CVB Financial Corp. Reports Third Quarter Earnings

CVB Financial Corp. (NASDAQ:CVBF) and its subsidiary, Citizens Business Bank ("the Company”), announced the results for the third quarter of 2007. Net Income CVB Financial Corp. reported net income of $16.1 million for the third quarter ending September 30, 2007. This represents a decrease of $2.4 million, or 12.60%, when compared with the $18.5 million in net earnings reported for the third quarter of 2006. Diluted earnings per share were $0.19 for the third quarter of 2007. This was down $0.03, or 12.25%, when compared with earnings per share of $0.22 for the third quarter of 2006. These per share amounts have been adjusted to reflect a 10% stock dividend declared in December of 2006. Net income for the third quarter of 2007 produced a return on beginning equity of 16.13%, a return on average equity of 15.92% and a return on average assets of 1.04%. The efficiency ratio for the third quarter was 54.89%, and operating expenses as a percentage of average assets were 1.76%. Net income for the nine months ending September 30, 2007 was $47.2 million. This represents a decrease of $8.4 million, or 15.20%, when compared with net earnings of $55.6 million for the same period of 2006. Diluted earnings per share were $0.56. This was down $0.09, or 14.63%, from diluted earnings per share of $0.65 for the same period last year. Net income for the nine months ending September 30, 2007 produced a return on beginning equity of 16.20%, a return on average equity of 15.72% and a return on average assets of 1.04%. The efficiency ratio for the nine-month period was 54.51%, and operating expenses as a percentage of average assets was 1.72%. Net Interest Income and Net Interest Margin Net interest income totaled $41.7 million for the third quarter of 2007. This represented an increase of $1.0 million, or 2.46%, from net interest income of $40.7 million for the third quarter of 2006. This increase resulted from a $4.9 million increase in interest income, offset by a $5.1 million increase in interest expense and a $1.2 million decrease in the provision for credit losses. Net interest income before the provision for credit losses decreased $248,000, or 0.59%, in the third quarter of 2007. The increases in interest income were primarily due to the growth in average earning assets and an increase in interest rates. The increases in interest expense were due to the increase in the cost of interest bearing deposits and borrowed funds caused by deposit and borrowing instruments repricing at higher rates this year. The net interest margin (tax equivalent) declined from 3.22% for the third quarter of 2006 to 3.11% for the third quarter of 2007. However, from a quarter-to-quarter perspective, the third quarter net interest margin of 3.11% compares favorably to the 2007 first and second quarter figures of 3.03% and 2.91%, respectively. Total average earning asset yields have increased from 6.15% for the third quarter of 2006 to 6.28% for the third quarter of 2007. The cost of funds has increased from 2.94% for the third quarter of 2006 to 3.20%, for the third quarter of 2007. The decline in net interest margin is due to the cost of interest-bearing liabilities rising faster than the increase in yields on earning assets. Net interest income totaled $119.7 million for the nine months ending September 30, 2007. This represents a decrease of $6.9 million, or 5.45%, from the net interest income of $126.6 million for the same period in 2006. This decrease resulted from a $23.7 million increase in interest income, which was offset by a $33.0 million increase in interest expense and a $2.4 million decrease in the provision for credit losses. Net interest income before the provision for credit losses decreased $9.3 million, or 7.21%, for the first nine months of 2007. The increases in interest income were primarily due to the growth in average earning assets and an increase in interest rates. The increases in interest expense