimated amounts. We employ a systematic methodology that is intended to reduce the differences between estimated and actual losses.
     Our methodology for assessing the appropriateness of the allowance is conducted on a regular basis and considers all loans. The systematic methodology consists of two major elements.
     The first major element includes a detailed analysis of the loan portfolio in two phases. In the first phase, individual loans are reviewed to identify loans for impairment. A loan is impaired when principal and interest are deemed uncollectible in accordance with the original contractual terms of the loan. Impairment is measured as either the expected future cash flows discounted at each loan’s effective interest rate, the fair value of the loan’s collateral if the loan is collateral dependent, or an observable market price of the loan (if one exists). Upon measuring the impairment, we will ensure an appropriate level of allowance is present or established.

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     Central to the first phase and our credit risk management is our loan risk rating system. The originating credit officer assigns borrowers an initial risk rating, which is reviewed and possibly changed by Credit Management, which is based primarily on a thorough analysis of each borrower’s financial capacity in conjunction with industry and economic trends. Approvals are made based upon the amount of inherent credit risk specific to the transaction and are reviewed for appropriateness by senior line and credit management personnel. Credits are monitored by line and credit management personnel for deterioration in a borrower’s financial condition, which would impact the ability of the borrower to perform under the contract. Risk ratings are adjusted as necessary.
     Loans are risk rated into the following categories: Loss, Doubtful, Substandard, Special Mention and Pass. Each of these groups is assessed for the proper amount to be used in determining the adequacy of our allowance for losses. The Impaired and Doubtful loans are analyzed on an individual basis for allowance amounts. The other categories have formulae used to determine the needed allowance amount.
     The Bank obtains a quarterly independent credit review by engaging an outside party to review our loans. The purpose of this review is to determine the loan rating and if there is any deterioration in the credit quality of the portfolio.
     Based on the risk rating system, specific allowances are established in cases where we have identified significant conditions or circumstances related to a credit that we believe indicates the probability that a loss has been incurred. We perform a detailed analysis of these loans, including, but not limited to, cash flows, appraisals of the collateral, conditions of the marketplace for liquidating the collateral and assessment of the guarantors. We then determine the inherent loss potential and allocate a portion of the allowance for losses as a specific allowance for each of these credits.
     The second phase is conducted by evaluating or segmenting the remainder of the loan portfolio into groups or pools of loans with similar characteristics. In this second phase, groups or pools of homogeneous loans are reviewed to determine a portfolio formula allowance. In the case of the portfolio formula allowance, homogeneous portfolios, such as small business loans, consumer loans, agricultural loans, and real estate loans, are aggregated or pooled in determining the appropriate allowance. The risk assessment process in this case emphasizes trends in the different portfolios for delinquency, loss, and other-behavioral characteristics of the subject portfolios.
     The second major element in our methodology for assessing the appropriateness of the allowance consists of our considerations of qualitative factors, including, all known relevant internal and external factors that may affect the collectability of a loan. This includes our estimates of the amounts necessary for concentrations, economic uncertainties, the volatility of the market value of collateral, and other relevant factors. The relationship of the two major elements of the allowance to the total allowance may fluctuate from period to period.
     In the second major element of the analysis which considers qualitative factors that may affect a loan’s collectability, we perform an evaluation of various conditions, the effects of which are not directly measured in the determination of the formula and specific allowances. The evaluation of the inherent loss with respect to these conditions is subject to a higher degree of uncertainty because they are not identified with specific problem credits or portfolio segments. The conditions evaluated in connection with the second element of the analysis of the allowance include, but are not limited to the following conditions that existed as of the balance sheet date:
    then-existing general economic and business conditions affecting the key lending areas of the Company,
 
    then-existing economic and business conditions of areas outside the lending areas, such as other sections of the United States, Asia and Latin America,
 
    credit quality trends (including trends in non-performing loans expected to result from existing conditions),

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    collateral values
 
    loan volumes and concentrations,
 
    seasoning of the loan portfolio,
 
    specific industry conditions within portfolio segments,
 
    recent loss experience in particular segments of the portfolio,
 
    duration of the current business cycle,
 
    bank regulatory examination results and
 
    findings of the Company’s external credit examiners.
     We review these conditions in discussion with our senior credit officers. To the extent that any of these conditions is evidenced by a specifically identifiable problem credit or portfolio segment as of the evaluation date, our estimate of the effect of such condition may be reflected as a specific allowance applicable to such credit or portfolio segment. Where any of these conditions is not evidenced by a specifically identifiable problem credit or portfolio segment as of the evaluation date, our evaluation of the inherent loss related to such condition is reflected in the second major element of the allowance. Although we have allocated a portion of the allowance to specific loan categories, the adequacy of the allowance must be considered in its entirety.
Allowance for Credit Losses on Non-Covered Loans
     We maintain an allowance for inherent credit losses that is increased by a provision for credit losses charged against operating results. The allowance for credit losses is also increased by recoveries on loans previously charged-off and reduced by actual loan losses charged to the allowance. We recorded a provision for credit losses of $80.5 million, $26.6 million and $4.0 million for 2009, 2008 and 2007, respectively. There is no allowance on covered loans acquired through the SJB acquisition as they were recorded at fair value as of the acquisition date and these loans are covered by a loss sharing agreement with the FDIC.
     At December 31, 2009, we reported an allowance for credit losses of $108.9 million. This represents an increase of $55.0 million, or 101.86%, over the allowance for credit losses of $54.0 million at December 31, 2008. During 2009, we recorded a provision for credit losses of $80.5 million and net charge-offs of $25.5 million. The increase in allowance during 2009 was due to the increase in classified loans and the changes in qualitative factors which we use to evaluate our portfolio and is consistent with the current economic environment. (See Table 8 — Summary of Credit Loss Experience.)
     For 2009, total loans charged-off were $26.3 million, offset by the recoveries of loans previously charged-off of $803,000 resulting in net charge-offs of $25.5 million. For 2008, total loans charged-off were $6.0 million offset by the recoveries of loans previously charged-off of $348,000 resulting in net charge-offs of $5.7 million.
     In addition to the allowance for credit losses, the Company also has a reserve for undisbursed commitments for loans and letters of credit. This reserve is carried on the liabilities section of the balance sheet in other liabilities. Provisions to this reserve are included in other expense. The Company recorded an increase of $3.7 million and $1.3 million in the reserve for undisbursed commitments for 2009 and 2008, respectively. As of December 31, 2009, the balance in this reserve was $7.9 million compared to a balance of $4.2 million as of December 31, 2008. The increase in provision for unfunded commitments was primarily due to an increase in loan commitments and more specifically, an increase in classified loans related to those commitments.
     Table 8 presents a comparison of net credit losses, the provision for credit losses (including adjustments incidental to mergers), and the resulting allowance for credit losses for each of the years indicated. The table below provides information on non-covered loans only because there was no allowance or charge-offs on covered loans as of December 31, 2009.

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TABLE 8 — Summary of Credit Loss Experience
(Non-Covered Loans)
                                         
    As of and For Years Ended December 31,  
    Non-covered only                          
    2009     2008     2007     2006     2005  
    (amounts in thousands)  
Amount of Total Loans at End of Period (1)
  $ 3,608,379     $ 3,736,838     $ 3,495,144     $ 3,070,196     $ 2,663,863  
 
                             
Average Total Loans Outstanding (1)
  $ 3,735,339     $ 3,506,510     $ 3,226,086     $ 2,811,782     $ 2,277,304  
 
                             
Allowance for Credit Losses at Beginning of Period
  $ 53,960     $ 33,049     $ 27,737     $ 23,204     $ 22,494  
 
                             
Loans Charged-Off:
                                       
Real Estate
    21,602       4,690       1,748             780  
Commercial and Industrial
    4,141       626       127       90       243  
Lease Finance Receivables
    294       410       182       79       91  
Consumer Loans
    302       311       41       31       266  
 
                             
Total Loans Charged-Off
    26,339       6,037       2,098       200       1,380  
 
                             
 
                                       
Recoveries:
                                       
Real Estate Loans
    471       192       82       1,140       572  
Commercial and Industrial
    96       24       465       400       543  
Lease Finance Receivables
    202       48       148       82       101  
Consumer Loans
    34       84       44       111       118  
 
                             
Total Loans Recovered
    803       348       739       1,733       1,334  
 
                             
Net Loans Charged-Off (Recovered)
    25,536       5,689       1,359       (1,533 )     46  
 
                             
Provision Charged to Operating Expense
    80,500       26,600       4,000       3,000        
 
