SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the year ended December 31, 1994 Commission File Number 1-10521
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CITY NATIONAL CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 95-2568550
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
400 North Roxbury Drive, Beverly Hills, California 90210
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (310) 888-6000
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Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
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Common Stock, $1.00 par value New York Stock Exchange
No securities are registered pursuant to Section 12(g) of the Act
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
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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. [ ]
Number of shares of common stock outstanding at March 10, 1995: 45,272,165
Aggregate market value of the voting stock held by non-affiliates of the
Registrant as of March 10, 1995: $404,495,973
Documents Incorporated by Reference
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1. Pages 16 through 59 and page 63 of the Annual Report to Shareholders for
the year ended December 31, 1994. (Part II of Form 10-K.)
2. Specified material on pages 2 through 18 of the Notice of Annual Meeting
and Proxy Statement dated March 17, 1995. (Part III of Form 10-K.)
PART I
ITEM 1. BUSINESS
City National Corporation (the Corporation) was organized in Delaware in
1968 to acquire the outstanding capital stock of City National Bank (the Bank).
Because the Bank comprises substantially all of the business of the Corporation,
references to the "Company" reflect the consolidated activities of the
Corporation and the Bank. The Corporation owns all the outstanding shares of
the Bank.
The Bank, which was founded in 1953, conducts business in Southern
California and operates 14 banking offices in Los Angeles County, one in Orange
County, and one in San Diego County. In November 1993, the Bank closed one
office in Los Angeles County and announced a consolidation plan to improve
efficiency and operational productivity in its branch network. In March and
April 1994, the Bank closed four additional branches in Los Angeles County and
one branch in Orange County. The Bank also reorganized certain relationship
banking functions into distinct service locations.
The Bank primarily serves middle-market companies, professional and
business borrowers and associated individuals with commercial banking and
fiduciary needs. The Bank provides revolving lines of credit, term loans, asset
based loans, real estate secured loans, residential first trust deed mortgages,
trade facilities, and deposit, cash management and other business services. The
Bank's City National Investments Division offers personal, employee benefit and
estate services, and deals in money market and other investments for its own
account and for its customers. The Bank offers mutual funds in association with
other companies.
Competition
The banking business is highly competitive. The Bank competes with
domestic and foreign banks for deposits, loans and other banking business. In
addition, other financial intermediaries, such as savings and loans, money
market mutual funds, credit unions and other financial services companies,
compete with the Bank.
Non-depository institutions can be expected to increase the extent to
which they act as financial intermediaries. Large institutional users and
sources of credit may also increase the extent to which they interact directly,
meeting business credit needs outside the banking system.
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Furthermore, the geographic constraints on portions of the financial services
industry can be expected to continue to erode.
Monetary Policy
The earnings of the Bank are affected not only by general economic
conditions, but also by the policies of various governmental regulatory
authorities in the U.S. and abroad. In particular, the Board of Governors of
the Federal Reserve System (Federal Reserve Board) exerts a substantial
influence on interest rates and credit conditions, primarily through open market
operations in U.S. government securities, varying the discount rate on member
bank borrowings and setting reserve requirements against deposits. Federal
Reserve Board monetary policies have had a significant effect on the operating
results of financial institutions in the past and are expected to continue to do
so in the future.
SUPERVISION AND REGULATION
Bank holding companies, banks and their non-bank affiliates are
extensively regulated under both federal and state law. The following is not
intended to be an exhaustive description of the statutes and regulations
applicable to the Corporation's or the Bank's business. The description of
statutory and regulatory provisions is qualified in its entirety by reference to
the particular statutory or regulatory provisions.
Moreover, major new legislation and other regulatory changes affecting
the Corporation, the Bank, banking and the financial services industry in
general have occurred in the last several years and can be expected to occur in
the future. The nature, timing and impact of new and amended laws and
regulations cannot be accurately predicted.
Bank Holding Companies
Bank holding companies are regulated under the Bank Holding Company Act
(BHC Act) and are supervised by the Federal Reserve Board. Under the BHC Act,
the Corporation files reports of its operations with the Federal Reserve Board
and is subject to examination by it.
The BHC Act requires, among other things, the Federal Reserve Board's
prior approval whenever a bank holding company proposes to (i) acquire all or
substantially all the assets of a bank, (ii) acquire direct or indirect
ownership or control of more than 5% of the voting shares of a bank, or (iii)
merge or consolidate with another bank holding company. The Federal Reserve
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Board may not approve an acquisition, merger or consolidation that would result
in or further a monopoly, or may substantially lessen competition in any section
of the country, or in any other manner would be in restraint of trade, unless
the anticompetitive effects of the proposed transaction are clearly outweighed
by the convenience and needs of the community.
The BHC Act prohibits the Federal Reserve Board from approving a bank
holding company's application to acquire a bank or bank holding company located
outside the state where its banking subsidiaries' operations are principally
conducted, unless such acquisition is specifically authorized by statute of the
state where the bank or bank holding company to be acquired is located. In
September 1994, the Riegle-Neal Interstate Banking and Branch Efficiency Act
(the Riegle-Neal Act) was enacted. Under the Riegle-Neal Act, interstate
banking is allowed in three different forms:
. Effective in one year, a bank owned by a holding company may acquire a
subsidiary bank anywhere in the United States.