were due to the increases in interest rates on deposits and borrowed funds. The net interest margin (tax equivalent) decreased from 3.43% for the first nine months of 2006 to 3.02% for the first nine months of 2007. Total average earning asset yields have increased from 6.01% for the first nine months of 2006 to 6.20% for the first nine months of 2007. The cost of funds has increased from 2.60% for the first nine months of 2006 to 3.22% for the first nine months of 2007. The allowance for credit losses increased from $26.9 million as of September 30, 2006 to $30.4 million as of September 30, 2007. This increase was due to the provision for credit losses of $600,000 in the last quarter of 2006 and the addition of $2.7 million from the acquisition of First Coastal Bank in June, 2007. During the first nine months of 2007, the Company experienced net recoveries of $20,000. No additional provision for credit losses was made in 2007. During the first nine months of 2006, the Company had net recoveries of $1.3 million and a provision for credit losses of $2.4 million. The allowance for credit losses was 0.92% of the total loans and leases outstanding as of September 30, 2007 and 2006. Other operating expenses increased for the third quarter and for the nine months ending September 30, 2007 when compared to the same period last year. The increases in salary and occupancy expenses were primarily related to the acquisition of First Coastal Bank. Intangible expense increased by $498,000 for the estimated amortization of intangibles acquired from First Coastal Bank. The Company also made a $741,000 provision to the reserve for unfunded commitments in the third quarter of 2007. Balance Sheet The Company reported total assets of $6.16 billion at September 30, 2007. This represented an increase of $184.7 million, or 3.09%, over total assets of $5.97 billion on September 30, 2006. Earning assets totaling $5.75 billion were up $144.3 million, or 2.57%, when compared with earning assets of $5.61 billion as of September 30, 2006. Total deposits were $3.44 billion as of September 30, 2007. This represents a decrease of $88.4 million, or 2.51%, from $3.52 billion at September 30, 2006. The Company has $1.29 billion, or 37.64%, of its deposits in non-interest bearing demand deposits. Gross loans and leases totaled $3.31 billion at September 30, 2007. This represents an increase of $394.7 million, or 13.53%, when compared with gross loans and leases of $2.92 billion at September 30, 2006. Total assets of $6.16 billion as of September 30, 2007 reflect an increase of $65.1 million, or 1.07 %, over total assets of $6.09 billion on December 31, 2006. Earning assets of $5.75 billion increased by $48.7 million, or 0.85%, compared to total earning assets of $5.70 billion at December 31, 2006. Total deposits of $3.44 billion at September 30, 2007 increased $28.3 million, or 0.83%, when compared with total deposits of $3.41 billion at December 31, 2006. Gross loans and leases of $3.31 billion increased $241.6 million, or 7.87%, from $3.07 billion at December 31, 2006. Investment Securities Investment securities totaled $2.39 billion as of September 30, 2007. This represents a decrease of $252.8 million, or 9.56%, when compared with the $2.64 billion in securities at September 30, 2006. It represents a decrease of $192.6 million, or 7.46%, when compared with $2.58 billion in investment securities at December 31, 2006. The Company is utilizing the monthly cash flow from investments to pay down borrowings or fund new loans. CitizensTrust CitizensTrust has over $2.6 billion in assets under administration. They provide trust, investment and brokerage related services, as well as financial, estate and business succession planning. Loan and Lease Quality CVB Financial Corp reported $3.5 million in non-performing assets as of September 30, 2007. Non-performing assets represent 0.10% of total loans and 0.06% of total assets. There were no non-performing assets as of December 