SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter ended September 30, 1995 Commission File Number 1-10521
CITY NATIONAL CORPORATION
-------------------------
(Exact name of registrant as specified in its charter)
Delaware 95-2568550
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
400 North Roxbury Drive, Beverly Hills, California 90210
---------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (310) 888-6000
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
----------- -----------
Number of shares of common stock outstanding at October 31, 1995:
45,538,422
CITY NATIONAL CORPORATION
Consolidated Balance Sheet
(Unaudited)
ASSETS
September 30, December 31, September 30,
1995 1994 1994
------------- ------------ -------------
(Dollars in thousands)
Cash and due from banks ........................................................ $ 251,910 $ 298,715 $ 227,630
Interest-bearing deposits in other banks ....................................... 688 674 673
Federal funds sold and securities purchased under resale agreements ............ 168,500 296,966 183,000
Investment securities (market values $514,970, $625,425 and $700,073 at
September 30, 1995, December 31, 1994 and September 30, 1994, respectively) .. 518,960 659,013 726,374
Securities available for sale (cost $209,283, $96,124 and $197,596 at September
30, 1995, December 31, 1994 and September 30, 1994, respectively) ............ 209,941 90,422 192,164
Trading account securities ..................................................... 28,978 25,531 41,781
Loans .......................................................................... 1,900,793 1,643,918 1,541,579
Less allowance for credit losses ............................................... 111,503 105,343 112,308
---------- ---------- ----------
Net loans .................................................................. 1,789,290 1,538,575 1,429,271
Leveraged leases ............................................................... 8,228 9,856 9,756
Premises and equipment, net .................................................... 21,384 19,231 18,282
Customers' acceptance liability ................................................ 2,878 5,104 6,177
Other real estate .............................................................. 4,179 4,726 5,033
Deferred tax asset ............................................................. 28,852 28,250 26,300
Other assets ................................................................... 33,852 35,712 31,410
---------- ---------- ----------
Total assets ............................................................... $3,067,640 $3,012,775 $2,897,851
========== ========== ==========
LIABILITIES
Demand deposits ................................................................ $ 929,827 $1,151,709 $ 948,374
Interest checking deposits ..................................................... 262,115 305,659 279,267
Money market accounts .......................................................... 560,232 669,940 704,466
Savings deposits ............................................................... 78,186 88,027 87,623
Time deposits -- under $100,000 ................................................ 82,862 77,657 82,764
Time deposits -- $100,000 and over ............................................. 158,305 124,770 137,453
---------- ---------- ----------
Total deposits ............................................................. 2,071,527 2,417,762 2,239,947
Federal funds purchased and securities sold under repurchase agreements ........ 428,555 182,120 250,969
Other short-term borrowings .................................................... 147,494 50,000 46,002
Long-term debt ................................................................. 25,000 - -
Other liabilities .............................................................. 29,267 27,068 32,130
Acceptances outstanding ........................................................ 2,878 5,104 6,177
---------- ---------- ----------
Total liabilities .......................................................... 2,704,721 2,682,054 2,575,225
---------- ---------- ----------
Commitments and contingencies
SHAREHOLDERS' EQUITY
Preferred Stock authorized -- 5,000,000, none outstanding ...................... - - -
Common stock -- par value -- $1.00; authorized -- 75,000,000 Outstanding --
45,529,099, 45,192,678 and 45,127,214 at September 30, 1995, December 31,
1994 and September 30, 1994, respectively .................................... 45,529 45,193 45,127
Surplus ........................................................................ 266,560 263,611 263,151
Unrealized gain (loss) on securities available for sale ........................ 410 (3,564) (3,529)
Retained earnings .............................................................. 52,337 25,481 17,877
Treasury shares, at cost -- 169,500 at September 30, 1995 ...................... (1,917) - -
---------- ---------- ----------
Total shareholders' equity ................................................. 362,919 330,721 322,626
---------- ---------- ----------
Total liabilities and shareholders' equity ................................. $3,067,640 $3,012,775 $2,897,851
========== ========== ==========
See accompanying Notes to the Unaudited Consolidated Financial Statements
-2-
City National Corporation
Consolidated Statement of Operations
(Unaudited)
For the three months For the nine months
ended September 30, ended September 30,
-------------------- --------------------
1995 1994 1995 1994
-------- --------- --------- ---------
(Dollars in thousands)
Interest income:
Interest and fees on loans ................... $43,254 $32,988 $122,213 $94,143
Interest on federal funds sold and securities
purchased under resale agreements .......... 1,594 1,841 4,471 5,194
Interest on investment securities:
U.S. Treasury and federal agency securities. 6,632 7,869 21,230 24,856
Municipal securities ....................... 235 240 801 587
Other securities ........................... 472 443 1,510 1,131
Interest on securities available for sale..... 2,544 3,266 5,910 5,913
Interest on trading account securities........ 482 394 1,466 823
-------- -------- -------- --------
Total ...................................... 55,213 47,041 157,601 132,647
-------- -------- -------- --------
Interest expense:
Interest on deposits ......................... 8,293 7,377 23,224 21,774
Interest on federal funds purchased and
securities sold under repurchase agreements. 4,667 2,248 11,830 5,754
Interest on other short-term borrowings ...... 1,692 268 2,793 557
Interest on long-term debt ................... 422 - 650 -
-------- -------- -------- --------
Total ...................................... 15,074 9,893 38,497 28,085
-------- -------- -------- --------
Net interest income .......................... 40,139 37,148 119,104 104,562
Provision for credit losses .................. - - - 6,000
-------- -------- -------- --------
Net interest income after provision for
credit losses............................... 40,139 37,148 119,104 98,562
-------- -------- -------- --------
Noninterest income:
Service charges on deposit accounts .......... 2,078 2,186 5,819 7,352
Trust fees ................................... 1,682 1,677 4,925 5,195
Investment services income .................. 2,344 1,919 6,397 5,128
Gain on sale of leverage leases .............. - - - 1,331
Gain (loss) on sales of securities .......... (137) (647) 498 (647)