. Effective in one year, a bank owned by a holding company may act as an
agent in accepting deposits or servicing loans for any other bank or
savings or loan owned by the holding company.
. Effective in three years, a bank itself may establish a branch in
another state, but only if not prohibited by state law.
Interstate bank subsidiaries and branch banks are subject to concentration
limits, Community Reinvestment Act requirements, bank supervisory controls and
other restrictions of the Riegle-Neal Act or of state law.
California law permits bank holding companies in other states to acquire
California banks and bank holding companies, provided the acquiring company's
home state has enacted "reciprocal" legislation that expressly authorizes
California bank holding companies to acquire banks or bank holding companies in
that state on terms and conditions substantially no more restrictive than those
applicable to such an acquisition in California by a bank holding company from
the other state.
The BHC Act also prohibits a bank holding company, with certain
exceptions, from acquiring more than 5% of the voting shares of any company that
is not a bank and from engaging in any activities without the Federal Reserve
Board's prior approval other than (1) managing or controlling banks and other
subsidiaries authorized by the BHC Act, or (2) furnishing services to, or
performing services for, its subsidiaries. The BHC Act authorizes the Federal
Reserve Board
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to approve the ownership of shares in any company, the activities of which have
been determined to be so closely related to banking or to managing or
controlling banks as to be a proper incident thereto. The Federal Reserve Board
has by regulation determined that certain activities are closely related to
banking within the meaning of the BHC Act.
Consistent with its "source of strength" policy (see "Capital Adequacy
Requirements," below), the Federal Reserve Board has stated that, as a matter of
prudent banking, a bank holding company generally should not pay cash dividends
unless its net income available to common shareholders has been sufficient to
fund fully the dividends, and the prospective rate of earnings retention appears
consistent with the company's capital needs, asset quality and overall financial
condition. The Corporation paid its first dividend of $.05 per share of common
stock in the fourth quarter of 1994 since suspending payment of dividends in
August, 1991. A dividend of $.05 per share in the first quarter of 1995 was
paid on February 16, 1995. The level of dividends will be subject to periodic
review as the Corporation moves towards its objective of paying annual dividends
of approximately one-third of prior year's earnings.
A bank holding company and its subsidiaries are prohibited from engaging
in certain tie-in arrangements in connection with the extension of credit.
The Federal Reserve Board may, among other things, issue cease-and-desist
orders with respect to activities of bank holding companies and nonbanking
subsidiaries that represent unsafe or unsound practices or violate a law,
administrative order or written agreement with a federal banking regulator. The
Federal Reserve Board can also assess civil money penalties against companies or
individuals who violate the BHC Act or other federal laws or regulations, order
termination of nonbanking activities by nonbanking subsidiaries of bank holding
companies and order termination of ownership and control of a nonbanking
subsidiary by a bank holding company.
National Banks
The Bank is a national bank and, as such, is subject to supervision and
examination by the Office of the Comptroller of the Currency (OCC) and
requirements and restrictions under federal and state law, including
requirements to maintain reserves against deposits, restrictions on the types
and amounts of loans that may be granted and the interest that may be charged,
and limitations on the types of investments that may be made and services that
may be offered. Various consumer laws and regulations also affect the Bank's
operations. These laws primarily
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protect depositors and other customers of the Bank, rather than the Corporation
and its shareholders.
"Brokered deposits" are deposits obtained by a bank from a "deposit
broker" or that pay above-market rates of interest. Because the Bank is
categorized as a well capitalized financial institution, the Bank can accept
brokered deposits without the prior approval of the Federal Deposit Insurance
Corporation (FDIC).
The Corporation's principal asset is its investment in, and its loans and
advances to, the Bank. Bank dividends are one of the Corporation's principal
sources of liquidity. The Bank's ability to pay dividends is limited by certain
statutes and regulations. OCC approval is required for a national bank to pay a
dividend if the total of all dividends declared in any calendar year exceeds the
total of the bank's net profits (as defined) for that year combined with its
retained net profits for the preceding two calendar years, less any required
transfer to surplus. A national bank may not pay any dividend that exceeds its
net profits then on hand after deducting its loan losses and bad debts, as
defined by the OCC. The OCC and the Federal Reserve Board have also issued
banking circulars emphasizing that the level of cash dividends should bear a
direct correlation to the level of a national bank's current and expected
earnings stream, the bank's need to maintain an adequate capital base and other
factors. National banks that are not in compliance with regulatory capital
requirements generally are not permitted to pay dividends.