31, 2006. The allowance for credit losses was $30.4 million as of September 30, 2007. This represents 0.92% of gross loans and leases. It compares with an allowance for credit losses of $27.7 million, or 0.90% of gross loans and leases on December 31, 2006. The increase was primarily due to the addition of $2.7 million from the acquisition of First Coastal Bank in June, 2007, supplemented by net recoveries of $20,000 during the first nine months of 2007. Corporate Overview CVB Financial Corp. is the holding company for Citizens Business Bank. The Bank is the largest financial institution headquartered in the Inland Empire region of Southern California. It serves 39 cities with 44 business financial centers in the Inland Empire, Los Angeles County, Orange County and the Central Valley areas of California. Its leasing division, Citizens Financial Services, provides vehicle leasing, equipment leasing and real estate loan services. U.S. Banker Magazine named Citizens Business Bank the "Top Business Bank” in the nation in their January 2007 issue. The Bank was also recognized for having the fifteenth highest return on equity in the nation at 20.88%. Shares of CVB Financial Corp. common stock are listed on the Nasdaq under the ticker symbol of CVBF. For investor information on CVB Financial Corp., visit our Citizens Business Bank website at www.cbbank.com and click on the CVB Investor tab. Safe Harbor Certain matters set forth herein constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including forward-looking statements relating to the Company’s current business plan and expectations regarding future operating results. These forward-looking statements are subject to risks and uncertainties that could cause actual results, performance or achievements to differ materially from those projected. These risks and uncertainties include, but are not limited to, the impact of changes in interest rates, a decline in economic conditions, adverse changes resulting from natural and manmade disasters, effects of government regulation and increased competition among financial services providers and other factors set forth in the Company’s public reports including its Annual Report on Form 10-K for the year ended December 31, 2006, and particularly the discussion of risk factors within that document. The Company does not undertake, and specifically disclaims any obligation to update any forward-looking statements to reflect occurrences or unanticipated events or circumstances after the date of such statements except as required by law. CVB FINANCIAL CORP. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET (unaudited) dollars in thousands   September 30,   December 31, 2007   2006 2006 Assets: Cash and due from banks $ 125,997 $ 127,217 $ 146,411   Investment Securities available-for-sale 2,390,306 2,643,100 2,582,902 Interest-bearing balances due from depository institutions 570 - - Investment in stock of Federal Home Loan Bank (FHLB) 80,743 75,399 78,866 Loans and lease finance receivables 3,311,749 2,917,027 3,070,196 Less allowance for credit losses   (30,428 )   (26,912 ) (27,737 ) Net loans and lease finance receivables   3,281,321     2,890,115   3,042,459   Total earning assets 5,752,940 5,608,614 5,704,227 Premises and equipment, net 47,048 44,219 44,963 Intangibles 21,858 10,709 10,121 Goodwill 46,582 31,531 31,531 Cash value of life insurance 102,434 98,906 99,861 Other assets   62,493     53,452     57,148   TOTAL $ 6,159,352   $ 5,974,648   $ 6,094,262     Liabilities and Stockholders' Equity Liabilities: Deposits: Demand Deposits (noninterest-bearing) $ 1,292,825 $ 1,288,569 $ 1,363,411 Investment Checking 349,618 297,659 318,431 Savings/MMDA 929,321 919,021 896,988 Time Deposits   863,323     1,018,228   827,978   Total Deposits 3,435,087 3,523,477 3,406,808   Demand Note to U.S. Treasury 180 1,510 7,245 Customer Repurchase Agreements 330,666 - 94,350 Repurchase Agreements 250,000 250,000 250,000 Borrowings 1,545,500 1,654,501 1,794,900 