                             
Adjustments Incident to Mergers and reclassifications
                2,671             756  
 
                             
Allowance for Credit Losses at End of period
  $ 108,924     $ 53,960     $ 33,049     $ 27,737     $ 23,204  
 
                             
 
                                       
Net Loans Charged-Off (Recovered) to Average Total Loans
    0.68 %     0.16 %     0.04 %     -0.05 %     0.00 %
Net Loans Charged-Off (Recovered) to Total Loans at End of Period
    0.71 %     0.15 %     0.04 %     -0.05 %     0.00 %
Allowance for Credit Losses to Average Total Loans
    2.92 %     1.54 %     1.02 %     0.99 %     1.02 %
Allowance for Credit Losses to Total Loans at End of Period
    3.02 %     1.44 %     0.95 %     0.90 %     0.87 %
Net Loans Charged-Off (Recovered) to Allowance for Credit Losses
    23.44 %     10.54 %     4.11 %     -5.53 %     0.20 %
Net Loans Charged-Off (Recovered) to Provision for Credit Losses
    31.72 %     21.39 %     33.98 %     -51.10 %      
 
(1)   Net of deferred loan origination fees.
     While we believe that the allowance at December 31, 2009, was adequate to absorb losses from any known or inherent risks in the portfolio, no assurance can be given that economic conditions which adversely affect our service areas or other circumstances will not be reflected in increased provisions or credit losses in the future.
     Table 9 provides a summary of the allocation of the allowance for credit losses for specific loan categories at the dates indicated for non-covered loans. The allocations presented should not be interpreted as an indication that loans charged to the allowance for credit losses will occur in these amounts or proportions, or that the portion of the allowance allocated to each loan category represents the total amount available for future losses that may occur within these categories.
Table 9 — Allocation of Allowance for Credit Losses
(Non-Covered Loans)
                                                                                 
    December 31,  
    2009     2008     2007     2006     2005  
                                        % of Loans             % of Loans             % of Loans  
    Allowance     % of Loans to     Allowance     % of Loans to     Allowance     to Total     Allowance     to Total     Allowance     to Total  
    for     Total Loans     for     Total Loans     for     Loans in     for     Loans in     for     Loans in  
    Credit     in Each     Credit     in Each     Credit     Each     Credit     Each     Credit     Each  
    Losses     Category     Losses     Category     Losses     Category     Losses     Category     Losses     Category  
    ( amounts in thousands )  
Real Estate
  $ 42,215       62.4 %   $ 16,463       60.8 %   $ 9,028       61.9 %   $ 8,232       62.5 %   $ 9,452       61.2 %
Construction
    21,222       7.3 %     19,491       9.4 %     7,828       8.8 %     4,320       9.7 %     2,370       10.1 %
Commercial and Industrial
    40,507       28.4 %     17,271       28.0 %     15,266       27.6 %     14,568       26.0 %     14,122       26.5 %
Consumer
    802       1.9 %     735       1.8 %     506       1.7 %     297       1.8 %     224       2.2 %
Unallocated
    4,178                             421               320               (2,964 )        
 
                                                           
Total
  $ 108,924       100.0 %   $ 53,960       100.0 %   $ 33,049       100.0 %   $ 27,737       100.0 %   $ 23,204       100.0 %
 
                                                           
Market Risk
     In the normal course of its business activities, we are exposed to market risks, including price and liquidity risk. Market risk is the potential for loss from adverse changes in market rates and prices, such as interest rates (interest rate risk). Liquidity risk arises from the possibility that we may not be able to satisfy current or future commitments or that we may be more reliant on alternative funding sources such as long-term debt. Financial products that expose us to market risk includes securities, loans, deposits, debt, and derivative financial instruments.

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     The table below provides the actual balances as of December 31, 2009 of interest-earning assets (net of deferred loan fees and allowance for credit losses) and interest-bearing liabilities, including the average rate earned or paid for 2009, the projected contractual maturities over the next five years, and the estimated fair value of each category determined using available market information and appropriate valuation methodologies.
                                                                 
                    Maturing  
    December 31,     Average                                     Five years     Estimated  
    2009     Rate     One year     Two years     Three years     Four years     and beyond     Fair Value  
                               (Amounts in thousands)  
Interest-Earning Assets
                                                               
Investment securities available for sale (1)
  $ 2,108,463       4.41 %   $ 139,298     $ 235,204     $ 277,434     $ 239,225     $ 1,217,302     $ 2,108,463  
Investment securities held-to-maturity
  $ 3,838       6.82 %                             3,838       3,838  
Loans and lease finance receivables, net
    3,970,089       5.52 %     1,190,978       146,879       206,935       144,124       2,281,173       3,955,500  
 
                                                 
Total interest earning assets
  $ 6,082,390             $ 1,330,276     $ 382,083     $ 484,369     $ 383,349     $ 3,502,313     $ 6,067,801  
 
                                                 
 
                                                               
Interest-Bearing Liabilities
                                                               
Interest-bearing deposits
  $ 2,876,673       0.97 %   $ 2,860,417     $ 10,205     $ 2,402     $ 360     $ 3,289       2,879,305  
Demand note to U.S. Treasury
    2,425       0.00 %     2,425                               2,425  
Borrowings
    1,490,132       3.29 %     835,132             100,000       100,000       455,000       1,536,933  
Junior subordinated debentures
    115,055       3.45 %                             115,055       115,817  
 
                                                 
Total interest-bearing liabilities
  $ 4,484,285             $ 3,697,974     $ 10,205     $ 102,402     $ 100,360     $ 573,344     $ 4,534,480  
 
                                                 
 
(1)   These include mortgage-backed securities which generally prepay before maturity.
Interest Rate Risk
     During periods of changing interest rates, the ability to re-price interest-earning assets and interest-bearing liabilities can influence net interest income, the net interest margin, and consequently, our earnings. Interest rate risk is managed by attempting to control the spread between rates earned on interest-earning assets and the rates paid on interest-bearing liabilities within the constraints imposed by market competition in our service area. Short-term re-pricing risk is minimized by controlling the level of floating rate loans and maintaining a downward sloping ladder of bond payments and maturities. Basic risk is managed by the timing and magnitude of changes to interest-bearing deposit rates. Yield curve risk is reduced by keeping the duration of the loan and bond portfolios relatively short. Options risk in the bond portfolio is monitored monthly and actions are recommended when appropriate.
     We monitor the interest rate “sensitivity” risk to earnings from potential changes in interest rates using various methods, including a maturity/re-pricing gap analysis. This analysis measures, at specific time intervals, the differences between earning assets and interest-bearing liabilities for which re-pricing opportunities will occur. A positive difference, or gap, indicates that earning assets will re-price faster than interest-bearing liabilities. This will generally produce a greater net interest margin during periods of rising interest rates, and a lower net interest margin during periods of declining interest rates. Conversely, a negative gap will generally produce a lower net interest margin during periods of rising interest rates and a greater net interest margin during periods of decreasing interest rates. In managing risks associated with rising interest rates, we utilize interest rate derivative contracts on certain loans and borrowed funds. On the asset side, the derivatives allow us to convert some of our fixed-rate loans to variable-rate loans which protects against loss of income in a rising interest rate environment. On the liability side, we utilize rate caps to protect against rising interest rates on borrowed funds.

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TABLE 10 — Asset and Liability Maturity/Repricing Gap
                                         
            Over 90     Over 180              
    90 days     days to     days to     Over        
2009   or less     180 days     365 days     365 days     Total  
            (amounts in thousands)                
Earning Assets:
                                       
Investment Securities at carrying value
  $ 109,733     $ 95,245     $ 182,462     $ 1,724,861     $ 2,112,301  
Gross Loans
    1,535,697       204,711       346,503       2,183,064       4,269,975  
 
   
Total
  $ 1,645,430     $ 299,956     $ 528,965     $ 3,907,925     $ 6,382,276  
 
                                       
Interest Bearing Liabilities
                                       
Savings Deposits
  $ 962,254     $     $     $ 720,161     $ 1,682,415  
Time Deposits
    817,628       215,991       147,700       12,939       1,194,258  
Demand Note to U.S. Treasury
    2,425                         2,425  
Other Borrowings
    590,132                   900,000       1,490,132  
Junior subordinated debentures
    115,055                         115,055  
 
                             
Total
  $ 2,487,494     $ 215,991     $ 147,700     $ 1,633,100     $ 4,484,285  
 
                             
Period GAP
  $ (842,064 )   $ 83,965     $ 381,265     $ 2,274,825     $ 1,897,991  
 