All other income ............................. 3,233 3,003 8,938 8,974
-------- -------- -------- --------
Total noninterest income.................... 9,200 8,138 26,577 27,333
-------- -------- -------- --------
Noninterest expense:
Salaries and other employee benefits ......... 15,915 16,124 48,974 48,580
Net occupancy of premises .................... 1,911 2,386 5,885 7,769
Data processing .............................. 1,998 1,672 5,512 5,250
Professional ................................. 1,989 2,184 6,417 5,579
FDIC insurance ............................... (165) 1,387 2,300 4,387
Office supplies .............................. 850 1,140 2,961 3,481
Depreciation ................................. 1,060 1,031 3,067 3,124
Promotion .................................... 1,088 649 3,391 2,195
Equipment .................................... 714 724 1,632 1,845
Other operating .............................. 2,698 2,620 7,758 7,742
Other real estate expense (income)............ (195) (203) 16 (5,503)
-------- -------- -------- --------
Total noninterest expense................... 27,863 29,714 87,913 84,449
-------- -------- -------- --------
Income before taxes............................. 21,476 15,572 57,768 41,446
Income taxes .................................. 8,193 5,160 22,307 14,145
-------- -------- -------- --------
Net income ..................................... $13,283 $10,412 $35,461 $27,301
======== ======== ======== ========
Net Income per share ........................... $0.29 $0.23 $0.77 $0.60
======== ======== ======== ========
Shares used to compute net income per share .... 46,138 45,726 45,927 45,608
======== ======== ======== ========
See accompanying Notes to the Unaudited Consolidated Financial Statements
-3-
City National Corporation
Consolidated Statement of Cash Flows
(Unaudited)
For the nine months
ended September 30,
--------------------
1995 1994
--------------------
(Dollars in thousands)
Operating Activities
Net income ................................ $ 35,461 $ 27,301
Adjustment to net income:
Provision for credit losses............... - 6,000
Gain on sales of ORE and Disposition
Program assets........................... (244) (5,361)
(Gain) loss on sale of leveraged leases... - (1,331)
(Gain) loss on sales of securities........ (498) 647
Depreciation.............................. 3,067 3,124
Net (increase) decrease in trading
securities............................... (3,447) (2,016)
Net (increase) decrease in deferred tax
benefits................................. (3,408) (8,250)
Income tax refund ........................ 4,500 24,955
Other, net................................ 14,505 25,608
--------- ---------
Net cash provided by (used in) operating
activities............................. 49,936 70,677
--------- ---------
Investing Activities
Net (increase) decrease in short-term
investments................................ (14) (24)
Purchase of securities available for sale... (139,500) (253,836)
Sales and maturities of securities available
for sale................................... 26,272 53,904
Maturities of investment securities......... 161,850 484,556
Purchase of investment securities........... (23,088) (305,205)
Purchase of residential mortgage loans...... (145,650) (122,257)
Other loan originations and principal
collections, net........................... (121,828) 173,842
Proceeds from sales of ORE and Disposition
Program assets............................. 1,992 7,861
Proceeds from sale of leveraged leases...... 329 5,141
Other, net.................................. (5,000) 6,524
--------- ---------
Net cash provided by investing activities. (244,637) 50,506
--------- ---------
Financing Activities
Net increase (decrease) in federal funds
purchased and securities sold under
repurchase agreements...................... 246,435 48,510
Net decrease in deposits.................... (346,235) (286,820)
Net increase in short term borrowings....... 97,493 31,002
Proceeds from long term debt................ 25,000 -
Proceeds from issuance of stock............. 2,897 685
Purchase of treasury shares................. (1,917) -
Cash dividends paid......................... (8,605) -
Other, net.................................. 4,362 (3,434)
--------- ---------
Net cash provided by (used in) financing
activities............................... 19,430 (210,057)
--------- ---------
Net increase (decrease) in cash and cash
equivalents................................ (175,271) (88,874)
Cash and cash equivalents at beginning of
year....................................... 595,681 499,504
--------- ---------
Cash and cash equivalents at end of year.... $ 420,410 $ 410,630
========= =========
Supplemental disclosures of cash flow
information:
Cash paid (received) during the period
for:
Interest ............................... 37,348 28,131
Income taxes............................ 21,748 (6,986)
Non cash investing activities:
Transfer from loans to ORE ............. 1,332 3,784
See accompanying Notes to the Unaudited Consolidated Financial Statements
-4-
CITY NATIONAL CORPORATION
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(Unaudited)
For the nine months ended
September 30,
-------------------------
1995 1994
-------- --------
(Dollars in thousands)
Common Stock
Balance, beginning of period .......... $ 45,193 $ 45,027
Stock options exercised ................ 336 100
-------- --------
Balance, end of period ................. 45,529 45,127
-------- --------
Surplus
Balance, beginning of period .......... 263,611 262,471
Stock options exercised ................ 2,560 585
Tax benefit from stock options ......... 389 95
-------- --------
Balance, end of period ................. 266,560 263,151
-------- --------
Treasury shares
Balance, beginning of period ........... - -
Purchase of shares ..................... (1,917) -
-------- --------
Balance, end of period ................. (1,917) -
-------- --------
Unrealized net gains (losses) on securities
available for sale
Balance, beginning of period .......... (3,564) -
Change during period ................... 3,974 (3,529)
-------- --------
Balance, end of period ................. 410 (3,529)
-------- --------
Retained earnings (Deficit)
Balance, beginning of period ........... 25,481 (9,424)
Net income ............................. 35,461 27,301
Dividends paid ......................... (8,605) -
-------- --------
Balance, end of period ................. 52,337 17,877
-------- --------
Total shareholders' equity ............... $362,919 $322,626
======== ========
See accompanying Notes to the Unaudited Consolidated Financial Statements
-5-
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
OF THE REGISTRANT
1. The results of operations reflect the interim adjustments, all of which are
of a normal recurring nature and which, in the opinion of management, are
necessary for a fair presentation of the results for such interim periods.
These unaudited consolidated financial statements should be read in
conjunction with the audited consolidated financial statements included in
the Company's Annual Report on Form 10-K for the year ended December 31,
1994.
2. Securities held for investment are classified as investment securities.
Because the Company has the ability and management has the intent to hold
investment securities until maturity, investment securities are stated at
cost, adjusted for amortization of premiums and accretion of discounts.
