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, 1996 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, 1996:
43,919,808
CITY NATIONAL CORPORATION
Consolidated Balance Sheet
(Unaudited)
ASSETS
September 30, December 31, September 30,
1996 1995 1995
------------ ------------- -------------
(Dollars in thousands)
Cash and due from banks ..................................... $ 245,706 $ 339,737 $ 251,910
Interest-bearing deposits in other banks .................... 30,206 80,696 688
Federal funds sold and securities purchased under
resale agreements ........................................ 80,000 351,803 168,500
Investment securities (market values $184,926; $110,524
and $514,970 at September 30, 1996, December 31, 1995 and
September 30, 1995, respectively) ........................ 186,722 110,006 518,960
Securities available for sale (cost $675,466; $862,276 and
$209,283 at September 30, 1996, December 31, 1995 and
September 30, 1995, respectively) ....................... 666,960 865,401 209,941
Trading account securities .................................. 23,026 29,728 28,978
Loans........................................................ 2,674,242 2,346,611 1,900,793
Less allowance for credit losses ............................ 128,589 131,514 111,503
------------ ------------ -------------
Net loans ................................................ 2,545,653 2,215,097 1,789,290
Leveraged leases ............................................ 5,863 8,400 8,228
Premises and equipment, net ................................. 23,364 23,607 21,384
Customers' acceptance liability ............................. 3,654 2,656 2,878
Other real estate ........................................... 17,156 7,439 4,179
Deferred tax asset .......................................... 65,147 64,420 28,852
Other assets ................................................ 53,098 58,561 33,852
------------ ------------ -------------
Total assets ............................................. $ 3,946,555 $ 4,157,551 $ 3,067,640
------------ ------------ -------------
------------ ------------ -------------
LIABILITIES
Demand deposits ............................................. $ 1,274,831 $ 1,490,934 $ 929,827
Interest checking deposits .................................. 297,890 380,230 262,115
Money market accounts ....................................... 708,803 759,707 560,232
Savings deposits ............................................ 131,967 130,704 78,186
Time deposits - under $100,000 .............................. 146,965 142,731 82,862
Time deposits - $100,000 and over ........................... 379,713 343,729 158,305
------------ ------------ -------------
Total deposits ........................................... 2,940,169 3,248,035 2,071,527
Federal funds purchased and securities sold
under repurchase agreements .............................. 203,051 258,353 398,555
Other short-term borrowings ................................. 328,632 195,100 177,494
Long-term debt .............................................. 34,800 25,000 25,000
Other liabilities ........................................... 50,866 61,450 29,267
Acceptances outstanding ..................................... 3,654 2,656 2,878
------------ ------------ -------------
Total liabilities ........................................ 3,561,172 3,790,594 2,704,721
------------ ------------ -------------
Commitments and contingencies
SHAREHOLDERS' EQUITY
Preferred Stock authorized-5,000,000, none outstanding - - -
Common stock- par value- $1.00; authorized - 75,000,000
Issued-46,094,161; 45,553,724 and 45,529,099 at
September 30, 1996, December 31, 1995 and September 30,
1995, respectively ....................................... 46,094 45,554 45,529
Additional paid-in capital ................................. 272,817 266,829 266,560
Unrealized gain (loss) on available for sale securities .... (4,905) 1,955 410
Retained earnings ........................................... 100,321 62,518 52,337
Treasury shares, at cost - 2,211,200; 762,500 and 169,500 at
September 30, 1996, December 31, 1995 and September 30,
1995, respectively ....................................... (28,944) (9,899) (1,917)
------------ ------------ -------------
Total shareholders' equity ............................... 385,383 366,957 362,919
------------ ------------ -------------
Total liabilities and shareholders' equity ............... $ 3,946,555 $ 4,157,551 $ 3,067,640
------------ ------------ -------------
------------ ------------ -------------
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,
------------------------ -----------------------
1996 1995 1996 1995
--------- -------- --------- --------
(Dollars in thousands) (Dollars in thousands)
Interest income:
Interest and fees on loans ................................... $57,980 $43,254 $165,029 $122,213
Interest on federal funds sold and securities purchased
under resale agreements ................................... 793 1,594 2,958 4,471
Interest on investment securities:
U.S. Treasury and federal agency securities ............... 1,746 6,632 5,206 21,230
Municipal securities ...................................... 809 235 1,741 801
Other securities .......................................... 457 472 1,624 1,510
Interest on securities available for sale..................... 10,193 2,544 30,667 5,910
Interest on trading account securities........................ 558 482 1,401 1,466
-------- --------- --------- ---------
Total ..................................................... 72,536 55,213 208,626 157,601
-------- --------- --------- ---------
Interest expense:
Interest on deposits ......................................... 13,784 8,293 40,409 23,224
Interest on federal funds purchased and securities sold
under repurchase agreements ............................... 3,500 4,638 10,176 11,801