                             
Cumulative GAP
  $ (842,064 )   $ (758,099 )   $ (376,834 )   $ 1,897,991          
 
                               
                                         
            Over 90     Over 180              
    90 days     days to     days to     Over        
2008   or less     180 days     365 days     365 days     Total  
            (amounts in thousands)                
Earning Assets:
                                       
Investment Securities at carrying value
  $ 185,604     $ 158,128     $ 230,836     $ 1,925,775     $ 2,500,343  
Gross Loans
    1,351,931       197,818       297,539       1,898,743       3,746,031  
 
   
Total
  $ 1,537,535       355,946       528,375       3,824,518       -6,246,374  
 
                                       
Interest Bearing Liabilities
                                       
Savings Deposits
  $ 707,324     $     $     $ 436,458     $ 1,143,782  
Time Deposits
    768,174       150,029       82,131       29,792       1,030,126  
Demand Note to U.S. Treasury
    5,373                         5,373  
Other Borrowings
    1,145,473                   1,200,000       2,345,473  
Junior subordinated debentures
    115,055                         115,055  
 
   
Total
    2,741,399       150,029       82,131       1,666,250       -4,639,809  
 
   
Period GAP
  $ (1,203,864 )   $ 205,917     $ 446,244     $ 2,158,268     $ 1,606,565  
 
                             
Cumulative GAP
  $ (1,203,864 )   $ (997,947 )   $ (551,703 )   $ 1,606,565          
 
                               
     Table 10 provides the Bank’s maturity/re-pricing gap analysis at December 31, 2009, and 2008. We had a negative cumulative 180-day gap of $758.1 million and a negative cumulative 365-days gap of $376.8 million at December 31, 2009. This represented a decrease of $239.9 million, over the 180-day cumulative negative gap of $997.9 billion at December 31, 2008. In theory, this would indicate that at December 31, 2009, $758.1 million more in liabilities than assets would re-price if there were a change in interest rates over the next 180 days. If interest rates increase, the negative gap would tend to result in a lower net interest margin. If interest rates decrease, the negative gap would tend to result in an increase in the net interest margin. However, we do have the ability to anticipate the increase in deposit rates, and the ability to extend interest-bearing liabilities, offsetting, in part, the negative gap.
     The interest rates paid on deposit accounts do not always move in unison with the rates charged on loans. In addition, the magnitude of changes in the rates charged on loans is not always proportionate to the magnitude of changes in the rate paid on deposits. Consequently, changes in interest rates do not necessarily result in an increase or decrease in the net interest margin solely as a result of the differences between re-pricing opportunities of earning assets or interest-bearing liabilities. The fact that the Bank reported a negative gap at December 31, 2009 for changes within the following 365 days does not necessarily indicate that, if interest rates decreased, net interest income would increase, or if interest rates increased, net interest income would decrease.
     Approximately $1.42 billion, or 67%, of the total investment portfolio at December 31, 2009 consisted of securities backed by mortgages. The final maturity of these securities can be affected by the speed at which the underlying mortgages repay. Mortgages tend to repay faster as interest rates fall, and slower as interest rates rise. As a result, we may be subject to a “prepayment risk” resulting from greater

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funds available for reinvestment at a time when available yields are lower. Conversely, we may be subject to “extension risk” resulting, as lesser amounts would be available for reinvestment at a time when available yields are higher. Prepayment risk includes the risk associated with the payment of an investment’s principal faster than originally intended. Extension risk is the risk associated with the payment of an investment’s principal over a longer time period than originally anticipated. In addition, there can be greater risk of price volatility for mortgage-backed securities as a result of anticipated prepayment or extension risk.
     We also utilize the results of a dynamic simulation model to quantify the estimated exposure of net interest income to sustained interest rate changes. The sensitivity of our net interest income is measured over a rolling two-year horizon.
     The simulation model estimates the impact of changing interest rates on interest income from all interest-earning assets and interest expense paid on all interest-bearing liabilities reflected on our balance sheet. This sensitivity analysis is compared to policy limits, which specify a maximum tolerance level for net interest income exposure over a one-year horizon assuming no balance sheet growth, given a 200 basis point upward and a 100 basis point downward shift in interest rates. A parallel and pro rata shift in rates over a 12-month period is assumed.
     The following reflects our net interest income sensitivity analysis as of December 31, 2009:
         
    Estimated Net  
   Simulated   Interest Income  
Rate Changes   Sensitivity  
+ 200 basis points
    (3.25% )
- 100 basis points
    0.58 %
     The Company is currently more liability sensitive. The estimated sensitivity does not necessarily represent a forecast and the results may not be indicative of actual changes to our net interest income. These estimates are based upon a number of assumptions including: the nature and timing of interest rate levels including yield curve shape, prepayments on loans and securities, pricing strategies on loans and deposits, and replacement of asset and liability cash-flows. While the assumptions used are based on current economic and local market conditions, there is no assurance as to the predictive nature of these conditions including how customer preferences or competitor influences might change.
Liquidity Risk
     Liquidity risk is the risk to earnings or capital resulting from our inability to meet obligations when they come due without incurring unacceptable losses. It includes the ability to manage unplanned decreases or changes in funding sources and to recognize or address changes in market conditions that affect our ability to liquidate assets quickly and with minimum loss of value. Factors considered in liquidity risk management are stability of the deposit base; marketability, maturity, and pledging of investments; and the demand for credit.
     In general, liquidity risk is managed daily by controlling the level of fed funds and the use of funds provided by the cash flow from the investment portfolio. To meet unexpected demands, lines of credit are maintained with correspondent banks, the Federal Home Loan Bank and the FRB. The sale of bonds maturing in the near future can also serve as a contingent source of funds. Increases in deposit rates are considered a last resort as a means of raising funds to increase liquidity.

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Counterparty Risk
     Recent developments in the financial markets have placed an increased awareness of Counterparty Risks. These risks occur when a financial institution has an indebtedness or potential for indebtedness to another financial institution. We have assessed our Counterparty Risk with the following results:
    We have $250 million in a repurchase agreement with an embedded double cap. This transaction was conducted in September 2006 to protect against rising interest rates. The repurchase agreement is with JP Morgan. The Moody’s public debt rating for this institution is Aa3.
 
    We do not have any investments in the preferred stock of any other company.
 
    We do not have in our investment portfolio any trust preferred securities of any other company.
 
    Most of our investments securities are either municipal securities or securities backed by mortgages, FNMA, FHLMC or FHLB.
 
    All of our commercial line insurance policies are with companies with the highest AM Best ratings of AXII or above.
 
    We have no significant Counterparty exposure related to derivatives such as interest rate swaps.
 
    We have no significant exposure to our Cash Surrender Value of Life insurance since all of the insurance companies carry an AM Best rating of A or greater.
 
    We have $345.0 million in Fed Funds lines of credit with other banks. All of these banks are major U.S. banks, with over $20.0 billion in assets. We rely on these funds for overnight borrowings. We currently have no outstanding Fed Funds balance.
Transaction Risk
     Transaction risk is the risk to earnings or capital arising from problems in service or product delivery. This risk is significant within any bank and is interconnected with other risk categories in most activities throughout the Bank. Transaction risk is a function of internal controls, information systems, associate integrity, and operating processes. It arises daily throughout the Bank as transactions are processed. It pervades all divisions, departments and branches and is inherent in all products and services the Bank offers.
     In general, transaction risk is defined as high, medium or low by the internal auditors during the audit process. The audit plan ensures that high risk areas are reviewed at least annually. We utilize a third party audit firm to provide internal audit services.
     The key to monitoring transaction risk is in the design, documentation and implementation of well-defined procedures. All transaction related procedures include steps to report events that might increase transaction risk. Dual controls are also a form of monitoring.
Compliance Risk
     Compliance risk is the risk to earnings or capital arising from violations of, or non-conformance with, laws, rules, regulations, prescribed practices, or ethical standards. Compliance risk also arises in situations where the laws or rules governing certain Bank products or activities of the Bank’s customers may be ambiguous or untested. Compliance risk exposes the Bank to fines, civil money penalties, payment of damages, and the voiding of contracts. Compliance risk can also lead to a diminished reputation, reduced business value, limited business opportunities, lessened expansion potential, and lack of contract enforceability.
     There is no single or primary source of compliance risk. It is inherent in every Bank activity. Frequently, it blends into operational risk and transaction processing. A portion of this risk is sometimes referred to as legal risk. This is not limited solely to risk from failure to comply with consumer protection laws; it encompasses all laws, as well as prudent ethical standards and contractual obligations. It also includes the exposure to litigation from all aspects of banking, traditional and non-traditional.