Trading account securities are stated at market value. Investments not
classified as trading securities nor as investment securities are classified
as securities available for sale and recorded at fair value. Unrealized
gains or losses on securities available for sale are excluded from earnings
and reported as a net amount after taxes, in a separate component of
shareholders' equity, until realized.
3. For purposes of reporting cash flows, cash and cash equivalents include cash
on hand, amounts due from banks, federal funds sold and securities purchased
under resale agreements, and do not include items with original maturities
of over 90 days.
4. The Company adopted Statements of Financial Accounting Standards No. 114
"Accounting by Creditors for Impairment of a Loan" and No. 118 "Accounting
by Creditors for Impairment of a Loan - Income Recognition and Disclosures"
on January 1, 1995. The impact of the adoption was immaterial to the results
of operations and financial condition of the Company. Certain loans
previously recorded as in-substance foreclosures have been restated as
nonaccrual loans. At September 30, 1995 the Company had identified impaired
loans with a recorded investment amount of $26.2 million. An allowance of
$397 thousand, representing the difference between the value of the
collateral supporting the loans and their outstanding balance, was included
in the allowance for credit losses. The Company's policy is to record cash
receipts received on impaired loans first as reductions to principal and
then to interest income.
-6-
5. During the third quarter of 1995 the Bank announced an agreement to acquire,
for $85 million in cash, First Los Angeles Bank, a 10 branch bank
headquartered in Century City with total assets of $848 million at September
30, 1995. On November 2, 1995 the Bank received conditional approval for the
acquisition from its primary regulator, the Office of the Comptroller of the
Currency. The Company has filed with the Federal Reserve Board a request for
waiver of the Board's approval of the transaction under the Bank Holding
Company Act, but has not yet received a response. The acquisition is
expected to close at the end of 1995 or shortly thereafter. At the closing
of the acquisition, First Los Angeles Bank will be merged into City National
Bank.
-7-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
City National Corporation (the Corporation) is the holding company for City
National Bank (the Bank). Because the Bank constitutes substantially all of the
business of the Corporation, references to the Company in this Item 2 reflect
the consolidated activities of the Corporation and the Bank.
RESULTS OF OPERATIONS
The Company recorded consolidated net income of $13.3 million, or $.29 per
share, in the third quarter of 1995, compared with net income of $10.4 million,
or $.23 per share, in the third quarter of 1994. The change between third
quarters resulted from an increase in net interest income in the third quarter
of 1995 of $3.0 million and a decrease in noninterest expense, excluding the
results of ORE activity, of $1.9 million offset by an increased tax provision.
Net income for the first nine months of 1995 totaled $35.5 million, or $.77
per share compared with $27.3 million, or $.60 per share in the 1994 period. The
nine month increase resulted largely from a $14.5 million increase in net
interest income and a $6.0 million decrease in the provision for credit losses,
offset by an increase in income taxes of $8.2 million. Gains on sales of
leveraged leases and ORE of $6.8 million in 1994 were not repeated in 1995 and
also impacted the change between periods.
Returns on average assets for the third quarter and first nine months of
1995 were 1.83% and 1.71%, respectively, compared with 1.47% and 1.29% in 1994.
Returns on average equity for the third quarter and first nine months of 1995
were 14.80% and 13.70%, respectively, compared with 13.04% and 11.80% in 1994.
Taxable equivalent net interest income was $40.6 million in the third
quarter of 1995, up 8.4% from the year-ago quarter. The increase resulted
primarily from the growth in earning assets between quarters. The third quarter
net interest margin increased from 5.76% in 1994 to 6.05% in 1995. Due to the
Company's asset sensitive position during the period between September 30, 1994
and September 30,1995 the net interest margin was positively impacted by
generally higher interest rates during this period. Earning assets in the 1995
third quarter
-8-
increased over the previous year quarter due to loan growth primarily from
originations and bulk purchases of residential first mortgages and the Company's
reemphasis on lending to the construction industry. Management does not expect
significant increases in quarterly net interest income for the remainder of 1995
because of the .25% decrease in the prime rate on July 7, 1995 and an expected
slow down in residential mortgage originations due to traditionally lower demand
during the autumn and winter months. Additionally, the Company's cost of funds
is expected to remain above previous year levels as core deposits are replaced
with higher cost alternative funds such as federal funds purchased, securities
sold under agreement to repurchase and advances from the Federal Home Loan Bank.
Average loans increased $342.5 million (23.3%) between the third quarters
of 1995 and 1994 to $1.8 billion primarily due to purchases and originations of
residential first mortgage loans which averaged $385.3 million higher in the
third quarter of 1995 compared with the 1994 period. Increases of $32.0 million
and $39.0 million in the average balance of outstanding commercial and
construction loans, respectively, were more than offset by a decrease of $109.9
million in commercial real estate average loan balances. Total average
investment and available for sale securities decreased $211.7 million (23.2%)
between third quarters because maturities of securities were used to fund loan
growth and meet general corporate liquidity needs. Total average deposits
decreased $197.1 million (8.9%) between third quarters. A significant portion of
this decrease is a result of the flow of funds from the Bank's customers'
deposit accounts into short term mutual fund products managed by the City
National Investment Division of the Bank. At September 30, 1995 these balances
totaled $170 million.
For the first nine months of 1995 average loans increased $187.9 million
(12.4%) while average investment and available for sale securities of $711.1
million in 1995 decreased $155.9 million (18.0%) from $867.0 million in 1994.
The decrease in securities was the result of maturities and selected sales of
securities from the available-for-sale portfolio to provide funding for the loan
growth during the period. Total average deposits for the nine months ended
September 30, 1995 decreased $215.9 million (9.6%) compared with the 1994
period. The changes in the nine month average balances resulted from the same
factors that caused the changes between the third quarter average balances. As
the result of the decrease in deposits, a greater percentage of the Company's
funding came from other borrowings of federal funds, securities
-9-
sold under repurchase agreements and borrowings from the Federal Home Loan Bank,
including $25 million of long term debt.
The provision for credit losses was zero for the third quarter and first
nine months of 1995, compared with zero and $6.0 million, respectively, for the
corresponding periods in 1994. Loans charged off in the third quarter of 1995
were $2.1 million, compared to $4.5 million in the third quarter of 1994.