Interest on other short-term borrowings ...................... 4,558 1,721 9,188 2,822
Interest on long-term debt ................................... 504 422 1,439 650
-------- --------- --------- ---------
Total ..................................................... 22,346 15,074 61,212 38,497
-------- --------- --------- ---------
Net interest income .......................................... 50,190 40,139 147,414 119,104
Provision for credit losses .................................. - - - -
-------- --------- --------- ---------
Net interest income after provision for credit losses ........ 50,190 40,139 147,414 119,104
-------- --------- --------- ---------
Noninterest income:
Service charges on deposit accounts .......................... 2,666 2,078 8,069 5,819
Investment services income .................................. 3,134 2,344 8,386 6,397
Trust fees ................................................... 1,789 1,682 5,242 4,925
Gain on sale of assets ....................................... 100 - 788 -
Gain (loss) on sales of securities .......................... 30 (137) 322 498
All other income ............................................. 3,634 3,233 9,888 8,938
-------- --------- --------- ---------
Total noninterest income................................... 11,353 9,200 32,695 26,577
-------- --------- --------- ---------
Noninterest expense:
Salaries and other employee benefits ......................... 19,004 15,915 57,315 48,974
Net occupancy of premises .................................... 2,240 1,911 7,197 5,885
Data processing .............................................. 2,192 1,998 6,565 5,512
Professional ................................................. 3,285 1,989 9,835 6,417
FDIC insurance ............................................... - (165) 2 2,300
Office supplies .............................................. 1,061 850 3,588 2,961
Depreciation ................................................. 1,279 1,060 3,862 3,067
Promotion .................................................... 1,273 1,088 4,097 3,391
Equipment..................................................... 634 714 1,747 1,632
Other operating .............................................. 3,870 2,698 10,666 7,758
Other real estate expense (income) ........................... (186) (195) (227) 16
-------- --------- --------- ---------
Total noninterest expense.................................. 34,652 27,863 104,647 87,913
-------- --------- --------- ---------
Income before taxes.............................................. 26,891 21,476 75,462 57,768
Income taxes ................................................... 9,091 8,193 25,794 22,307
-------- --------- --------- ---------
Net income ...................................................... $17,800 $13,283 $49,668 $35,461
-------- --------- --------- ---------
-------- --------- --------- ---------
Net Income per share ............................................ $0.39 $0.29 $1.10 $0.77
-------- --------- --------- ---------
-------- --------- --------- ---------
Shares used to compute net income per share ..................... 45,262 46,138 44,986 45,927
-------- --------- --------- ---------
-------- --------- --------- ---------
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,
-----------------------
1996 1995
(Dollars in thousands)
------------------------
Operating Activities
Net income......................................................... 49,668 $ 35,461
Adjustment to net income:
Provision for credit losses...................................... - -
Gain on sale of leveraged leases................................. (688) (244)
Gain on sales of securities...................................... - (498)
Depreciation..................................................... 3,862 3,067
Net (increase) decrease in trading securities.................... 6,702 (3,447)
Net ( increase) decrease in deferred tax benefits................ (727) (3,408)
Income tax refund ............................................... - 4,500
Other, net....................................................... (5,300) 14,505
------- ------
Net cash provided (used) by operating activites................ 53,517 49,936
------ -------
Investing Activities
Net decrease (increase) in short-term investments.................. 50,490 (14)
Purchase of securities available for sale.......................... (387,462) (139,500)
Sales and maturities of securities available for sale.............. 570,181 26,272
Maturities of investment securities................................ 25,626 161,850
Purchase of investment securities.................................. (106,004) (23,088)
Purchase of residential mortgage loans............................. (226,001) (145,650)
Sale of residential mortgage loans................................. 62,717 -
Other loan originations and principal collections, net............. (181,469) (121,828)
Proceeds from sales of ORE......................................... 2,441 1,992
Proceeds from sale of leveraged leases............................. 1,824 329
Other, net......................................... 19,384 (5,000)
-------- --------
Net cash provided (used) by investing activities................. (168,273) (244,637)
-------- --------
Financing Activities
Net increase in federal funds purchased and
securities sold under repurchase agreements...................... (55,302) 246,435
Net decrease in deposits........................................... (307,866) (346,235)
Net increase in short term borrowings.............................. 133,532 97,493
Proceeds from long term debt....................................... 9,800 25,000
Proceeds from issuance of stock.................................... 5,600 2,897
Purchase of treasury shares........................................ (19,045) (1,917)
Cash dividends paid................................................ (11,865) (8,605)