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     Our Risk Management Policy and Program and the Code of Ethical Conduct are the cornerstone for controlling compliance risk. An integral part of controlling this risk is the proper training of associates. The Chief Risk Officer is responsible for developing and executing a comprehensive compliance training program. The Chief Risk Officer will ensure that each associate receives adequate training with regard to their position to ensure that laws and regulations are not violated. All associates who deal in compliance high risk areas are trained to be knowledgeable about the level and severity of exposure in those areas and the policies and procedures in place to control such exposure.
     Our Risk Management Policy and Program includes an audit program aimed at identifying problems and ensuring that problems are corrected. The audit program includes two levels of review. One is in-depth audits performed by an independent external firm and the other is periodic monitoring performed by the Risk Management Division.
     The Bank utilizes independent external firms to conduct compliance audits as a means of identifying weaknesses in the compliance program itself. The external firm’s audit plan includes a periodic review of branchs and departments of the Bank.
     The branch or department that is the subject of an audit is required to respond to the audit and correct any violations noted. The Chief Risk Officer reviews audit findings and the response provided by the branch or department to identify areas which pose a significant compliance risk to the Bank.
     The Risk Management Division conducts periodic monitoring of the Bank’s compliance efforts with a special focus on those areas that expose the Bank to compliance risk. The purpose of the periodic monitoring is to ensure that Bank associates are adhering to established policies and procedures adopted by the Bank. The Chief Risk Officer notifies the appropriate department head, the Management Compliance Committee, the Audit Committee and the Risk Management Committee of any violations noted. The branch or department that is the subject of the review is required to respond to the findings and correct any noted violations.
     The Bank recognizes that customer complaints can often identify weaknesses in the Bank’s compliance program which could expose the Bank to risk. Therefore, all complaints are given prompt attention. The Bank’s Risk Management Policy and Program includes provisions on how customer complaints are to be addressed. The Chief Risk Officer reviews all complaints to determine if a significant compliance risk exists and communicates those findings to the Risk Management Committee.
Strategic Risk
     Strategic risk is the risk to earnings or capital arising from adverse decisions or improper implementation of strategic decisions. This risk is a function of the compatibility between an organization’s goals, the resources deployed against those goals and the quality of implementation.
     Strategic risks are identified as part of the strategic planning process. Offsite strategic planning sessions, including members of the Board of Directors and Senior Leadership, are held annually. The strategic review consists of an economic assessment, competitive analysis, industry outlook and legislative and regulatory review.
     A primary measurement of strategic risk is peer group analysis. Key performance ratios are compared to three separate peer groups to identify any sign of weakness and potential opportunities. The peer group consists of:
  1.   All banks of comparable size
 
  2.   High performing banks
 
  3.   A list of specific banks

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     Another measure is the comparison of the actual results of previous strategic initiatives against the expected results established prior to implementation of each strategy.
     The corporate strategic plan is formally presented to all branch managers and department managers at an annual leadership conference.
Reputation Risk
     Reputation risk is the risk to capital and earnings arising from negative public opinion. This affects the Bank’s ability to establish new relationships or services, or continue servicing existing relationships. It can expose the Bank to litigation and, in some instances, financial loss.
Price and Foreign Exchange Risk
     Price risk arises from changes in market factors that affect the value of traded instruments. Foreign exchange risk is the risk to earnings or capital arising from movements in foreign exchange rates.
     Our current exposure to price risk is nominal. We do not have trading accounts. Consequently, the level of price risk within the investment portfolio is limited to the need to sell securities for reasons other than trading. The section of this policy pertaining to liquidity risk addresses this risk.
     We maintain deposit accounts with various foreign banks. Our Interbank Liability Policy limits the balance in any of these accounts to an amount that does not present a significant risk to our earnings from changes in the value of foreign currencies.
     Our asset liability model calculates the market value of the Bank’s equity. In addition, management prepares, on a monthly basis, a capital volatility report that compares changes in the market value of the investment portfolio. We have as our target to always be well-capitalized by regulatory standards.
     The Balance Sheet Management Policy requires the submission of a Fair Value Matrix Report to the Balance Sheet Management Committee on a quarterly basis. The report calculates the economic value of equity under different interest rate scenarios, revealing the level or price risk of the Bank’s interest sensitive asset and liability portfolios.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
     Market risk is the risk of loss from adverse changes in the market prices and interest rates. Our market risk arises primarily from interest rate risk inherent in our lending and deposit taking activities. We currently do not enter into futures, forwards, or option contracts. For greater discussion on the risk management of the Company, see Item 7. Management’s Discussion and Analysis of Financial Condition and the Results of Operations — Risk Management.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CVB Financial Corp.
Index to Consolidated Financial Statements
and Financial Statement Schedules
     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.
     For information about the location of management’s annual reports on internal control, our financial reporting and the audit report of KPMG LLP thereon. See “Item 9A. Controls and Procedures.”
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
     None
ITEM 9A. CONTROLS AND PROCEDURES
1) Management’s Report on Internal Control over Financial Reporting
     Management of CVB Financial Corp., together with its consolidated subsidiaries (the “Company”), is responsible for establishing and maintaining adequate internal control over financial reporting. The Company’s internal control over financial reporting is a process designed under the supervision of the Company’s principal executive and principal financial officers to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Company’s financial statements for external reporting purposes in accordance with U.S. generally accepted accounting principles.
     Our internal control over financial reporting includes policies and procedures that pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect transactions and dispositions of assets; provide reasonable assurances that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted accounting principles, and that receipts and expenditures are being made only in accordance with authorizations of management and the directors of the Company; and provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on our financial statements.
     As of December 31, 2009, management conducted an assessment of the effectiveness of the Company’s internal control over financial reporting based on the framework established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway

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Commission (COSO). Based on this assessment, management has determined that the Company’s internal control over financial reporting as of December 31, 2009 is effective. KPMG LLP, an independent registered public accounting firm, has issued their report on the effectiveness of internal control over financial reporting as of December 31, 2009.
2) Auditor attestation
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
CVB Financial Corp.:
We have audited CVB Financial Corp and subsidiaries’ internal control over financial reporting as of December 31, 2009, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, CVB Financial Corp. and subsidiaries maintained, in all material respects, effective internal control over financial reporting as of December 31, 2009, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

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We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of CVB Financial Corp. and subsidiaries as of December 31, 2009 and 2008, and the related consolidated statements of earnings, stockholders’ equity and comprehensive income, and cash flows for each of the years in the three-year period ended December 31, 2009, and our report dated March 3, 2010 expressed an unqualified opinion on those consolidated financial statements.
     
/s/ KPMG LLP
   
 
KPMG LLP
   
Los Angeles, California
March 3, 2010
3) Changes in Internal Control over Financial Reporting
     We maintain controls and procedures designed to ensure that information is recorded and reported in all filings of financial reports. Such information is reported to our management, including our Chief Executive Officer and Chief Financial Officer to allow timely and accurate disclosure based on the definition of “disclosure controls and procedures” in SEC Rule 13a-15(e) and 15d-15(e).
     As of the end of the period covered by this report, we carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures under the supervision and with the participation of the Chief Executive Officer and the Chief Financial Officer. Based on the foregoing, our Chief Executive Officer and the Chief Financial Officer concluded that our disclosure controls and procedures are effective as of the end of the period covered by this report.
     During the fiscal quarter ended December 31, 2009, there have been no changes in our internal control over financial reporting that has materially affected or is reasonably likely to materially affect our internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
None.

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PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
     Except as hereinafter noted, the information concerning directors and executive officers of the Company, corporate governance and our audit committee financial expert is incorporated by reference from the section entitled “Discussion of Proposals recommended by the Board — Proposal 1: Election of Directors” and “Beneficial Ownership Reporting Compliance,” “Corporate Governance Principles and Board Matters,” and “Audit Committee” of our definitive Proxy Statement to be filed pursuant to Regulation 14A within 120 days after the end of the last fiscal year. For information concerning the executive officers of the Company, see Item 4A of Part I hereto.
     The Company has adopted a Code of Ethics that applies to all of the Company’s employees, including the Company’s principal executive officer, the principal financial and accounting officer, and all employees who perform these functions. A copy of the Code of Ethics is available to any person without charge by submitting a request to the Company’s Chief Financial Officer at 701 N. Haven Avenue, Suite 350, Ontario, CA 91764. If the Company shall amend its Code of Ethics as applies to the principal executive officer, principal financial officer, principal accounting officer or controller (or persons performing similar functions) or shall grant a waiver from any provision of the code of ethics to any such person, the Company shall disclose such amendment or waiver on its website at www.cbbank.com under the tab “Investor Relations.”
ITEM 11. EXECUTIVE COMPENSATION
     Information concerning management remuneration and transactions is incorporated by reference from the section entitled “Election of Directors” and “Executive Compensation — Certain Relationships and Related Transactions” of our 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 AND RELATED STOCKHOLDER MATTERS
     The following table summarizes information as of February 15, 2010 relating to our equity compensation plans pursuant to which grants of options, restricted stock, or other rights to acquire shares may be granted from time to time.
                         