Recoveries were $4.5 million in the third quarter of 1995, compared to $11.4
million in the third quarter of 1994. The resulting net recoveries of $2.4
million and $6.9 million in the third quarters of 1995 and 1994, respectively,
manifest the Company's dedication to aggressive credit quality controls
including collection of previously charged off loans. Given the current balance
of the allowance for credit losses and management's expectation of continued
improvement in credit quality in 1995, the provision for credit losses in the
fourth quarter of 1995 is expected to remain low unless a significant
deterioration of economic conditions occurs before the end of the year.
Non-interest income excluding gains and losses on the sale of securities
and assets totaled $9.3 million for the third quarter of 1995, up $.5 million
(6.3%) from a year earlier. For the nine months ended September 30, 1995,
noninterest income totaled $26.1 million, a decrease of $.5 million from last
year's total of $26.6 million. The third quarter 1995 increase was due primarily
to the increase in investment services income of $.4 million. The decrease for
the first nine months of the year was primarily due to the reduction in service
fee income on deposit accounts of $1.5 million offset by an increase in
investment services income of $1.3 million. Investment services income
increased due to higher fees, new investment products offered to customers and
growth in assets under management, including the previously mentioned increase
in mutual fund balances. Management does not expect significant changes in the
quarterly amounts of core non-interest income during the last quarter of 1995.
Excluding net ORE results, non-interest expense totaled $28.1 million in
the third quarter of 1995, a decrease of $1.8 million (6.2%) from the third
quarter of 1994. FDIC insurance expense in the third quarter of 1995 was $1.6
million lower than the previous year quarter. Approximately $1.3 million of the
decrease resulted from the reduction in the FDIC insurance assessment rate on
deposits. The lower rate was announced in September and was applied
retroactively to June of 1995. The remaining reduction in the expense is due to
lower deposit balances. Net occupancy of premises expenses decreased $.5
million (19.9%) from the third
-10-
quarter of 1994 due to the expiration of leases and relocation of functions into
previously vacated quarters. Salaries and other employee benefits decreased
$.2 million (1.3%) for the quarter ended September 30, 1995 from the third
quarter of 1994. Decreases in salary expense due to the branch consolidation
program and higher levels of compensation expense deferred as loan origination
costs, resulting from increased originations of residential first mortgages,
were partially offset by higher costs associated with performance incentives and
accruals for contributions to the profit sharing plan. Promotional expenses
increased $.4 million (67.6%) in the third quarter of 1995 compared with the
third quarter of 1994 as the Company expanded its marketing, sales and community
support efforts.
For the first nine months of 1995 noninterest expense, excluding net ORE
results, totaled $87.9 million compared with $90.0 million in the 1994 period.
Increases in professional, promotional and data processing expenses were more
than offset by significant decreases in FDIC insurance expense, net occupancy of
premises expense and telecommunications expense (which is classified as part of
office supplies).
Net ORE results in the third quarter of 1995 resulted in income of $.2
million, the same as the prior year period. For the first nine months of 1995
income and expense from ORE activity netted to zero compared with income of
$5.5 million in the 1994 period, which included $4.2 million due to the
completion of the Company's Accelerated Asset Disposition Program.
The third quarter 1995 effective tax rate increased to 38.1%, compared to
33.1% for the third quarter of 1994 as California net operating loss carry
forwards were fully utilized in 1994.
-11-
Net Interest Income Summary
The following table presents the components of net interest income for the
quarters ended September 30, 1995 and 1994.
9-30-95 9-30-94
---------------------------------- --------------------------------
Interest Average Interest Average
Average income/ interest Average income/ interest
Dollars in thousands- Balance expense (1) rate Balance expense (1) rate
- ------------------------------------------------------------------------------------------------------------------------
Assets (2)
Earning assets
Loans: (3)
Commercial loans $ 873,223 $ 22,080 10.03 % $ 841,237 $19,239 9.07 %
Real estate - construction 54,878 1,706 12.33 15,877 418 10.45
Real estate - mortgage 406,940 10,107 9.85 516,792 11,563 8.88
Residential first mortgages 444,638 8,762 7.82 59,376 829 5.54
Installment loans 35,022 921 10.43 38,887 1,077 10.99
---------- -------- ----- ---------- ------- -----
Total loans 1,814,701 43,576 9.53 1,472,169 33,126 8.93
---------- -------- ----- ---------- ------- -----
Due from banks-interest bearing 686 7 4.05 650 5 3.05
State and municipal investment securities 22,110 369 6.62 20,796 373 7.10
Taxable investment securities 519,722 7,097 5.42 683,165 8,307 4.82
Securities available for sale 159,137 2,544 6.34 208,676 3,266 6.21
Federal funds sold and securities
purchased under resale agreements 107,195 1,594 5.90 159,400 1,841 4.58
Trading account securities 37,908 488 5.11 34,264 424 4.91
---------- -------- ----- ---------- ------- -----
Total earning assets 2,661,459 55,675 8.30 2,579,120 47,342 7.28
---------- -------- ----- ---------- ------- -----
Allowance for credit losses (110,637) (111,600)
Cash and due from banks 231,598 250,208
Other nonearning assets 99,483 93,841
---------- ----------
Total assets $2,881,903 $2,811,569
========== ==========
Liabilities and Shareholders' Equity
Noninterest-bearing deposits $ 888,277 - - $ 900,495 - -
Interest-bearing deposits:
Interest checking accounts 257,192 643 0.99 277,888 676 0.97
Money market accounts 575,778 4,267 2.94 724,205 4,181 2.29
Savings deposits 77,235 383 1.97 92,111 456 1.96
Time deposits-under $100,000 82,261 1,034 4.99 85,656 792 3.67
Time deposits-$100,000 and over 145,492 1,966 5.36 142,972 1,272 3.53
---------- -------- ----- ---------- ------- -----
Total interest-bearing deposits 1,137,958 8,293 2.89 1,322,832 7,377 2.21
---------- -------- ----- ---------- ------- -----
Total deposits 2,026,235 2,223,327
Federal funds purchased and securities
sold under repurchase agreements 328,750 4,667 5.63 209,466 2,248 4.26
Other borrowings 135,305 2,114 6.20 25,954 268 4.10
---------- -------- ----- ---------- ------- -----
Total interest-bearing liabilities 1,602,013 15,074 3.73 1,558,252 9,893 2.52
---------- -------- ----- ---------- ------- -----
Other liabilities 35,538 36,072
Shareholders' equity 356,075 316,750
---------- ----------
Total liabilities and shareholders'
equity $2,881,903 $2,811,569
========== ==========
Net interest spread 4.57 4.76
===== =====
Fully taxable equivalent net interest $ 40,601 $37,449
======== =======
income and margin 6.05% 5.76%
===== =====
<FN>
(1) Fully taxable equivalent basis.