The OCC also can prohibit a national bank from engaging in an unsafe or
unsound practice in its business. Depending on the bank's financial condition,
payment of dividends could be deemed to constitute an unsafe or unsound
practice. Except under certain circumstances and with prior regulatory
approval, a bank may not pay a dividend if, after so doing, it would be
undercapitalized. The Bank's ability to pay dividends in the future is, and
could be further, influenced by regulatory policies or agreements and by capital
guidelines. The Bank paid a dividend of $4.5 million to the Corporation on
February 16, 1995 after suspending payment of dividends in the second quarter of
1991. The level of dividends will be subject to periodic review.
The Bank's ability to make funds available to the Corporation is also
subject to restrictions imposed by federal law on the Bank's ability to extend
credit to the Corporation to purchase assets from it, to issue a guarantee,
acceptance or letter of credit on its behalf (including an endorsement or
standby letter of credit), to invest in its stock or securities, or to take such
stock or securities as collateral for loans to any borrower. Such extensions of
credit and issuances
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generally must be secured and are generally limited, with respect to the
Corporation, to 10% of the Bank's capital stock and surplus.
The Bank is insured by the FDIC and therefore is subject to its
regulations. Among other things, the Federal Deposit Insurance Corporation
Improvement Act of 1991 (FDICIA) provided authority for special assessments
against insured deposits and required the FDIC to develop a general risk-based
assessment system. The insurance assessment is set forth in a schedule issued
by the FDIC that specifies, at semiannual intervals, target reserve ratios for
the Bank Insurance Fund designed to increase to at least 1.25% of estimated
insured deposits in 15 years. The FDIC has adopted a risk-based assessment
system under which insured institutions will be assigned to one of nine
categories, based on capital levels and degree of supervisory concern.
Depending on its category (which may not be disclosed without the permission of
the FDIC), a bank's assessment ranges from 0.23% to 0.31% of the base.
Recently, the FDIC forecasted that the reserve ratio for the Bank Insurance Fund
will reach or exceed 1.25% of estimated insured deposits by mid-1995. The FDIC
has proposed a reduction in its assessment to as low as 0.04% of the base after
attainment of the 1.25% targeted reserve ratio.
FDICIA also contains numerous other regulatory requirements. Annual
examinations are required for all insured depository institutions by the
appropriate federal banking agency, with some exceptions. Federal Reserve Board
regulations under FDICIA require institutions to adopt policies limiting their
exposure to correspondent institutions in relation to the correspondent's
financial condition and, in particular, to limit exposure to any correspondent
that is not adequately capitalized, as defined, to not more than 25% of the
exposed institution's total capital. The banking agencies must also review and,
under certain circumstances, prescribe more stringent accounting and reporting
standards than required by generally accepted accounting principles. In
addition, FDICIA contains a number of consumer banking provisions, including
disclosure requirements and substantive contractual limitations with respect to
deposit accounts.
Under FDICIA, institutions other than small institutions must prepare a
management report stating management's responsibility for preparing the
institution's annual financial statements, complying with designated safety and
soundness laws and regulations and other related matters. The report also must
contain an assessment by management of the effectiveness of internal controls
over financial reporting and of the institution's compliance with designated
laws and regulations. The institution's independent public accountant must
examine, attest to, and report separately on, the assertions of management
concerning internal controls over financial
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reporting and must apply procedures agreed to by the FDIC to test compliance by
the institution with designated laws and regulations concerning loans to
insiders and dividend restrictions.
Banks and bank holding companies are also subject to the Community
Reinvestment Act of 1977, as amended (CRA). CRA requires the Bank to ascertain
and meet the credit needs of the communities it serves, including low- and
moderate-income neighborhoods. The Bank's compliance with CRA is reviewed and
evaluated by the OCC, which assigns the Bank a publicly available CRA rating at
the conclusion of the examination. Further, an assessment of CRA compliance is
also required in connection with applications for OCC approval of certain
activities, including establishing or relocating a branch office that accepts
deposits or merging or consolidating with, or acquiring the assets or assuming
the liabilities of, a federally regulated financial institution. An unfavorable
rating may be the basis for OCC denial of such an application, or approval may
be conditioned upon improvement of the applicant's CRA record. In the case of a
bank holding company applying for approval to acquire a bank or other bank
holding company, the Federal Reserve Board will assess the CRA record of each
subsidiary bank of the applicant, and such records may be the basis for denying
the application.
In the most recently completed CRA compliance examination, conducted in
1993, the OCC assigned the Bank a rating of "Satisfactory," the second highest
of four possible ratings. From time to time, banking legislation has been
proposed that would require consideration of the Bank's CRA rating in connection
with applications by the Corporation or the Bank to the Federal Reserve Board or
the OCC for permission to engage in additional lines of business. The
Corporation cannot predict whether such legislation will be adopted, or its
effect upon the Bank and the Corporation if adopted. The federal regulatory
agencies have issued proposed revisions to the rules governing CRA compliance.
The proposed rules are intended to simplify CRA compliance evaluations by
establishing performance-based criteria. The regulatory agencies have extended
the time for comment on, and consideration of, the proposed rules, and
management is unable to predict when, or in what form, such rules will be
adopted, or the effect of the rules on the Bank's CRA rating.
The OCC has enforcement powers with respect to national banks for
violations of federal laws or regulations that are similar to the powers of the
Federal Reserve Board with respect to bank holding companies and nonbanking
subsidiaries. See "Bank Holding Companies," above.