    Equity Compensation Plan Information     Number of Securities  
          Remaining Available for  
    Number of Securities to     Weighted-average     Future Issuance Under  
    be Issued Upon Exercise     Exercise Price     Equity Compensation Plans  
    of Outstanding Options,     of Outstanding Options,     ( excluding securities  
Plan Category   Warrants and Rights (a)     Warrants and Rights (b)     reflected in column (a)) ( c )  
Equity compensation plans approved by security holders
    3,099,203     $ 10.16       2,273,391  
 
                       
Equity compensation plans not approved by security holders
                 
 
                 
Total
    3,099,203     $ 10.16       2,273,391  
 
                 
     Information concerning security ownership of certain beneficial owners and management is incorporated by reference from the sections entitled “Stock Ownership” of our definitive Proxy Statement to be filed pursuant to Regulation 14A within 120 days after the end of the last fiscal year.

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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
     Information concerning certain relationships and related transactions with management and others and information regarding director independence is incorporated by reference from the section entitled “Executive Compensation —Certain Relationships and Related Transactions” of our definitive Proxy Statement to be filed pursuant to Regulation 14A within 120 days after the end of the last fiscal year.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
     Information concerning principal accounting fees and services is incorporated by reference from the section entitled “Ratification of Appointment of Independent Public Accountants” of our definitive Proxy Statement to be filed pursuant to Regulation 14A within 120 days after the end of the last fiscal year.

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PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
Financial Statements
     Reference is made to the Index to Financial Statements at page 65 for a list of financial statements filed as part of this Report.
Exhibits
     See Index to Exhibits at Page 113 of this Form 10-K.

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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 3rd day of March 2010.
         
  CVB FINANCIAL CORP.
 
 
  By:   /s/ CHRISTOPHER D. MYERS    
    Christopher D. Myers   
    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
 
George A. Borba
  Chairman of the Board    March 3, 2010
 
       
/s/ JOHN A. BORBA
 
John A. Borba
  Director    March 3, 2010
 
       
/s/ RONALD O. KRUSE
 
Ronald O. Kruse
  Vice Chairman    March 3, 2010
 
       
/s/ ROBERT M. JACOBY
 
Robert M. Jacoby
  Director    March 3, 2010
 
       
/s/ JAMES C. SELEY
 
James C. Seley
  Director    March 3, 2010
 
       
/s/ SAN E. VACCARO
 
San E. Vaccaro
  Director    March 3, 2010
 
       
/s/ D. LINN WILEY
 
  Vice Chairman    March 3, 2010
D. Linn Wiley
       
 
       
/s/ CHRISTOPHER D. MYERS
 
Christopher D. Myers
  Director, President and Chief Executive Officer (Principal Executive Officer)   March 3, 2010
 
       
/s/ EDWARD J. BIEBRICH, JR.
 
Edward J. Biebrich, Jr.
  Chief Financial Officer (Principal Financial and Accounting Officer)   March 3, 2010

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CVB FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
                 
    December 31,     December 31,  
    2009     2008  
    (Amounts in thousands)  
ASSETS
               
Cash and due from banks
  $ 103,254     $ 95,297  
 
               
Investment securities available-for-sale
    2,108,463       2,493,476  
Investment securities held-to-maturity
    3,838       6,867  
Interest-bearing balances due from depository institutions
    1,226       285  
Investment in stock of Federal Home Loan Bank (FHLB)
    97,582       93,240  
 
               
Loans held-for-sale
    1,439        
 
               
Non-covered loans
    3,608,379       3,736,838  
Allowance for credit losses
    (108,924 )     (53,960 )
 
           
Net non-covered loans
    3,499,455       3,682,878  
Covered loans
    470,634        
 
           
Total loans
    3,970,089       3,682,878  
 
           
Total earning assets
    6,182,637       6,276,746  
Premises and equipment, net
    41,444       44,420  
Bank owned life insurance
    109,480       106,366  
Accrued interest receivable
    28,672       28,519  
Deferred tax asset
    16,053        
Intangibles
    12,761       11,020  
Goodwill
    55,097       55,097  
FDIC loss sharing asset
    133,258        
Other assets
    57,113       32,186  
 
           
TOTAL ASSETS
  $ 6,739,769     $ 6,649,651  
 
           
LIABILITIES AND STOCKHOLDERS’ EQUITY
               
Liabilities:
               
Deposits:
               
Noninterest-bearing
  $ 1,561,981     $ 1,334,248  
Interest-bearing
    2,876,673       2,173,908  
 
           
Total deposits
    4,438,654       3,508,156  
Demand Note to U.S. Treasury
    2,425       5,373  
Repurchase agreements
    735,132       607,813  
Borrowings
    753,118       1,737,660  
Deferred tax liabilities
          4,173  
Accrued interest payable
    6,481       9,741  
Deferred compensation
    9,166       8,985  
Junior subordinated debentures
    115,055       115,055  
Other liabilities
    41,510       37,803  
 
           
TOTAL LIABILITIES
    6,101,541       6,034,759  
 
           
 
               
COMMITMENTS AND CONTINGENCIES
               
 
               
Stockholders’ Equity:
               
Preferred stock, authorized, 20,000,000 shares without par; issued and outstanding 130,000 (2008)
          121,508  
Common stock, authorized, 122,070,312 shares without par; issued and outstanding 106,263,511 (2009) and 83,270,263 (2008)
    491,226       364,469  
Retained earnings
    120,612       100,184  
Accumulated other comprehensive income, net of tax
    26,390       28,731  
 
           
TOTAL stockholders’ equity
    638,228       614,892  
 
           
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
  $ 6,739,769     $ 6,649,651  
 
           
See accompanying notes to the consolidated financial statements.

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CVB FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
Three Years Ended December 31, 2009
                         
    2009     2008     2007  
    (amounts in thousands,  
    except earnings per share)  
INTEREST INCOME:
                       
Loans, including fees
  $ 206,079     $ 212,626     $ 221,809  
 
                 
Investment securities:
                       
Taxable
    76,798       86,930       85,899  
Tax-advantaged
    27,329       28,371       29,231  
 
                 
 
    104,127       115,301       115,130  
 
                 
Dividends from FHLB
    195       4,552       4,229  
Federal funds sold
    343       15       9  
Interest-bearing deposits with other institutions
    15       24       100  
 
                 
Total interest income
    310,759       332,518       341,277  
 
                 
 
                       
INTEREST EXPENSE:
                       
Deposits
    24,956       35,801       69,297  
Borrowings
    59,572       96,035       103,316  
Junior subordinated debentures
    3,967       7,003       7,522  
 
                 
Total interest expense
    88,495       138,839       180,135  
 
                 
NET INTEREST INCOME BEFORE PROVISION FOR CREDIT LOSSES
    222,264       193,679       161,142  
PROVISION FOR CREDIT LOSSES
    80,500       26,600       4,000  
 
                 
NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES
    141,764       167,079       157,142  
 
                 
 
                       
OTHER OPERATING INCOME:
                       
Impairment loss on investment securities
    (1,994 )            
Less: Noncredit-related impairment loss recorded in other comprehensive income
    1,671              
 
                 
Net impairment loss on investment securities recognized in earnings
    (323 )            
Service charges on deposit accounts
    14,889       15,228       13,381  
CitizensTrust
    6,657       7,926       7,226  
Bankcard services
    2,338       2,329       2,530  
BOLI Income
    2,792       5,000       3,839  
Other
    5,150       3,974       4,349  
Gain on sale of securities, net
    28,446              
Gain from San Joaquin Bank acquisition
    21,122              
 
                 
Total other operating income
    81,071       34,457       31,325  
 
                 
 
OTHER OPERATING EXPENSES:
                       
Salaries and employee benefits
    62,985       61,271       55,303  
Occupancy
    11,649       11,813       10,540  
Equipment
    6,712       7,162       7,026  
Stationery and supplies
    6,829       6,913       6,712  
Professional services
    6,965       6,519       6,274  
Promotion
    6,528       6,882       5,953  
Amortization of Intangibles
    3,163       3,591       2,969  
Other
    28,755       11,637       10,627  
 
                 
Total other operating expenses
    133,586       115,788       105,404  
 
                 
EARNINGS BEFORE INCOME TAXES
    89,249       85,748       83,063  
INCOME TAXES
    23,830       22,675       22,479  
 
                 
NET EARNINGS
  $ 65,419     $ 63,073     $ 60,584  
PREFERRED STOCK DIVIDENDS AND OTHER REDUCTIONS
    12,942       75       32  
 
                 
NET EARNINGS ALLOCATED TO COMMON SHAREHOLDERS
  $ 52,477     $ 62,998     $ 60,552  
 
                 
COMPREHENSIVE INCOME
  $ 63,078     $ 87,674     $ 77,935  
 
                 
BASIC EARNINGS PER COMMON SHARE
  $ 0.56     $ 0.75     $ 0.72  
 
                 
DILUTED EARNINGS PER COMMON SHARE
  $ 0.56     $ 0.75     $ 0.72  
 
                 
 
                       
CASH DIVIDENDS PER COMMON SHARE
  $ 0.340     $ 0.340     $ 0.340  
 
                 
See accompanying notes to consolidated financial statements.