Junior Subordinated Debentures 115,859 108,250 108,250 Other liabilities   73,284     54,020   43,370   Total Liabilities 5,750,576 5,591,758 5,704,923 Stockholders' equity: Stockholders' equity 418,450 392,600 402,560 Accumulated other comprehensive income (loss), net of tax   (9,674 )   (9,710 )   (13,221 )   408,776     382,890     389,339   TOTAL $ 6,159,352   $ 5,974,648   $ 6,094,262   CVB FINANCIAL CORP. AND SUBSIDIARIES CONSOLIDATED AVERAGE BALANCE SHEET (unaudited) dollars in thousands   Three months ended September 30,   Nine months ended September 30, 2007   2006 2007   2006 Assets: Cash and due from banks $ 118,612 $ 126,716 $ 121,713 $ 127,440 Investment securities available-for-sale 2,315,265 2,620,781 2,409,872 2,477,114 Interest-bearing balances due from depository institution 5,377 32 2,010 2,464 Investment in stock of Federal Home Loan Bank (FHLB) 81,410 75,118 81,041 73,333 Loans and lease finance receivables 3,327,462 2,857,573 3,178,242 2,759,778 Less allowance for credit losses   (30,264 )   (25,994 )   (28,623 )   (24,582 ) Net loans and lease finance receivables   3,297,198     2,831,579     3,149,619     2,735,196   Total earning assets 5,699,250 5,527,510 5,642,542 5,288,107 Premises and equipment, net 47,189 44,395 46,232 42,704 Intangibles 8,572 10,941 9,166 11,524 Goodwill 60,456 31,531 41,370 31,625 Cash value of life insurance 101,686 78,646 100,932 74,542 Other assets   95,635     113,077     91,262     98,326   TOTAL $ 6,131,400   $ 5,932,816   $ 6,053,217   $ 5,674,268     Liabilities and Stockholders' Equity Liabilities: Deposits: Noninterest-bearing $ 1,316,035 $ 1,344,239 $ 1,289,429 $ 1,358,135 Interest-bearing   2,200,779     2,233,844     2,145,298     2,150,609   Total Deposits 3,516,814 3,578,083 3,434,727 3,508,744   Other borrowings 2,049,765 1,805,765 2,063,380 1,643,804 Junior Subordinated Debentures 115,859 108,250 110,898 105,418 Other liabilities   47,069     87,217     43,210     62,800   Total Liabilities 5,729,507 5,579,315 5,652,215 5,320,766 Stockholders' equity: Stockholders' equity 426,715 395,102 416,346 381,569 Accumulated other comprehensive income (loss), net of tax   (24,822 )   (41,601 )   (15,344 )   (28,067 )   401,893   353,501     401,002     353,502   TOTAL $ 6,131,400   $ 5,932,816   $ 6,053,217   $ 5,674,268   CVB FINANCIAL CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS (unaudited) Dollar amounts in thousands, except per share           For the Three Months For the Nine Months Ended September 30, Ended September 30, 2007 2006 2007 2006 Interest Income: Loans, including fees $ 58,677 $ 50,564 $ 165,117 $ 142,769 Investment securities: Taxable 20,591 24,725 65,401 66,625 Tax-advantaged 7,493 6,510   22,029 19,563 Total investment income 28,084 31,235 87,430 86,188 Dividends from FHLB Stock 1,063 1,200 3,058 2,990 Federal funds sold & Interest-bearing CDs with other institutions   72 6 92 92 Total interest income 87,896 83,005 255,697 232,039 Interest Expense: Deposits 18,445 18,903 53,531 48,398 Borrowings and junior subordinated debentures 27,727 22,130   82,505 54,682 Total interest expense 46,172 41,033   136,036 103,080 Net interest income before provision for credit losses 41,724 41,972 119,661 128,959 Provision for credit losses - 1,250   - 2,400 Net interest income after provision for credit losses 41,724 40,722 119,661 126,559 Other Operating Income: Service charges on deposit accounts 3,340 3,253 9,827 9,833 Financial Advisory Services 1,657 1,807 5,355 5,467 Gain on sale of investment securities - 1,029 - 1,062 Other 2,866 2,782   8,175 8,329 Total other operating income 7,863 8,871 23,357 24,691 Other operating expenses: Salaries and employee benefits 13,794 11,541 41,449 37,031 Occupancy 2,862 2,209 7,612 6,313 Equipment 1,743 1,777 5,293 5,278 Professional services 1,844 1,237 4,535 3,995 Amortization of intangible assets 1,086 588 2,263 1,765 Other 5,889 5,278   16,811 15,977 Total other operating expenses 27,218 22,630   77,963 70,359 Earnings