On December 21, 1993, an interagency policy statement was issued on the
allowance for loan and lease losses (the Policy Statement). The Policy Statement
requires that federally-insured
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depository institutions maintain an allowance for loan and lease losses (ALLL)
adequate to absorb credit losses associated with the loan and lease portfolio,
including all binding commitments to lend. The Policy Statement defines an
adequate ALLL as a level that is no less than the sum of the following items,
given the appropriate facts and circumstances as of the evaluation date:
(1) For loans and leases classified as substandard or doubtful, all
credit losses over the remaining effective lives of those loans.
(2) For those loans that are not classified, all estimated credit
losses forecast for the upcoming twelve months.
(3) Amounts for estimated losses from transfer risk on international
loans.
Additionally, the Policy Statement provides that an adequate level of
ALLL should reflect an additional margin for imprecision inherent in most
estimates of expected credit losses.
The Policy Statement also provides guidance to examiners in evaluating
the adequacy of a bank's ALLL. Among other things, the Policy Statement directs
examiners to check the reasonableness of ALLL methodology by comparing the
reported ALLL against the sum of the following amounts:
(a) 50 percent of the portfolio that is classified doubtful.
(b) 15 percent of the portfolio that is classified substandard; and
(c) For the portions of the portfolio that have not been classified
(including those loans designated special mention), estimated
credit losses over the upcoming twelve months given the facts and
circumstances as of the evaluation date (based on the
institutions's average annual rate of net charge-offs experienced
over the previous two or three years on similar loans, adjusted
for current conditions and trends).
The Policy Statement specifies that the amount of ALLL determined by the
sum of the amounts above is neither a floor nor a "safe harbor" level for an
institution's ALLL. However, it is expected that examiners will review a
shortfall relative to this amount as indicating a need to more closely review
management's analysis to determine whether it is reasonable, supported by the
weight of reliable evidence and that all relevant factors have been
appropriately considered. The Company has reviewed the Policy Statement and
believes that its allowance for loan losses exceeds this regulatory guideline.
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Capital Adequacy Requirements
Both the Federal Reserve Board and the OCC have adopted similar, but not
identical, "risk-based" and "leverage" capital adequacy guidelines for bank
holding companies and national banks, respectively. Under the risk-based
capital guidelines, different categories of assets are assigned different risk
weights, ranging from zero percent for risk-free assets (e.g., cash) to 100% for
relatively high-risk assets (e.g., commercial loans). These risk weights are
multiplied by corresponding asset balances to determine a risk-adjusted asset
base. Certain off-balance sheet items (e.g., standby letters of credit) are
added to the risk-adjusted asset base. The minimum required ratio of total
capital to risk-weighted assets for both bank holding companies and national
banks is presently 8%. At least half of the total capital is required to be
"Tier 1 capital," consisting principally of common shareholders' equity, a
limited amount of perpetual preferred stock and minority interests in the equity
accounts of consolidated subsidiaries, less certain goodwill items. The
remainder (Tier 2 capital) may consist of a limited amount of subordinated debt,
certain hybrid capital instruments and other debt securities, preferred stock
and a limited amount of the general loan-loss allowance. As of December 31,
1994, the Corporation had a ratio of Tier 1 capital to risk-weighted assets
(Tier 1 risk-based capital ratio) of 17.50% and a ratio of total capital to
risk-weighted assets (total risk-based capital ratio) of 18.81%, while the Bank
had a Tier 1 risk-based capital ratio of 16.69% and a total risk-based capital
ratio of 17.99%.
The minimum Tier 1 leverage ratio, consisting of Tier 1 capital to
average adjusted total assets, is 3% for bank holding companies and national
banks that have the highest regulatory examination rating and are not
contemplating significant growth or expansion. All other bank holding companies
and national banks are expected to maintain a ratio of at least 1% to 2% or more
above the stated minimum. As of December 31, 1994, the Corporation had a Tier 1
leverage ratio of 11.87%, and the Bank's Tier 1 leverage ratio was 11.31%.
The OCC has adopted regulations under FDICIA establishing capital
categories for national banks and prompt corrective actions for undercapitalized
institutions. The regulations create five capital categories: well capitalized,
adequately capitalized, undercapitalized, significantly undercapitalized and
critically undercapitalized. The following table shows the minimum total risk-
based capital, Tier 1 risk-based capital and Tier 1 leverage ratios, all of
which must be satisfied for a bank to be classified as well capitalized,
adequately capitalized or undercapitalized, respectively, together with the
Bank's ratios at December 31, 1994:
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Minimum total Minimum Tier 1 Minimum
risk-based risk-based Tier 1
capital ratio capital ratio leverage ratio
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Well capitalized(1) 10.00% 6.00% 5.00%
Adequately capitalized 8.00% 4.00% 4.00%(2)
Undercapitalized 6.00% 4.00% 3.00%
City National Bank
(at December 31, 1994) 17.99% 16.69% 11.31%
(1) A bank may not be classified as well capitalized if it is subject to a
specific agreement with the OCC to meet and maintain a specified level of
capital.
(2) 3% for institutions having a composite rating of "1" in the most recent OCC
examination.