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CVB FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
AND COMPREHENSIVE INCOME
Three Years Ended December 31, 2009
                                                         
                                    Accumulated              
    Common                             Other              
    Shares     Preferred     Common     Retained     Comprehensive     Comprehensive        
    Outstanding     Stock     Stock     Earnings     Income/(Loss)     Income     Total  
    (amounts and shares in thousands)          
Balance January 1, 2007
    84,282     $     $ 366,082     $ 34,464     $ (13,221 )           $ 387,325  
Issuance of common stock
    372               2,082                               2,082  
Repurchase of common stock
    (3,095 )             (33,918 )                             (33,918 )
Shares issued for acquisition of First Coastal Bancshares
    1,606               18,046                               18,046  
Tax benefit from exercise of stock options
                    544                               544  
Stock-based Compensation Expense
                    1,413                               1,413  
Cash dividends ($0.34 per share)
                            (28,479 )                     (28,479 )
Comprehensive income:
                                                       
Net earnings
                            60,584             $ 60,584       60,584  
Other comprehensive income:
                                                       
Unrealized gain on securities available-for-sale, net
                                    17,351       17,351       17,351  
 
                                                     
Comprehensive income
                                          $ 77,935          
 
                                         
Balance December 31, 2007
    83,165     $     $ 354,249     $ 66,569     $ 4,130             $ 424,948  
Issuance of preferred stock
            121,508                                       121,508  
Issuance of common stock
    176               606                               606  
Issuance of Warrants
                    8,592                               8,592  
Repurchase of common stock
    (71 )             (650 )                             (650 )
Tax benefit from exercise of stock options
                    172                               172  
Stock-based Compensation Expense
                    1,500                               1,500  
Adoption of EITF 06-4 Split Dollar
                                                       
Life Insurance
                            (571 )                     (571 )
Cash dividends declared:
                                                       
Common ($0.34 per share)
                            (28,317 )                     (28,317 )
Prefered
                            (570 )                     (570 )
Comprehensive income:
                                                       
Net earnings
                            63,073             $ 63,073       63,073  
Other comprehensive income:
                                                       
Unrealized gain on securities available-for-sale, net
                                    24,601       24,601       24,601  
 
                                                     
Comprehensive income
                                          $ 87,674          
 
                                         
Balance December 31, 2008
    83,270     $ 121,508     $ 364,469     $ 100,184     $ 28,731             $ 614,892  
Repurchase of Preferred Stock
            (130,000 )                                     (130,000 )
Amortization of preferred stock discount
            8,492               (8,492 )                      
Warrant repurchase
                    (1,307 )                             (1,307 )
Issuance of Common Stock
    22,655               126,056                               126,056  
Proceeds from exercise of stock options
    338               280                               280  
Tax benefit from exercise of stock options
                    62                               62  
Stock-based Compensation Expense
                    1,666                               1,666  
Cash dividends declared
                                                       
Common ($0.34 per share)
                            (32,228 )                     (32,228 )
Preferred
                            (4,271 )                     (4,271 )
Comprehensive income:
                                                       
Net earnings
                            65,419             $ 65,419       65,419  
Other comprehensive gain:
                                                       
Unrealized loss on securities available-for-sale, net
                                    (1,372 )     (1,372 )     (1,372 )
Noncredit-related impairment loss on
                                                       
investment securities recorded in the current year, net
                                    (969 )     (969 )     (969 )
 
                                                     
Comprehensive income
                                          $ 63,078          
 
                                         
Balance December 31, 2009
    106,263     $     $ 491,226     $ 120,612     $ 26,390             $ 638,228  
 
                                         
                         
    At December 31,  
    2009     2008     2007  
    (Amounts in thousands)  
Disclosure of reclassification amount
                       
Unrealized holding gains on securities arising during the period
    24,086       42,415       29,915  
Tax expense
    (10,116 )     (17,814 )     (12,564 )
Less:
                       
Reclassification adjustment for gain on securities included in net income
    (28,123 )     0       0  
Add:
                       
Tax expense on reclassification adjustments
    11,812       0       0  
 
                 
Net unrealized gain/(loss) on securities
  $ (2,341 )     24,601     $ 17,351  
 
                 
See accompanying notes to consolidated financial statements.

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CVB FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Dollar amounts in thousands
                         
    For the Twelve Months  
    Ended December 31,  
    2009     2008     2007  
CASH FLOWS FROM OPERATING ACTIVITIES:
                       
Interest and dividends received
  $ 315,165     $ 329,911     $ 342,090  
Service charges and other fees received
    30,729       34,301       31,777  
Interest paid
    (94,229 )     (142,409 )     (182,979 )
Cash paid to vendors and employees
    (137,436 )     (107,722 )     (99,978 )
Income taxes paid
    (48,201 )     (30,446 )     (19,795 )
 
                 
Net cash provided by operating activities
    66,028       83,635       71,115  
 
                 
CASH FLOWS FROM INVESTING ACTIVITIES:
                       
Proceeds from sale of FHLB Stock
                5,550  
Proceeds from sales of investment securities
    609,142              
Proceeds from repayment of investment securities
    362,234       333,050       417,098  
Proceeds from repayment of Fed Funds Sold
                52,000  
Proceeds from maturity of investment securities
    251,302       48,854       62,485  
Purchases of investment securities held-to-maturity
          (7,710 )      
Purchases of investment securities
    (793,017 )     (442,816 )     (263,623 )
Purchases of FHLB stock
          (13,257 )     (2,927 )
Net decrease/(increase) in loans and lease finance receivables
    107,350       (246,914 )     (284,798 )
Proceeds from sales of premises and equipment
    342       229       113  
Proceeds from sales of other real estate owned
    13,859              
Purchase of premises and equipment
    (4,162 )     (5,053 )     (7,514 )
Cash acquired in San Joaquin Bank acquisition
    15,844              
Cash paid for purchase of First Coastal Bancshares, net of cash acquired
                743  
Other, net
    (440 )     (323 )     (254 )
 
                 
Net cash provided by/(used in) investing activities
    562,454       (333,940 )     (21,127 )
 
                 
CASH FLOWS FROM FINANCING ACTIVITIES:
                       
Net increase/(decrease) in transaction deposits
    388,869       (95,967 )     (142,802 )
Net increase/(decrease) in time deposits
    11,702       239,775       (93,194 )
Advances from Federal Home Loan Bank
    200,000       450,000       600,000  
Repayment of advances from Federal Home Loan Bank
    (600,000 )     (600,000 )     (480,000 )
Repayment of advances from Federal Reserve Bank
    (29,000 )            
Net decrease in other borrowings
    (678,007 )     138,993       (173,105 )
Net increase in repurchase agreements
    127,319       21,504       241,959  
Issuance of preferred stock and warrant
          130,000        
Cash dividends on preferred stock
    (4,271 )            
Cash dividends on common stock
    (32,228 )     (28,317 )     (28,479 )
Repurchase of preferred stock and warrant
    (131,307 )            
Repurchase of common stock
                (33,918 )
Issuance of common stock
    126,056       (650 )      
Issuance of junior subordinated debentures
                 
Proceeds from exercise of stock options
    280       606       2,082  
Tax benefit related to exercise of stock options
    62       172       544  
 
                 
Net cash (used in)/provided by financing activities
    (620,525 )     256,116       (106,913 )
 
                 
NET INCREASE IN CASH AND CASH EQUIVALENTS
    7,957       5,811       (56,925 )
CASH AND CASH EQUIVALENTS, beginning of period
    95,297       89,486       146,411  
 
                 
CASH AND CASH EQUIVALENTS, end of period
  $ 103,254     $ 95,297     $ 89,486  
 
                 
See accompanying notes to the consolidated financial statements.

