CVBF » Topics » Liquidity and Cash Flow

These excerpts taken from the CVBF 10-K filed Feb 29, 2008.
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 2007, the Bank’s loan to deposit ratio averaged 94.35%, compared to an average ratio of 79.99% for 2006 and 74.35% for 2005.
 
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. At December 31, 2007, approximately $108.9 million of the Bank’s equity was unrestricted and available to be paid as dividends to CVB. Management of CVB believes that such restrictions will not have an impact on the ability of CVB to meet its ongoing cash obligations. See “Item 1. Business — Dividends and Other Transfers of Funds.” As of December 31, 2007, 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 $71.1 million for 2007, $70.9 million for 2006, and $89.1 million for 2005. The increase in 2007 compared to 2006 was primarily the result of an increase in interest and dividends received on loans and investments and a decrease in income taxes paid during 2007 offset by interest paid on deposits and borrowings. The decrease in income taxes paid during 2007 which was attributed to a lower effective tax rate.
 
Cash used in investing activities totaled $21.1 million for 2007, compared to $680.7 million for 2006 and $761.4 million for 2005. The decrease in 2007 compared to 2006 is due to decreases in the purchase of investments securities during 2007.
 
Net cash used by financing activities totaled $106.9 million for 2007, compared to funds provided by financing activities of $626.0 million for 2006 and $718.0 million for 2005. The increase in net cash used by financing activities was primarily the result of decreases in short-term borrowings and transaction deposits, offset by advances and repayments from Federal Home Loan Bank.
 
At December 31, 2007, cash and cash equivalents totaled $89.5 million. This represented a decrease of $56.9 million, or 38.88%, from a total of $146.4 million at December 31, 2006.
 
Capital Resources
 
Historically, the primary source of capital for the Company 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.


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Total stockholders’ equity was $424.9 million at December 31, 2007. This represented an increase of $37.6 million, or 9.71%, over total stockholders’ equity of $387.3 million at December 31, 2006. For 2006, total stockholders’ equity increased $45.1 million, or 13.19%, over total stockholders’ equity of $342.2 million at December 31, 2005.
 
For further information about our capital ratios, see Item 1. Business — Capital Standards.
 
During 2007, the Board of Directors of the Company declared quarterly cash dividends that totaled $0.34 per share for the full year. We do not believe that the continued payment of cash dividends will impact the ability of the Company to continue to exceed the current minimum capital standards.


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Table of Contents

 
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
2007, the Bank’s loan to deposit ratio averaged 94.35%,
compared to an average ratio of 79.99% for 2006 and 74.35% for
2005.


 



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. At December 31, 2007,
approximately $108.9 million of the Bank’s equity was
unrestricted and available to be paid as dividends to CVB.
Management of CVB believes that such restrictions will not have
an impact on the ability of CVB to meet its ongoing cash
obligations. See “Item 1. Business —
Dividends and Other Transfers of Funds.” As of
December 31, 2007, 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
$71.1 million for 2007, $70.9 million for 2006, and
$89.1 million for 2005. The increase in 2007 compared to
2006 was primarily the result of an increase in interest and
dividends received on loans and investments and a decrease in
income taxes paid during 2007 offset by interest paid on
deposits and borrowings. The decrease in income taxes paid
during 2007 which was attributed to a lower effective tax rate.


 



Cash used in investing activities totaled $21.1 million for
2007, compared to $680.7 million for 2006 and
$761.4 million for 2005. The decrease in 2007 compared to
2006 is due to decreases in the purchase of investments
securities during 2007.


 



Net cash used by financing activities totaled
$106.9 million for 2007, compared to funds provided by
financing activities of $626.0 million for 2006 and
$718.0 million for 2005. The increase in net cash used by
financing activities was primarily the result of decreases in
short-term borrowings and transaction deposits, offset by
advances and repayments from Federal Home Loan Bank.


 



At December 31, 2007, cash and cash equivalents totaled
$89.5 million. This represented a decrease of
$56.9 million, or 38.88%, from a total of
$146.4 million at December 31, 2006.


 




Capital
Resources



 



Historically, the primary source of capital for the Company 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.





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Table of Contents






Total stockholders’ equity was $424.9 million at
December 31, 2007. This represented an increase of
$37.6 million, or 9.71%, over total stockholders’
equity of $387.3 million at December 31, 2006. For
2006, total stockholders’ equity increased
$45.1 million, or 13.19%, over total stockholders’
equity of $342.2 million at December 31, 2005.


 



For further information about our capital ratios, see
Item 1. Business — Capital
Standards
.


 



During 2007, the Board of Directors of the Company declared
quarterly cash dividends that totaled $0.34 per share for the
full year. We do not believe that the continued payment of cash
dividends will impact the ability of the Company to continue to
exceed the current minimum capital standards.





44





Table of Contents



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 the first six months of 2007, the Bank's loan to deposit ratio averaged 91.44%, compared to an average ratio of 78.02% for the same period in 2006. We have been attempting to grow our loan portfolio while de-emphasizing growth in our investment portfolio. The slowdown in deposit growth has caused this ratio to increase.

 

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 cashflow is from rents paid by third parties on office space in the Company’s corporate headquarters. There are statutory and regulatory provisions that could limit the ability of the Bank to pay dividends to CVB. At June 30, 2007, approximately $114.0 million of the Bank's equity was unrestricted and available to be paid as dividends to CVB. Management of CVB believes that such restrictions will not have an impact on the ability of CVB to meet its ongoing cash obligations.

 

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 $34.3 million for the six months of 2007, compared to $36.1 million for the same period last year. The decrease was primarily the result of the increases in interest paid and cash paid to suppliers and employees.

 

Net cash provided by investing activities totaled $162.2 million for the first six months of 2007, compared to ($452.5) million used by investing activities for the same period in 2006. The increase in cash received was primarily the result of proceeds received from repayment of mortgage-backed securities and decrease in purchases of investment securities during the first six months of 2007.

 

Net cash used by financing activities totaled ($200.3) million for the first six months of 2007, compared to funds provided by financing activities of $429.5 million for the same period last year. The increase in net cash used by financing activities was primarily the result of a decrease in short-term borrowings offset by advances and repayments from Federal Home Loan Bank.

 

At June 30, 2007, cash and cash equivalents totaled $142.7 million. This represented a decrease of $513,000, or 0.36%, from a total of $143.2 million at June 30, 2006 and a decrease of $3.7 million, or 2.54%, from a total of $146.4 million at December 31, 2006.

 

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