If any one or more of a bank's ratios are below the minimum ratios
required to be classified as undercapitalized, it will be classified as
significantly undercapitalized or, if in addition its ratio of tangible equity
to total assets is 2% or less, it will be classified as critically
undercapitalized. A bank may be reclassified by the OCC to the next level below
that determined by the criteria described above if the OCC finds that it is in
an unsafe or unsound condition or if it has received a less-than-satisfactory
rating for any of the categories of asset quality, management, earnings or
liquidity in its most recent examination and the deficiency has not been
corrected, except that a bank cannot be reclassified as critically
undercapitalized for such reasons.
Under FDICIA and its implementing regulations, the OCC may subject
national banks to a broad range of restrictions and regulatory requirements. A
national bank may not pay management fees to any person having control of the
institution, nor, except under certain circumstances and with prior regulatory
approval, make any capital distribution if, after doing so, it would be
undercapitalized. Undercapitalized banks are subject to increased monitoring by
the OCC, are restricted in their asset growth, must obtain regulatory approval
for certain corporate activities, such as acquisitions, new branches and new
lines of business, and, in most cases, must submit to the OCC a plan to bring
their capital levels to the minimum required in order to be classified as
adequately capitalized. The OCC may not approve a capital restoration plan
unless each company that controls the bank guarantees that the bank will comply
with it. Significantly and critically undercapitalized banks are subject to
additional mandatory and discretionary restrictions and, in the case of
critically undercapitalized institutions, must be placed into conservatorship or
receivership unless the OCC and the FDIC agree otherwise.
Under Federal Reserve Board policy, a bank holding company is expected to
act as a source of financial strength to its subsidiary banks and to commit
resources to support each such
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bank. In addition, a bank holding company is required to guarantee that its
subsidiary bank will comply with any capital restoration plan required under
FDICIA. The amount of such a guarantee is limited to the lesser of (i) 5% of the
bank's total assets at the time it became undercapitalized, or (ii) the amount
which is necessary (or would have been necessary) to bring the bank into
compliance with all applicable capital standards as of the time the bank fails
to comply with the capital restoration plan. A guaranty by the Corporation of a
capital restoration plan for the Bank would result in a priority claim to the
Corporation's assets ahead of the Corporation's other unsecured creditors and
shareholders that would be enforceable even in the event of the Corporation's
bankruptcy or the Bank's insolvency.
Regulatory Agreements
On November 18, 1992, the Bank entered into a written agreement with the
OCC (the Agreement) with respect to capital and other matters, which replaced a
memorandum of understanding dated June 26, 1991, between the Bank and the OCC.
All the requirements of the Agreement were successfully met prior to December
31, 1993. As a result, on January 21, 1994, the OCC lifted the Agreement.
On February 24, 1993, the Corporation entered into a memorandum of
understanding with the Federal Reserve Bank of San Francisco relating to capital
levels, the payment of dividends and other matters. In February 1994, the
Federal Reserve Bank of San Francisco notified the Corporation that the
memorandum of understanding was terminated.
ITEM 2. PROPERTIES
The Company has its principal offices in the City National Bank Building,
400 North Roxbury Drive, Beverly Hills, California 90210, which the Bank owns
and occupies. As of December 31, 1994, the Bank and its subsidiaries actively
maintained premises composed of 16 banking offices, a computer center, and
certain other properties.
Since 1967, the Bank's Pershing Square Regional Office and a number of
Bank departments have been the major tenant of the office building located at
600 South Olive Street in downtown Los Angeles. The building was originally
developed and built by a partnership between a wholly-owned subsidiary of the
Bank, Citinational Bancorporation, and Buckeye Construction Co. and Buckeye
Realty and Management Corporation (two corporations then affiliated with Mr.
Bram Goldsmith, Chairman of the Board and Chief Executive Officer of the
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Corporation and the Bank); since its completion, the building has been owned by
Citinational-Buckeye Building Co., a limited partnership of which Citinational
Bancorporation and Olive-Sixth Buckeye Co. are the only general partners, each
with a 29% partnership interest. Citinational Bancorporation has an additional
3% interest as a limited partner of Citinational-Buckeye Building Co.; the
remainder is held by other, unaffiliated limited partners. Olive-Sixth Buckeye
Co. is a limited partnership of which Mr. Goldsmith is a 49% general partner;
therefore, Mr. Goldsmith has an indirect 14% ownership interest in Citinational-
Buckeye Building Co. The remaining general partner and all limited partners of
Olive-Sixth Buckeye Co. are not affiliated with the Corporation. Since 1990,
Citinational-Buckeye Building Co. has managed the building, which is expected to
require a substantial capital investment, the source of which is uncertain.
The major encumbrance on real properties owned directly by the Bank or
its subsidiaries is a deed of trust on the 600 South Olive Street building,
securing a note in favor of City National Bank on which the unpaid balance at
December 31, 1994, was $16,418,910.