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CVB FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(unaudited)
Dollar amounts in thousands
                         
    For the Twelve Months  
    Ended December 31,  
    2009     2008     2007  
RECONCILIATION OF NET EARNINGS TO NET CASH PROVIDED BY OPERATING ACTIVITIES:
                       
Net earnings
  $ 65,419     $ 63,073     $ 60,584  
Adjustments to reconcile net earnings to net cash provided by operating activities:
                       
Gain on sale of investment securities
    (28,446 )            
Gain on San Joaquin Bank acquisition
    (21,122 )            
Capitalized prepayment penalty on borrowings
    (1,882 )            
FDIC Prepaid Assessment
    (22,420 )            
(Gain)/Loss on sale of premises and equipment
    79       34       (14 )
Gain on sale of other real estate owned
    (411 )            
Credit-related impairment loss on investment securities held-to-maturity
    (323 )            
Increase from bank owned life insurance
    (2,792 )     (5,000 )     (3,839 )
Net amortization of premiums on investment securities
    3,098       1,452       3,665  
Provisions for credit losses
    80,500       26,600       4,000  
Provisions for losses on other real estate owned
    848              
Stock-based compensation
    1,666       1,500       1,413  
Depreciation and amortization
    9,880       10,817       9,571  
Change in accrued interest receivable
    4,437       1,214       (2,310 )
Change in accrued interest payable
    (3,737 )     (3,571 )     (2,844 )
Deferred tax provision
          (13,082 )     99  
Change in other assets and liabilities
    (18,766 )     598       790  
 
                 
Total adjustments
    609       20,562       10,531  
 
                 
NET CASH PROVIDED BY OPERATING ACTIVITIES
  $ 66,028     $ 83,635     $ 71,115  
 
                 
 
                       
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING ACTIVITIES
                       
Transfer from loans to Other Real Estate Owned
  $ 17,070     $ 6,565     $  
 
                       
Federally Assisted Acquisition of San Joaquin Bank (2009) :
                       
Assets acquired
  $ 520,508                  
Negative goodwill and intangibles
    (16,516 )                
FDIC Receivable
    131,860                  
Liabilities assumed
    (651,696 )                
 
                     
Purchase price of acquisition, net of cash received
  $ (15,844 )                
 
                     
 
                       
Purchase of First Coastal Bancshares (2007) :
                       
Assets acquired
                  $ 190,712  
Goodwill & Intangibles
                    30,978  
Liabilities assumed
                    (204,387 )
Stock issued
                    (18,046 )
 
                     
Purchase price of acquisition, net of cash received
                  $ (743 )
 
                     
See accompanying notes to the consolidated financial statements.

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CVB FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 2009
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
     The accounting and reporting policies of CVB Financial Corp. and subsidiaries are in accordance with accounting principles generally accepted in the United States of America and conform to practices within the banking industry. A summary of the significant accounting policies consistently applied in the preparation of the accompanying consolidated financial statements follows.
     Principles of Consolidation — The consolidated financial statements include the accounts of CVB Financial Corp. (the “Company”) and its wholly owned subsidiaries: Citizens Business Bank (the “Bank”) after elimination of all intercompany transactions and balances. The Company also has three inactive subsidiaries; CVB Ventures, Inc.; Chino Valley Bancorp; and ONB Bancorp. The Company is also the common stockholder of CVB Statutory Trust I, CVB Statutory Trust II, CVB Statutory Trust III, and FCB Trust II. CVB Statutory Trusts I and II were created in December 2003 and CVB Statutory Trust III was created in January 2006 to issue trust preferred securities in order to raise capital for the Company. The Company acquired FCB Trust II through the acquisition of First Coastal Bancshares (“FCB”). In accordance with Financial Accounting Standards Board Interpretation No. 46R “Consolidation of Variable Interest Entities” (“FIN No. 46R”), these trusts do not meet the criteria for consolidation.
     Nature of Operations — The Company’s primary operations are related to traditional banking activities, including the acceptance of deposits and the lending and investing of money through the operations of the Bank. The Bank also provides automobile and equipment leasing, and brokers mortgage loans to customers through its Citizens Financial Services Division and trust services to customers through its CitizensTrust Division. The Bank’s customers consist primarily of small to mid-sized businesses and individuals located in San Bernardino County, Riverside County, Orange County, Los Angeles County, Madera County, Fresno County, Tulare County, Kern County and San Joaquin County. The Bank operates 51 Business Financial and Commercial Banking Centers with its headquarters located in the city of Ontario.
     The Company’s operating business units have been combined into two main segments: (i) Business Financial and Commercial Banking Centers and (ii) Treasury. Business Financial and Commercial Banking Centers comprise the loans, deposits, products and services the Bank offers to the majority of its customers. The other segment is Treasury Department, which manages the investment portfolio of the Company. The Company’s remaining centralized functions have been aggregated and included in “Other.”
     The internal reporting of the Company considers all business units. Funds are allocated to each business unit based on its need to fund assets (use of funds) or its need to invest funds (source of funds). Net income is determined based on the actual net income of the business unit plus the allocated income or expense based on the sources and uses of funds for each business unit. Non-interest income and non-interest expense are those items directly attributable to a business unit.
     Cash and due from banks — Cash on hand, cash items in the process of collection, and amounts due from correspondent banks and the Federal Reserve Bank are included in Cash and due from banks.
     Investment Securities — The Company classifies as held-to-maturity those debt securities that the Company has the positive intent and ability to hold to maturity. Securities classified as trading are those securities that are bought and held principally for the purpose of selling them in the near term. All other debt and equity securities are classified as available-for-sale. Securities held-to-maturity are accounted for

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at cost and adjusted for amortization of premiums and accretion of discounts. Trading securities are accounted for at fair value with the unrealized gains and losses being included in current earnings. Available-for-sale securities are accounted for at fair value, with the net unrealized gains and losses, net of income tax effects, presented as a separate component of stockholders’ equity. Realized gains and losses on sales of securities are recognized in earnings at the time of sale and are determined on a specific-identification basis. Purchase premiums and discounts are recognized in interest income using the effective-yield method over the terms of the securities. For mortgage-backed securities (“MBS”), the amortization or accretion is based on estimated average lives of the securities. The lives of these securities can fluctuate based on the amount of prepayments received on the underlying collateral of the securities. The Company’s investment in Federal Home Loan Bank (“FHLB”) stock is carried at cost.
     At each reporting date, securities are assessed to determine whether there is an other-than-temporary impairment. Other-than-temporary impairment on investment securities is recognized in earnings when there are credit losses on a debt security for which management does not intend to sell and for which it is more-likely-than-not that the Company will not have to sell prior to recovery of the noncredit impairment. In those situations, the portion of the total impairment that is attributable to the credit loss would be recognized in earnings, and the remaining difference between the debt security’s amortized cost and its fair value would be included in other comprehensive income.
     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 categories of collateral are real estate, principally commercial and industrial income-producing properties, real estate mortgages, and assets utilized in agribusiness.
     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 using the effective-yield method.
     Acquired loans for which there is deterioration in credit quality between origination and acquisition of the loans and the bank does not expect to collect all amounts due according to the loan’s contractual terms are accounted for individually or in pools of loans based on common risk characteristics. These loans are within the scope of accounting guidance for loans acquired with deteriorated credit quality. The excess of the loan’s or pool’s scheduled contractual principal and interest payments over all cash flows expected at acquisition is the nonaccretable difference. The remaining amount, representing the excess of the loan’s cash flows expected to be collected over the fair value is the accretable yield (accreted into interest income over the remaining life of the loan or pool). The Bank has also elected to account for acquired loans not within the scope of accounting guidance using this same methodology.
     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 using a systematic methodology and reflects an amount that, in management’s judgment, is adequate to provide for probable credit losses inherent in the portfolio, 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 inherent credit losses. The estimate is reviewed periodically by management and various regulatory entities and, as adjustments become necessary, they are reported in earnings in the periods in which they become known. The provision for credit losses is charged to expense.