(2) Includes average nonaccrual loans of $38,492 and $57,379 for 1995 and 1994, respectively.
(3) Loan income includes loan fees of $1,877 and $2,181 for 1995 and 1994, respectively.
</FN>
-12-
Net Interest Income Summary
The following table presents the components of net interest income for the nine
months ended September 30, 1995 and 1994.
9-30-95 9-30-94
------------------------------ -----------------------------
Interest Average Interest Average
Average income/ interest Average income/ interest
Dollars in thousands- Balance expense(1) rate Balance expense(1) rate
- --------------------------------------------------------------------------------------------------------------------
A s s e t s (2)
Earning assets
Loans: (3)
Commercial loans $ 857,464 $ 64,359 9.99% $ 868,444 $ 54,767 8.43%
Real estate - construction 46,147 4,338 12.57 14,589 974 8.93
Real estate - mortgage 434,042 32,623 10.05 559,598 34,394 8.22
Residential first mortgages 328,094 19,139 7.80 29,765 1,380 6.20
Installment loans 35,456 2,638 9.95 40,874 3,001 9.82
---------- -------- ----- ---------- -------- ----
Total loans 1,701,203 123,097 9.64 1,513,270 94,516 8.35
---------- -------- ----- ---------- -------- ----
Due from banks-interest bearing 687 15 2.92 602 13 2.89
State and municipal investment securities 24,074 1,250 6.94 16,098 912 7.57
Taxable investment securities 570,947 22,725 5.32 713,392 25,974 4.87
Securities available for sale 116,072 5,910 6.81 137,534 5,913 5.75
Federal funds sold and securities
purchased under resale agreements 97,536 4,471 6.13 179,628 5,194 3.87
Trading account securities 35,382 1,557 5.88 27,235 889 4.36
---------- -------- ----- ---------- -------- ----
Total earning assets 2,545,901 159,025 8.33 2,587,759 133,411 6.89
---------- -------- ----- ---------- -------- ----
Allowance for credit losses (109,299) (112,553)
Cash and due from banks 235,419 248,819
Other nonearning assets 96,776 110,466
---------- ----------
Total assets $2,768,797 $2,834,491
========== ==========
L i a b i l i t i e s a n d S h a r e h o l d e r s' E q u i t y
Noninterest - bearing deposits $ 879,185 - - $ 899,293 - -
Interest-bearing deposits:
Interest checking accounts 267,558 1,951 0.97 285,583 2,060 0.96
Money market accounts 600,445 12,578 2.80 729,999 12,172 2.23
Savings deposits 80,698 1,188 1.97 97,465 1,430 1.96
Time deposits - under $100,000 78,088 2,682 4.59 90,552 2,450 3.62
Time deposits - $100,000 and
over 130,801 4,825 4.93 149,837 3,662 3.27
---------- -------- ----- ---------- -------- ----
Total interest - bearing
deposits 1,157,590 23,224 2.68 1,353,436 21,774 2.15
---------- -------- ----- ---------- -------- ----
Total deposits 2,036,775 2,252,729
Federal funds purchased and
securities sold under
repurchase agreements 276,342 11,830 5.72 210,141 5,754 3.66
Other borrowings 75,142 3,443 6.13 19,583 557 3.80
---------- -------- ----- ---------- -------- ----
Total interest - bearing
liabilities 1,509,074 38,497 3.41 1,583,160 28,085 2.37
---------- -------- ----- ---------- -------- ----
Other liabilities 34,463 42,771
Shareholders' equity 346,075 309,267
---------- ----------
Total liabilities and
shareholders' equity $2,768,797 $2,834,491
========== ==========
Net interest spread 4.92 4.52
===== ====
Fully taxable equivalent net
interest income $120,528 $105,326
======== ========
and margin 6.31% 5.44%
===== ====
(1) Fully taxable equivalent basis.
(2) Includes average nonaccrual loans of $50,472 and $64,203 for 1995 and
1994, respectively.
(3) Loan income includes loan fees of $5,235 and $5,085 for 1995 and 1994,
respectively.
-13-
The following tables set forth, for the periods indicated, the changes in
interest earned and interest paid resulting from changes in volume and changes
in rates. Average balances in all categories in each reported period were used
in the volume computations. Average yields and rates in each reported period
were used in rate computations.