The Bank's subsidiary, Citinational Bancorporation, also owns two
buildings located on Olympic Boulevard in downtown Los Angeles, approximately
80,000 square feet of which is subject to a lease between Citinational
Bancorporation and ALLTEL Financial Information Systems, Inc. (formerly
Systematics Financial Services, Inc.), that expires on December 31, 2000.
On March 2, 1995, the Bank entered into an agreement to purchase a
property, presently vacant, in Studio City, upon which management intends to
build a walk up-drive through banking facility. The purchase price of $525,000
is payable all in cash. This sale is expected to close in the first quarter of
1995.
Thirteen additional branch locations throughout Southern California are
leased by the Bank at annual rentals (exclusive of operating charges and real
property taxes) of approximately $4,700,000, with expiration dates ranging from
1994 to 2016, exclusive of renewal options.
ITEM 3. LEGAL PROCEEDINGS
The Corporation and its subsidiaries are defendants in various pending
lawsuits claiming substantial amounts. Based on present knowledge, management
and in-house counsel are of the opinion that the final outcome of such lawsuits
will not have a material adverse effect upon the financial position or the
future results of its operations.
The Company is not aware of any material proceedings to which any
director, officer or affiliate of the Company, any owner of record or
beneficially of more than 5% of the voting
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securities of the Company, or any associate of any such director, officer or
security holder is a party adverse to the Company or any of its subsidiaries or
has a material interest adverse to the Company or any of its subsidiaries.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There was no submission of matters to a vote of security holders during
the fourth quarter of the year ended December 31, 1994.
EXECUTIVE OFFICERS OF THE REGISTRANT
Shown below are names and ages of all executive officers of the
Corporation and officers of the Bank who may be deemed to be executive officers
of the Corporation, with indication of all positions and offices with the
Corporation and the Bank. There was no family relationship among the executive
officers.
Capacities in which served:
Present principal occupation and principal
Name Age occupation during the past five years
--------------------- --- ------------------------------------------
Bram Goldsmith 72 Chairman of the Board and Chief Executive Officer, City
National Bank and City National Corporation
George H. Benter, Jr. 53 President and Chief Operating Officer, City National
Bank, since May, 1992; President, City National
Corporation, since February 1993; Vice Chairman and Chief
Credit Officer (1991 to 1992), Vice Chairman (prior to
1991), Security Pacific National Bank
Steven D. Broidy 57 Vice Chairman and Chief Administrative Officer, City
National Bank, since May 1992; Vice Chairman, City
National Corporation, since February 1993; Partner, Loeb
and Loeb, October 1988 to 1992
Frank P. Pekny 51 Executive Vice President and Chief Financial Officer,
City National Bank, since October 1992; Executive Vice
President and Treasurer/Chief Financial Officer, City
National Corporation, since December 1992; Executive Vice
President, BankAmerica Corporation, April 1992 to
September 1992; Executive Vice President, Security
Pacific Corporation, October 1990 to April 1992; Vice
Chairman and Chief Financial Officer, Security Pacific
National Bank, October 1988 to April 1992
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Capacities in which served:
Present principal occupation and principal
Name Age occupation during the past five years
--------------------- --- ------------------------------------------
Robert A. Moore 52 Executive Vice President and Manager, Credit Services,
City National Bank, since April 1992; Senior Vice
President and Chief Credit Officer, Corporate Banking
Group, Security Pacific National Bank, 1991 to April 1992;
Senior Vice President, Wells Fargo Bank, 1988 to 1991
Jeffery L. 39 Executive Vice President and Senior Risk Management Officer,
Puchalski Risk Management, City National Bank from November 1991;
Principal, The Secura Group, national bank and thrift
consulting firm, from August 1988
Richard H. 51 Senior Vice President, Secretary and General Counsel, City
Sheehan, Jr. National Bank and City National Corporation since April 1994;
Senior Vice President and Assistant General Counsel, Bank of
America, NT & SA, April 1992 to April 1994; Senior Vice
President and Assistant General Counsel, Security Pacific
National Bank, June 1987 to April 1992
Heng W. Chen 42 Senior Vice President, Finance, City National Bank from
August 1988; Assistant Treasurer, City National
Corporation from April 1991
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The information regarding the market for the Corporation's Common Stock
and related stockholder matters appearing under the caption "Market Data on
Shares of Common Stock" on page 63 of the Corporation's Annual Report to
Shareholders for the year ended December 31, 1994, is incorporated by reference
in this Annual Report on Form 10-K. Information regarding restrictions on the
Corporation's payment of dividends appearing under "Capital" and Note 12 to the
consolidated financial statements of the Company and its subsidiaries, appearing
on pages 29 and 55 and 56 respectively of the Corporation's Annual Report to
Shareholders for the year ended December 31, 1994, are hereby incorporated by
reference.
-14-
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data for the five years ended December 31, 1994,
appearing under "Selected Financial Information" on pages 16 and 17 of the
Corporation's Annual Report to Shareholders for the year ended December 31,
1994, is incorporated by reference in this Annual Report on Form 10-K.