before income taxes 22,369 26,963 65,055 80,891 Income taxes   6,239   8,508   17,893   25,279 Net earnings $ 16,130 $ 18,455 $ 47,162 $ 55,612   Basic earnings per common share $ 0.19 $ 0.22 $ 0.56 $ 0.66 Diluted earnings per common share $ 0.19 $ 0.22 $ 0.56 $ 0.65 Cash dividends per common share $ 0.085 $ 0.09 $ 0.255 $ 0.27 All per share information has been retroactively adjusted to reflect the 10% stock dividend declared on December 20, 2006. CVB FINANCIAL CORP. AND SUBSIDIARIES SELECTED FINANCIAL HIGHLIGHTS (unaudited)         Three months ended September 30, Nine months ended September 30, 2007 2006 2007 2006   Interest income - (Tax-Effected) (te) $ 90,416 $ 85,182 $ 263,102 $ 238,445 Interest Expense   46,172     41,033     136,036     103,080   Net Interest income - (te) $ 44,244   $ 44,149   $ 127,066   $ 135,365     Return on average assets 1.04 % 1.23 % 1.04 % 1.31 % Return on average equity 15.92 % 20.71 % 15.72 % 21.03 % Efficiency ratio 54.89 % 45.63 % 54.51 % 46.52 % Net interest margin (te) 3.11 % 3.22 % 3.02 % 3.43 %   Weighted average shares outstanding Basic 84,373,484 84,159,880 83,715,950 84,136,220 Diluted 84,730,295 85,069,856 84,373,142 84,931,352 Dividends declared $ 7,067 $ 6,891 $ 21,410 $ 20,659 Dividend payout ratio 43.81 % 37.34 % 45.40 % 37.15 %   Number of shares outstanding-EOP 83,353,404 84,226,832 Book value per share $ 4.90 $ 4.55     September 30, 2007 2006 Non-performing Assets (dollar amount in thousands): Non-accrual loans $ 3,474 $ 0 Loans past due 90 days or more and still accruing interest - - Restructured loans - - Other real estate owned (OREO), net   -     -   Total non-performing assets $ 3,474   $ 0     Percentage of non-performing assets to total loans outstanding and OREO 0.10 % 0.00 %   Percentage of non-performing assets to total assets 0.06 % 0.00 %   Non-performing assets to allowance for loan losses 11.42 % 0.00 %   Net Charge-off (Recovered) to Average loans 0.00 % -0.05 %   Allowance for Credit Losses: Beginning Balance $ 27,737 $ 23,204 Total Loans Charged-Off (345 ) (145 ) Total Loans Recovered   365     1,453   Net Loans Recovered 20 1,308 Acquisition of First Coastal Bank 2,671 - Provision Charged to Operating Expense   -     2,400   Allowance for Credit Losses at End of period $ 30,428   $ 26,912   CVB FINANCIAL CORP. AND SUBSIDIARIES SELECTED FINANCIAL HIGHLIGHTS (in thousands, except per share data) (unaudited)           Quarterly Common Stock Price                       2007 2006 2005 Quarter End High Low High Low High Low March 31, $ 13.38 $ 11.42 $ 15.60 $ 14.71 $ 15.49 $ 12.80 June 30, $ 12.40 $ 10.63 $ 15.59 $ 13.25 $ 14.63 $ 12.36 September 30, $ 12.71 $ 9.51 $ 14.24 $ 12.83 $ 15.93 $ 13.12 December 31, $ 14.13 $ 12.83 $ 15.20 $ 12.63     Quarterly Consolidated Statements of Earnings   3Q 2Q 1Q 4Q 3Q 2007 2007 2007 2006 2006 Interest income Loans, including fees $ 58,677 $ 53,726 $ 52,714 $ 51,935 $ 50,564 Investment securities and federal funds sold   29,219   29,831   31,530   32,687   32,441 87,896 83,557 84,244 84,622 83,005 Interest expense Deposits 18,445 17,928 17,158 18,783 18,903 Other borrowings   27,727   27,518   27,260   25,602   22,130 46,172 45,446 44,418 44,385 41,033 Net interest income before provision for credit losses 41,724 38,111 39,826 40,237 41,972 Provision for credit losses   -   -   -   600   1,250 Net interest income after provision for credit losses 41,724 38,111 39,826 39,637 40,722   Non-interest income 7,863 7,596 7,898 8,567 8,871 Non-interest expenses   27,218   24,845   25,900   25,465   22,630 Earnings before income taxes 22,369 20,862 21,824 22,739 26,963 Income taxes   6,239   5,008   6,646   6,445   8,508 Net earnings $ 16,130 $ 15,854 $ 15,178 $ 16,294 $ 18,455 Basic earning per common share $ 0.19 $ 0.19 $ 0.18 $ 0.19 $ 0.22 Diluted earnings per common share $ 0.19 $ 0.19 $ 0.18 $ 0.19 $ 0.22   Cash dividends per common share $ 0.085 $ 0.085 $ 0.085 $ 0.085 $ 0.09   Dividends Declared $ 7,067 $ 7,234 $ 7,109 $ 7,164 $ 6,891