Quarter Ended September 30, Quarter Ended September 30,
1995 vs 1994 1994 vs 1993
--------------------------------------- -----------------------------------------
Increase Increase
Dollars in thousands - (decrease) (decrease)
Fully taxable due to (1): Net due to (1): Net
equivalent basis -------------------------- increase -------------------------- increase
Volume Rate (decrease) Volume Rate (decrease)
------------ --------- ---------- ------------ --------- ----------
Interest earned on:
Interest-bearing deposits
in other banks $ 1 $ 1 $ 2 $ 2 $ (1) $ 1
Loans 8,109 2,341 10,450 (3,209) 5,653 2,444
Taxable investment securities (2,155) 945 (1,210) 2,003 (397) 1,606
Non-taxable investment securities 23 (27) (4) 281 48 329
Securities available for sale (789) 67 (722) 3,112 (172) 2,940
Trading account securities 46 18 64 70 140 210
Federal funds sold and
securities purchased
under resale agreements (695) 448 (247) (2,091) 1,040 (1,051)
------- ------- ------- ------- ------- -------
Total interest-earning
assets 4,540 3,793 8,333 168 6,311 6,479
------- ------- ------- ------- ------- -------
Interest paid on:
Interest checking (48) 15 (33) 1 (99) (98)
Money market deposits (959) 1,045 86 (247) 57 (190)
Savings deposits (75) 2 (73) (39) (38) (77)
Other time deposits (8) 944 936 (625) 165 (460)
Other borrowings 3,093 1,172 4,265 (76) 830 754
------- ------- ------- -------- ------- -------
Total interest-bearing
liabilities 2,003 3,178 5,181 (986) 915 (71)
------- ------- ------- ------- ------- -------
$ 2,537 $ 615 $ 3,152 $ 1,154 $ 5,396 $ 6,550
======= ======= ======= ======= ======= =======
Nine Months Ended September 30 Nine Months Ended September 30
1995 vs 1994 1994 vs 1993
--------------------------------------- ----------------------------------------
Increase Increase
Dollars in thousands - (decrease) (decrease)
Fully taxable due to (1): Net due to (1): Net
equivalent basis -------------------------- increase -------------------------- increase
Volume Rate (decrease) Volume Rate (decrease)
------------ --------- ---------- ------------ --------- ----------
Interest earned on:
Interest-bearing deposits
in other banks $ 1 $ 1 $ 2 $ (6) $ (8) $ (14)
Loans 12,575 16,006 28,581 (7,407) 2,192 (5,215)
Taxable investment securities (5,504) 2,255 (3,249) 11,959 (4,145) 7,814
Non-taxable investment securities 420 (82) 338 640 113 753
Securities available for sale (1,001) 998 (3) 5,671 (1,284) 4,387
Trading account securities 308 360 668 17 277 294
Federal funds sold and
securities purchased
under resale agreements (2,983) 2,260 (723) (1,678) 80 (1,598)
------- -------- ------- ------- ------- -------
Total interest-earning
assets 3,816 21,798 25,614 9,196 (2,775) 6,421
------- -------- ------- ------- ------- -------
Interest paid on:
Interest checking (130) 21 (109) (10) (605) (615)
Money market deposits (2,384) 2,790 406 (466) (847) (1,313)
Savings deposits (249) 7 (242) (95) (221) (316)
Other time deposits (879) 2,274 1,395 (2,086) 0 (2,086)
Other borrowings 4,267 4,695 8,962 (512) 521 9
------- -------- ------- ------- ------- -------
Total interest-bearing
liabilities 625 9,787 10,412 (3,169) (1,152) (4,321)
------- -------- ------- ------- ------- -------
$ 3,191 $ 12,011 $15,202 $ 12,365 $(1,623) $ 10,742
======= ======== ======= ======== ======= ========
(1) The change in interest due to both rate and volume has been allocated to change due to volume
and rate in proportion to the relationship of the absolute dollar amounts of the change in each.
-14-
BALANCE SHEET ANALYSIS
Loan Portfolio
A comparative period-end loan table is presented below:
[CAPTION]
September 30, December 31, September 30,
1995 1994 1994
------------- ------------ -------------
(Dollars in thousands)
Commercial $ 910,779 $ 906,417 $ 827,230
Real estate - construction 59,376 31,201 19,351
Real estate - mortgage 396,648 457,030 509,951
Residential first mortgage 499,603 212,595 147,552
Installment 34,387 36,675 37,495
---------- ---------- ----------
Total loans, gross 1,900,793 1,643,918 1,541,579
Less: Allowance for credit losses (111,503) (105,343) (112,308)
---------- ---------- ----------
Total loans, net $1,789,290 $1,538,575 $1,429,271
========== ========== ==========
Gross loans at September 30, 1995 totaled $1,900.8 million, up $359.2
million (23.3%) from September 30, 1994. The decrease in commercial real estate
mortgage loans of $113.3 million resulting from loan payoffs was offset by
residential first mortgage loans which increased $352.1 million between
September 30, 1994 and 1995, as a result of purchases of residential mortgages
originated by third parties and the Bank's own originations. Construction loans
also increased significantly from September 30, 1994, up 206.8% to $59.4
million at September 30, 1995 as the Company continued to expand its lending for
single family residential construction development. The Company expects that
during the last quarter of 1995 the Bank's loan portfolio may not continue to
grow at a rate comparable to that experienced during the first nine months of
the year due to a seasonal slowdown in the residential mortgage lending
business.
-15-
The following table presents information concerning nonaccrual loans, ORE,
and restructured loans.
September 30, December 31, September 30,
1995 1994 1994
------------ ----------- ------------
(Dollars in thousands)
Nonaccrual loans:
Real estate - mortgages $30,025 $35,534 $48,906
Commercial 5,135 23,267 14,332
------- ------- -------
Total 35,160 58,801 63,238
ORE 4,179 4,726 5,033
------- ------- -------
Total nonaccrual loans
and ORE $39,339 $63,527 $68,271
======= ======= =======
Restructured loans, accrual status $ 2,840 $ 2,061 $ 1,500
======= ======= =======
Ratio of nonaccrual loans
to total loans 1.85% 3.58% 4.10%
Ratio of nonperforming assets
to total assets 1.28 2.11 2.36
Ratio of allowance for credit
losses to nonaccrual loans 317.13 179.15 177.60
The adoption of SFAS No. 114, "Accounting by Creditors for Impairment of a
Loan," upon its January 1, 1995, effective date did not have a material impact
on the Company's results of operations or financial condition. The reduction in
nonperforming assets levels between September 30, 1994 and 1995 reflects the
Company's commitment to improving credit quality through initial credit review
and approval policies, and aggressive collection efforts when full repayment of
a loan becomes questionable.
-16-
The table below summarizes the approximate changes in nonaccrual loans for
the quarters and nine months ended September 30, 1995 and September 30, 1994.
Quarter ended Nine months ended
September 30, September 30,
---------------- ----------------
1995 1994 1995 1994
----- ----- ------ -----
(Dollars in millions)
Balance, beginning of period $42.4 $68.4 $ 58.8 $ 79.4
Loans placed on nonaccrual 4.5 6.4 23.3 55.9
Charge offs (1.5) (4.4) (7.1) (23.8)
Loans returned to accrual (0.6) (1.0) (4.8) (13.4)
Repayments (including interest
applied to principal) (9.6) (5.3) (34.8) (33.3)
Transfers to ORE - (.9) (0.2) (1.6)
----- ----- ------ ------
Balance, end of period $35.2 $63.2 $ 35.2 $ 63.2
===== ===== ====== ======
At September 30, 1995, in addition to loans disclosed above as past due or
nonaccrual, management had also identified $10.1 million of potential problem
loans about which the ability of the borrowers to comply with the present loan
repayment terms in the future is questionable. However, the inability of the
borrowers to comply with repayment terms is not sufficiently probable to place
the loans on nonaccrual status.