The Corporation's dividend payout ratio for 1994 and 1990 was 6.2% and
47.4%, respectively. Due to the Corporation's loss in 1991, the dividend payout
ratio for 1991 is not meaningful. The Corporation did not pay any dividends in
1993 or 1992.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information required by this item appearing on pages 18 through 39 of
the Corporation's Annual Report to Shareholders for the year ended December 31,
1994, is incorporated by reference in this Annual Report on Form 10-K.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements of the Corporation and its
subsidiaries and the notes thereto, and the condensed financial statements of
the registrant (the Corporation), together with the report thereon of KPMG Peat
Marwick LLP dated January 17, 1995, appearing on pages 41 through 59, and the
supplementary data under "1994 Quarterly Operating Results" and "1993 Quarterly
Operating Results" on page 40 of the Corporation's Annual Report to Shareholders
for the year ended December 31, 1994, together with the report of Price
Waterhouse dated January 13, 1993, are incorporated by reference in this Annual
Report on Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
To the extent not provided above, the information required by this item
appearing under the captions "Election of Directors" and "Section 16(a)
Reporting Delinquencies" on pages 3 through 5 and page 18 of the Registrant's
Notice of Annual Meeting and Proxy Statement dated
-15-
March 17, 1995, is incorporated by reference in this Form 10-K Annual Report.
See "Executive Officers of the Registrant," above.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item regarding executive compensation
appearing under the caption "Compensation of Directors and Executive Officers"
on pages 6 through 14 of the Registrant's Notice of Annual Meeting and Proxy
Statement dated March 17, 1995, is incorporated by reference in this Form 10-K
Annual Report.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item appearing under the captions
"Record Date and Number of Shares Outstanding; Security Ownership of Certain
Beneficial Owners" and "Security Ownership of Management" on page 2 and pages 15
and 16 of the Registrant's Notice of Annual Meeting and Proxy Statement dated
March 17, 1995, is incorporated by reference in this Form 10-K Annual Report.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item appearing under the captions
"Compensation Committee Interlocks and Insider Participation" and "Certain
Transactions with Management and Others" on page 9, 10 and 17 of the
Registrant's Notice of Annual Meeting and Proxy Statement dated March 17, 1995,
is incorporated by reference in this Form 10-K Annual Report.
-16-
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
Page in
Annual Report*
--------------
1. Financial Statements:
Report of Independent Auditors........................ 41
Consolidated Balance Sheet
at December 31, 1994 and 1993........................ 42
Consolidated Statement of Operations for each of the
three years in the period ended December 31, 1994.... 43
Consolidated Statement of Cash Flows for each of the
three years in the period ended December 31, 1994.... 44
Consolidated Statement of Changes in Shareholders'
Equity for each of the three years in the period
ended December 31, 1994.............................. 45
Footnotes............................................. 46-59
Condensed Balance Sheet (Parent Company) at
December 31, 1994 and 1993........................... 58
Condensed Statement of Operations (Parent Company)
for each of the three years in the period ended
December 31, 1994.................................... 58
Condensed Statement of Cash Flows (Parent Company)
for each of the three years in the period ended
December 31, 1994.................................... 59
*Incorporated by reference from the indicated pages
of the 1994 Annual Report to Shareholders.
2. All other schedules and separate financial statements
of 50% or less owned companies accounted for by the
equity method have been omitted because they are not
applicable.
-17-
3. Exhibits (listed by numbers corresponding to Exhibit Table of Item 601 in
Regulation S-K)
No.
--
3.1 Certificate of Incorporation (This Exhibit is incorporated by
reference to the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1990.)
3.2 By-Laws, as amended to date
10.1 Data Processing Agreement by and between Systematics, Inc. and City
National Bank dated January 1, 1991, as amended (This Exhibit is
incorporated by reference to the Company's Annual Report on Form 10-
K for the year ended December 31, 1991.)
10.2 Employment Agreement made as of January 31, 1990, by and between
Bram Goldsmith and City National Bank (This Exhibit is incorporated
by reference to the Company's Annual Report on Form 10-K for the
year ended December 31, 1991.)
10.2.1 Description of amendments of Bram Goldsmith employment agreement
effective September 1, 1992 (This exhibit is incorporated by
reference to the Company's Annual Report on Form 10-K for the year
ended December 31, 1992.)
10.3 Split Dollar Life Insurance Agreement Collateral Assignment Plan
between City National Bank and the Goldsmith 1980 Insurance Trust,
dated as of June 13, 1980, as amended to date (This Exhibit is
incorporated by reference to the Company's Annual Report on Form 10-
K for the year ended December 31, 1991.)
10.4 Description of amendments to Bram Goldsmith employment agreement
(This Exhibit is incorporated by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1991.)
10.6 Lease dated January 11, 1991, between Citinational-Buckeye Building
Co. and City National Bank for rental of space on the 20th floor
until December 31, 1996, as amended (This Exhibit is incorporated by
reference to the Company's Annual Report on Form 10-K for the year
ended December 31, 1991.)
10.7 Lease dated September 30, 1991, between Citinational-Buckeye
Building Co. and City National Bank for rental of space on the 9th
floor until December 31, 1996 (This Exhibit is incorporated by
reference to the Company's Annual Report on Form 10-K for the year
ended December 31, 1991.)