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     A loan for which collection of principal and interest according to its original terms is not probable is considered to be impaired. The Company’s policy is to record a specific valuation allowance, which is included in the allowance for credit losses. In certain cases, the portion of an impaired loan that exceeds its fair value is charged-off. Fair value is usually based on the value of underlying collateral, if the loan is determined to be collateral dependent.
     Acquired loans are recorded at fair value as of the acquisition date, factoring in credit losses expected to be incurred over the life of the loan. Accordingly, an allowance for credit losses is not carried over or recorded as of the acquisition date.
     Premises and Equipment — Premises and equipment are stated at cost, less accumulated depreciation, which is provided for in amounts sufficient to relate the cost of depreciable assets to operations over their estimated service lives using the straight-line method. Properties under capital lease and leasehold improvements are amortized over the shorter of estimated economic lives of 15 years or the initial terms of the leases. Estimated lives are 3 to 5 years for computer and equipment, 5 to 7 years for furniture, fixtures and equipment, and 15 to 40 years for buildings and improvements. Long-lived assets are reviewed periodically for impairment when events or changes in circumstances indicate that the carrying amount may not be recoverable. The existence of impairment is based on undiscounted cash flows. To the extent impairment exists, the impairment is calculated as the difference in fair value of assets and their carrying value. The impairment loss, if any, would be recorded in noninterest expense.
     FDIC Loss Sharing Asset The FDIC loss sharing asset is initially recorded at fair value which represents the present value of the estimated cash payments from the FDIC for future losses on covered loans. The ultimate collectability of this asset is dependent upon the performance of the underlying covered loans, the passage of time and claims paid by the FDIC.
     Other Real Estate Owned — Other real estate owned represents real estate acquired through foreclosure in satisfaction of commercial and real estate loans and is stated at fair value, minus estimated costs to sell (fair value at time of foreclosure). Loan balances in excess of fair value of the real estate acquired at the date of acquisition are charged against the allowance for credit losses. Any subsequent operating expenses or income, reduction in estimated values, and gains or losses on disposition of such properties are charged to current operations.
     Business Combinations, Goodwill and Intangible Assets — The Company has engaged in the acquisition of financial institutions and the assumption of deposits and purchase of assets from other financial institutions in its market area. The assets acquired and liabilities assumed are measured at their fair values as of the acquisition date and acquisition costs are expensed as incurred. The Company has paid premiums on certain transactions, and such premiums are recorded as intangible assets, in the form of goodwill or other intangible assets. Goodwill is not being amortized whereas identifiable intangible assets with finite lives are amortized over their useful lives. On an annual basis, the Company tests goodwill and intangible assets for impairment. The Company completed its annual impairment test as of July 1, 2009; there was no impairment of goodwill.
     Bank Owned Life Insurance — The Bank invests in Bank-Owned Life Insurance (BOLI). BOLI involves the purchasing of life insurance by the Bank on a chosen group of employees. The Bank is the owner and beneficiary of these policies. BOLI is recorded as an asset at cash surrender value. Increases in the cash value of these policies, as well as insurance proceeds received, are recorded in other non-interest income and are not subject to income tax.
     Income Taxes — Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are

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expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Future realization of deferred tax assets ultimately depends on the existence of sufficient taxable income of the appropriate character (for example, ordinary income or capital gain) within the carryback or carryforward periods available under the tax law. Based on historical and future expected taxable earnings and available strategies, the Company considers the future realization of these deferred tax assets more likely than not.
     The tax effects from an uncertain tax position are recognized in the financial statements only if, based on its merits, the position is more likely than not to be sustained on audit by the taxing authorities. Interest and penalties related to uncertain tax positions are recorded as part of other operating expense.
     Earnings per Common Share — The Company calculates earnings per common share (“EPS”) using the two-class method. The two-class method requires the Company to present EPS as if all of the earnings for the period are distributed to common shareholders and any participating securities, regardless of whether any actual dividends or distributions are made. All outstanding unvested share-based payment awards that contain rights to non-forfeitable dividends are considered participating securities. The Company grants restricted shares under the 2008 Equity Incentive Plan that qualify as participating securities. Restricted shares issued under this plan are entitled to dividends at the same rate as common stock. A reconciliation of the numerator and the denominator used in the computation of basic and diluted earnings per common share is included in Note 15.
     Statement of Cash Flows — Cash and cash equivalents as reported in the statements of cash flows include cash and due from banks and federal funds sold. Cash flow from loans and deposits are reported net.
     Stock Compensation Plans — At December 31, 2009, the Company has three stock-based employee compensation plans. The Company accounts for stock compensation using the “modified prospective” method. Under this method, awards that are granted, modified, or settled after December 31, 2005, are fair valued as of grant date and compensation costs recognized over the vesting period on a straight-lined basis. Also under this method, unvested stock awards as of January 1, 2006 are recognized over the remaining service period with no change in historical reported earnings.
     CitizensTrust — This division provides trust, investment and brokerage related services, as well as financial, estate and business succession planning services. The Company maintains funds in trust for customers. CitizensTrust has approximately $1.9 billion in assets under administration, including, $1.0 billion in assets under management. The amount of these funds and the related liability have not been recorded in the accompanying consolidated balance sheets because they are not assets or liabilities of the Bank or Company, with the exception of any funds held on deposit with the Bank.
     Derivative Financial Instruments — All derivative instruments, including certain derivative instruments embedded in other contracts, are recognized on the consolidated balance sheet at fair value. For derivatives designated as fair value hedges, changes in the fair value of the derivative and the hedged item related to the hedged risk are recognized in earnings. Changes in fair value of derivatives designated and accounted for as cash flow hedges, to the extent they are effective as hedges, are recorded in “Other Comprehensive Income,” net of deferred taxes and are subsequently reclassified to earnings when the hedged transaction affects earnings. Any hedge ineffectiveness would be recognized in the income statement line item pertaining to the hedged item.
     Use of Estimates in the Preparation of Financial Statements — The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. A material estimate that is particularly susceptible to significant change in the near term

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relates to the determination of the allowance for credit losses. Other significant estimates which may be subject to change include fair value disclosures, impairment of investments and goodwill, valuation and loans acquired in business combinations, and valuation of deferred tax assets and other intangibles and OREO.
2. FEDERALLY ASSISTED ACQUISITION OF SAN JOAQUIN BANK
     On October 16, 2009, Citizens Business Bank acquired substantially all of the assets and assumed substantially all of the liabilities of San Joaquin Bank (“SJB”) from the Federal Deposit Insurance Corporation (“FDIC”) in an FDIC-assisted transaction. The Bank entered into a loss sharing agreement with the FDIC, whereby the FDIC will cover a substantial portion of any future losses on certain acquired assets. The acquired assets subject to the loss sharing agreement are referred to collectively as “covered assets.” Under the terms of such loss sharing agreement, the FDIC will absorb 80% of losses and share in 80% of loss recoveries up to $144.0 million with respect to covered assets, after a first loss amount of $26.7 million. The FDIC will reimburse the Bank for 95% of losses and share in 95% of loss recoveries in excess of $144.0 million with respect to covered assets. The loss sharing agreement is in effect for 5 years for commercial loans and 10 years for single-family residential loans from the October 16, 2009 acquisition date and the loss recovery provisions are in effect for 8 and 10 years, respectively for commercial and single-family residential loans from the acquisition date. The purpose of this acquisition was to expand our presence in the Central Valley region of California.
     The acquisition has been accounted for under the purchase method of accounting. The assets and liabilities were recorded at their estimated fair values as of the October 16, 2009 acquisition date. The application of the purchase method of accounting resulted in an after-tax gain of $12.3 million which is included in 2009 earnings. The gain is the negative goodwill resulting from the acquired assets and liabilities recognized at fair value. A summary of the estimated fair value adjustments resulting in the net gain follows:
         
    October 16, 2009  
    (in thousands)  
SJB’s cost basis net assets on October 16, 2009
  $ 84,279  
Purchase Accounting Fair Value Adjustments
       
Loans
    (199,768 )
FDIC loss sharing asset
    131,860  
Core Deposit Intangible
    4,904  
Other assets
    145  
Time Deposits
    (298 )
Income tax liabliity
    (8,871 )
 
     
Net after-tax gain from SJB acquisition
  $ 12,251  
 
     
     The statement of assets acquired and liabilities assumed at their estimated fair values as of October 16, 2009 are presented in the following table.

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    October 16, 2009  
    (in thousands)  
Assets:
       
Cash
  $ 15,844  
Investment securities
    25,263  
Loans covered by loss sharing
    489,111  
OREO covered by loss sharing
    75  
Core Deposit Intangible
    4,904  
FDIC loss sharing asset
    131,860  
Other assets
    6,060  
 
     
Total assets acquired
  $ 673,117  
 
     
Liabilities:
   <