-17-
The following table summarizes average loans outstanding and changes in the
allowance for credit losses for the periods presented:
Quarter Ended Nine Months ended
September 30, September 30,
-------------------- ------------------
1995 1994 1995 1994
-------- --------- ------- --------
(Dollars in millions)
Average amount of loans outstanding $1,814.7 $1,472.2 $1,701.2 $1,513.3
======== ======== ======== ========
Balance of allowance for credit losses,
beginning of period $ 109.1 $ 105.4 $ 105.3 $ 110.5
Loans charged off:
Commercial 2.0 1.9 9.4 17.4
Real estate loans - construction - - - -
Real estate loans - mortgage 0.1 2.6 1.2 13.0
Residential first mortgage - - - -
Installment - - - 0.4
-------- -------- -------- --------
Total loans charged off 2.1 4.5 10.6 30.8
-------- -------- -------- --------
Less recoveries of loans previously
charged off:
Commercial 3.9 11.1 14.7 25.7
Real estate loans - construction - - - 0.1
Real estate loans - mortgage 0.4 0.1 1.6 0.2
Residential first mortgage - - - -
Installment 0.2 0.2 0.5 0.6
-------- -------- -------- --------
Total recoveries 4.5 11.4 16.8 26.6
-------- -------- -------- --------
Net loans charged off (recovered) (2.4) (6.9) (6.2) 4.2
Provisions charged to operating
expense - - - 6.0
-------- -------- -------- --------
Balance, end of period $ 111.5 $ 112.3 $ 111.5 $ 112.3
======== ======== ======== ========
Ratio of net charge-offs to
average loans NM NM NM 0.38%
======== ======== ======== ========
Ratio of allowance for credit
losses to total period end loans 5.87% 7.29% 5.87% 7.29%
======== ======== ======== ========
CONSOLIDATION CHARGE RESERVE
In November 1993, the Bank announced a consolidation plan to improve
efficiency and operational productivity in its branch network. To cover the
costs associated with this action, the Bank recorded a consolidation charge of
$12.0 million in the fourth quarter of 1993. At September 30, 1995, the balance
remaining in the consolidation reserve was $5.3 million representing primarily
the Company's obligations under terms of noncancellable operating leases of
premises net of any sublease income. The Bank is continuing to negotiate
settlements of lease
-18-
commitments and believes the reserve balance at September 30, 1995 is adequate
to cover these lease liabilities.
CAPITAL
As of September 30, 1995, the Company had a ratio of Tier 1 capital to
risk-weighted assets (Tier 1 risk-based capital ratio) of 18.58%, a ratio of
total capital to risk weighted assets (total risk-based capital ratio) of
19.89%, and a ratio of Tier 1 capital to average adjusted total assets (Tier 1
leverage ratio) of 12.60%, while the Bank had a Tier 1 risk-based capital ratio
of 17.55%, a total risk-based capital ratio of 18.85% and a Tier 1 leverage
ratio of 11.88%.
On May 3, 1995, the Corporation announced that the Board of Directors
authorized the purchase of up to 5%, or 2.28 million shares of the Corporation's
common stock from time to time in open market transactions. As of September 30,
1995 a total of 169,500 shares of stock had been repurchased at a cost of $1.9
million.
On October 25, 1995 the Board of Directors declared a cash dividend of $.07
per share on the common stock of the Corporation, payable on November 16, 1995
to shareholders of record on November 6, 1995.
OTHER DEVELOPMENTS
During the third quarter of 1995 the Bank announced an agreement to
acquire, for $85 million in cash, First Los Angeles Bank, a 10 branch bank
headquartered in Century City with total assets of $848 million at September 30,
1995. On November 2, 1995 the Bank received conditional approval for the
acquisition from its primary regulator, the Office of the Comptroller of the
Currency. The Company has filed with the Federal Reserve Board a request for
waiver of the Board's approval of the transaction under the Bank Holding Company
Act, but has not yet received a response. The acquisition is expected to close
at the end of 1995 or shortly thereafter. At the closing of the acquisition,
First Los Angeles Bank will be merged into City National Bank. The acquisition
is expected to augment the Bank's business lending portfolio and add to its base
of core deposits, both key to growth plans of the Company. The acquisition is
expected to be accretive to the Company's earnings during 1996. Interim quarters
of 1996 are expected to show results that are increasingly accretive as the cost
of integrating the two banks decreases after the first quarter of 1996 and
duplicate cost structures are eliminated. Nonperforming assets are expected to
increase immediately after the acquisition is consummated due to the addition of
First Los Angeles Bank's nonperforming
-19-
assets. The Company intends to manage the acquired nonperforming assets
through a process of enhanced collection efforts and accelerated charge offs, as
necessary.
During the third quarter of 1995 the Company announced that Russell
Goldsmith, a seventeen year member of the Board of Directors and former chairman
of Republic Pictures, was elected chief executive officer of City National
Corporation and chairman and chief executive officer of City National Bank,
effective October 16, 1995. Bram Goldsmith will continue as chairman of City
National Corporation and a director of both companies.
On November 3, 1995, Steven D. Broidy, Vice Chairman of City National
Corporation and City National Bank, and Chief Administrative Officer of City
National Bank announced his resignation effective November 14, 1995.
LIQUIDITY
The Company continues to manage its liquidity through the combination of
core deposits, federal funds purchased, repurchase agreements, collateralized
borrowing lines at the Federal Reserve Bank and the Federal Home Loan Bank of
San Francisco, and a portfolio of securities available for sale. Liquidity is
also provided by maturing investment securities and loans.
Average core deposits comprised 75.5% of total funding in the third
quarter of 1995, compared to 84.6% in the third quarter of 1994. This decrease
has required that the Company increase its use of more costly alternative
funding sources. Despite the decrease in percentage of funding derived from
core deposits the Company has not faced any liquidity constraints. At
September 30, 1995, investment securities maturing within one year amounted to
$162.0 million, and securities available for sale amounted to $209.9 million.