-18-
No.
--
10.10 City National Corporation 1985 Stock Option Plan, as amended to date
(This Exhibit is incorporated by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1991.)
10.11 Agreement By and Between City National Bank Beverly Hills,
California and the Comptroller of the Currency, dated November 18,
1992 (This Exhibit is incorporated by reference to the Registrant's
Current Report on Form 8-K dated November 18, 1992.)
10.11.1 Termination of the Formal Agreement, Office of the Comptroller of
the Currency, dated January 21, 1994 (This Exhibit is incorporated
by reference to the Company's Annual Report on Form 10-K for the
year ended December 31, 1993.)
10.12 Memorandum of Understanding by and between City National Corporation
and the Federal Reserve Bank of San Francisco, dated February 24,
1993 (This Exhibit is incorporated by reference to the Company's
Annual Report on Form 10-K for the year ended December 31, 1992.)
10.12.1 Letter from The Federal Reserve Bank of San Francisco to City
National Bank dated February 23, 1994 (This Exhibit is incorporated
by reference to the Company's Annual Report on Form 10-K for the
year ended December 31, 1993.)
10.13 Asset Purchase Agreement by and between Systematics Financial
Services, Inc. and City National Bank, dated December 17, 1992 (This
Exhibit is incorporated by reference to the Company's Annual Report
in Form 10-K for the year ended December 31, 1992.)
10.18 Asset Sale Agreement (Pool 1) by and between City National Bank as
Seller and WHC-THREE Investors, L.P., as Purchaser, dated November
1, 1993 (This Exhibit is incorporated by reference to the Company's
Annual Report on Form 10-K for the year ended December 31, 1993.)
10.19 Asset Sale Agreement (Pools 2 Through 6) by and between City
National Bank as Seller and WHC-THREE Investors, L.P., as Purchaser,
dated November 1, 1993 (This Exhibit is incorporated by reference to
the Company's Annual Report on Form 10-K for the year ended December
31, 1993.)
-19-
No.
--
13 Pages 16 through 59 and page 63 of Annual Report to Security Holders
for the year ended December 31, 1994.
13.1 Report of Price Waterhouse, dated January 13, 1993.
16 Letter from Price Waterhouse (This Exhibit is incorporated by
reference to the Company's Current Report on Form 8-K/A, dated
August 25, 1993.)
21 Subsidiaries of the registrant
23.1 Consent of KMPG Peat Marwick LLP
23.2 Consent of Price Waterhouse LLP
27 Financial Data Schedule
(b) During the calendar quarter ended December 31, 1994, the registrant did not
file any current reports on Form 8-K.
-20-
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.
City National Corporation
-------------------------
(Registrant)
March 22, 1995 By /s/ Bram Goldsmith
-------------------
Bram Goldsmith, Chairman
of the Board 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 and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Bram Goldsmith Chairman of the Board, Chief March 22, 1995
---------------------------- Executive Officer and Director
Bram Goldsmith
(Principal Executive Officer)
/s/ Frank P. Pekny Executive Vice President and March 22, 1995
---------------------------- Treasurer/Chief Financial Officer
Frank P. Pekny
(Principal Financial Officer)
/s/ Heng W. Chen Assistant Treasurer March 22, 1995
----------------------------
Heng W. Chen
(Principal Accounting Officer)
/s/ George H. Benter, Jr. President and Director March 22, 1995
----------------------------
George H. Benter, Jr.
/s/ Steven D. Broidy Vice Chairman and Director March 22, 1995
----------------------------
Steven D. Broidy
-21-
/s/ Richard L. Bloch Director March 29, 1995
---------------------------------
Richard L. Bloch
/s/ Mirion P. Bowers, M.D. Director March 22, 1995
---------------------------------
Mirion P. Bowers, M.D.
/s/ Stuart D. Buchalter Director March 22, 1995
---------------------------------
Stuart D. Buchalter
/s/ Russell D. Goldsmith Director March 22, 1995
---------------------------------
Russell D. Goldsmith
/s/ Burton S. Horwitch Director March 22, 1995
---------------------------------
Burton S. Horwitch
/s/ Charles E. Rickershauser, Jr. Director March 22, 1995
---------------------------------
Charles E. Rickershauser, Jr.
/s/ Edward Sanders Director March 22, 1995
---------------------------------
Edward Sanders
/s/ Andrea L. Van De Kamp Director March 22, 1995
---------------------------------
Andrea L. Van De Kamp
/s/ Kenneth Ziffren Director March 22, 1995
---------------------------------
Kenneth Ziffren
-22-
INDEX TO EXHIBITS
Exhibit No. Exhibit Page No.
----------- ------- --------
3.2 By-Laws, as amended to date......................................... 26
13 Pages 16 through 59 and page 63 of Annual Report to Security Holders
for the year ended December 31, 1993................................ 38
13.1 Report of Price Waterhouse, dated January 13, 1993.................. 40
21 Subsidiaries of the registrant...................................... 42
23.1 Consent of KMPG Peat Marwick LLP.................................... 44
23.2 Consent of Price Waterhouse LLP..................................... 46