Maturing loans also provide liquidity, and $825.4 million of the Bank's loans
are scheduled to mature in the next twelve months.
The following table shows that the Company's positive interest rate
sensitivity gap increased from $95.9 million at September 30, 1994 to $110.0
million at September 30, 1995 due primarily to the decrease in core deposit
funding. Despite replacing these deposits with short term federal funds
purchased and securities sold under repurchase agreements, growth in the
variable rate loans and short term maturity loans increased to a greater extent.
The Company's asset sensitive position during the past period of rising interest
rates had a positive effect on net interest income. The recent decreases in
interest rates, if continued, could negatively impact net interest income in the
future if the Company's balance sheet continues to be asset sensitive.
-20-
The Company continuously evaluates strategies to minimize the decrease in
net interest income caused by decreases in interest rates and implement specific
strategies as circumstances warrant. During the quarter the Company increased
the balance of fixed rate loans in its portfolio by originating and purchasing
fixed rate residential first mortgages. The Company also entered into a $25
million interest rate swap in order to transform its long term fixed rate debt
into a quarterly repricing obligation.
-21-
Interest Rate Sensitivity Management
At September 30, 1995 and 1994, the Company's distribution of rate-sensitive
assets and liabilities was as follows:
Maturing or repricing in
-----------------------------------------------------------
After 3 After 1 year
3 months months but but within After
or less within 1 year 5 years 5 years Total
-------- ------------- ------------ -------- --------
September 30, 1995 (Dollars in millions)
Rate-sensitive assets:
Interest-bearing deposits in other banks............................. $ 0.7 $ - $ - $ - $ 0.7
Loans................................................................ 1,201.8 245.5 149.0 269.5 1,865.8
Investment securities................................................ 65.2 84.1 175.8 193.9 519.0
Securities available for sale........................................ 26.6 - 111.4 71.9 209.9
Trading account...................................................... 29.0 - - - 29.0
Federal funds sold and securities
purchased with agreement to resell................................ 168.5 - - - 168.5
-------- ------ ------ ------- --------
Total rate-sensitive assets....................................... 1,491.8 329.6 436.2 535.3 2,792.9
-------- ------ ------ ------- --------
Rate-sensitive liabilities: (1)
Interest checking.................................................... 262.1 - - - 262.1
Money market deposits................................................ 560.2 - - - 560.2
Savings deposits..................................................... 78.2 - - - 78.2
Other time deposits.................................................. 79.8 130.0 30.7 0.7 241.2
Short-term borrowings................................................ 551.1 25.0 - - 576.1
Long-term debt....................................................... - - 25.0 - 25.0
Swap on long-term debt............................................... 25.0 - (25.0) - 0.0
-------- ------ ------ ------- --------
Total rate-sensitive liabilities.................................. 1,556.4 155.0 30.7 0.7 1,742.8
-------- ------ ------ ------- --------
Interest rate sensitivity gap........................................... $ (64.6) $174.6 $405.5 $ 534.6 $1,050.1
======== ====== ====== ======== ========
Cumulative interest rate sensitivity gap................................ $ (64.6) $110.0 $515.5 $1,050.1
======== ====== ====== ========
Cumulative ratio of rate-sensitive assets to rate-sensitive liabilities. 96% 106% 130% 160% 160%
======== ====== ====== ======== ========
Maturing or repricing in
-----------------------------------------------------------
After 3 After 1 year
3 months months but but within After
or less within 1 year 5 years 5 years Total
-------- ------------- ------------ -------- --------
September 30, 1994 (Dollars in millions)
Rate-sensitive assets:
Interest-bearing deposits in other banks............................. $ 0.7 $ - $ $ - $ 0.7
Loans................................................................ 1,061.1 227.2 142.8 47.2 1,478.3
Investment securities................................................ 45.0 90.3 285.1 305.9 726.3
Securities available for sale........................................ - - 133.1 59.1 192.2
Trading account...................................................... 41.8 - - - 41.8
Federal funds sold and securities
purchased with agreement to resell................................ 183.0 - - - 183.0
-------- ------ ------ ------- --------
Total rate-sensitive assets....................................... 1,331.6 317.5 561.0 412.2 2,622.3
-------- ------ ------ ------- --------
Rate-sensitive liabilities: (1)
Interest checking.................................................... 279.3 - - - 279.3
Money market deposits................................................ 704.5 - - - 704.5
Savings deposits..................................................... 87.6 - - - 87.6
Other time deposits.................................................. 120.8 64.1 35.3 - 220.2
Short-term borrowings................................................ 296.9 - - - 296.9
-------- ------ ------ ------- --------
Total rate-sensitive liabilities.................................. 1,489.1 64.1 35.3 - 1,588.5
-------- ------ ------ ------- --------
Interest rate sensitivity gap........................................... $ (157.5) $253.4 $525.7 $ 412.2 $1,033.8
======== ====== ====== ======== ========
Cumulative interest rate sensitivity gap................................ $ (157.5) $ 95.9 $621.6 $1,033.8
======== ====== ====== ========
Cumulative ratio of rate-sensitive assets to rate-sensitive liabilities. 89% 106% 139% 165% 165%
======== ====== ====== ======== ========
(1) Customer deposits which are subject to immediate withdrawal are
presented as repricing within 3 months or less. The distribution of
other time deposits is based on scheduled maturities.
-22-
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS.
None
ITEM 5. OTHER INFORMATION.
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.21 Stock Purchase Agreement dated August 17, 1995 by and
among City National Bank, First Los Angeles Bank, San
Paolo U.S. Holding Company and San Paolo Bank Holding
S.P.A. (confidential information omitted pursuant to
Rule 24b-2)
27. Financial Data Schedule
(b) Reports on Form 8-K
Report dated August 17, 1995; reporting the stock purchase
agreement by and among City National Bank, a wholly owned
subsidiary of the registrant, First Los Angeles Bank, San Paolo
U.S. Holding Company, and San Paolo Bank Holding S.P.A.
SIGNATURES
Pursuant to the requirements 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)
DATE: November 10, 1995 /s/ Frank P. Pekny
------------------------- --------------------------------
FRANK P. PEKNY
Executive Vice President and
Treasurer
-23-