Other, net......................................................... (5,932) 4,362
-------- -------
Net cash used in financing activities............................ (251,078) 19,430
-------- -------
Net decrease in cash and cash equivalents.......................... (365,834) (175,271)
Cash and cash equivalents at beginning of year..................... 691,540 595,681
-------- --------
Cash and cash equivalents at end of year........................... $ 325,706 $ 420,410
-------- --------
-------- --------
Supplemental disclosures of cash flow information:
Cash paid (received) during the period for:
Interest...................................................... $ 60,222 $ 37,348
Income taxes.................................................. 18,750 21,748
Non cash investing activities:
Transfer from loans to ORE.................................... 13,635 1,332
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,
----------------------------
1996 1995
--------- ---------
(Dollars in thousands)
Common Stock
Balance, beginning of period................................................ $45,554 $45,193
Stock options exercised..................................................... 540 336
--------- ---------
Balance, end of period...................................................... 46,094 45,529
--------- ---------
Additional paid-in capital
Balance, beginning of period................................................ 266,829 263,609
Stock options exercised..................................................... 5,060 2,561
Tax benefit from stock options.............................................. 928 390
--------- ---------
Balance, end of period...................................................... 272,817 266,560
--------- ---------
Treasury shares
Balance, beginning of period .............................................. (9,899) -
Purchase of shares. (19,045) (1,917)
--------- ---------
Balance, end of period ..................................................... (28,944) (1,917)
--------- ---------
Unrealized net gains (losses) on securities available for sale
Balance, beginning of period................................................ 1,955 (3,564)
Change during period........................................................ (6,860) 3,974
--------- ---------
Balance, end of period ..................................................... (4,905) 410
--------- ---------
Retained earnings
Balance, beginning of period................................................ 62,518 25,483
Net income.................................................................. 49,668 35,461
Dividends paid.............................................................. (11,865) (8,607)
--------- ---------
Balance, end of period...................................................... 100,321 52,337
--------- ---------
Total shareholders' equity.................................................... $385,383 $362,919
--------- ---------
--------- ---------
-5-
See accompanying Notes to the Unaudited Consolidated Financial Statements
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
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,
1995.
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 holding gains or losses for 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. Certain prior year data have been reclassified to conform with current
year presentation.
-6-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS OVERVIEW
City National Corporation (the Company) is the holding company for City
National Bank (the Bank). Because the Bank constitutes substantially all of the
business of the Company, references to the Company in this Item 2 reflect the
consolidated activities of the Company and the Bank.
RESULTS OF OPERATIONS
The Company recorded consolidated net income of $17.8 million, or $.39 per
share, in the third quarter of 1996, compared to $13.3 million, or $.29 per
share, in the third quarter of 1995. Most of the change between third quarters
resulted from an increase in net interest income in the third quarter of 1996 of
$10.1 million.
Net income for the first nine months of 1996 totaled $49.7 million, or
$1.10 per share compared with $35.5 million, or $.77 per share in the 1995
period. The nine month increase resulted largely from an increase of $28.3
million in net interest income, and $6.1 million increase in non-interest
income, and $2.7 million in non recurring tax benefits, partially offset by a
$17.0 million increase in non-interest expense excluding ORE expense.
Returns on average assets for the third quarter and the first nine months
of 1996 were 1.81% and 1.76%, respectively, compared with 1.83% and 1.71% for
the third quarter and first nine months of 1995. Returns on average equity for
the third quarter and the first nine months of 1996 were 18.89% and 18.07%,
respectively, compared with 14.80% and 13.70% in 1995.
Taxable equivalent net interest income was $51.9 million in the third
quarter of 1996, up 27.8% from the year-ago quarter. The increase resulted
from the 35.4% increase in average interest earning assets between quarters.
Due to a higher proportion of total funding in the third quarter of 1996 from
the prior year from time deposits of $100,000 and over and wholesale money
market sources, the net interest spread decreased from 4.57% to 4.36% and the
net interest margin decreased from 6.05% to 5.73%. Management expects modest
growth in quarterly net interest income for the remainder of 1996 from third
quarter 1996 levels. The foregoing forward-looking statement assumes, among
other things, that interest rate levels will remain relatively constant and
is based on the anticipated growth in loans, a change in either of which may
cause
-7-
actual results to differ materially if the assumption proves to have been
incorrect. See "Cautionary Statement for Purposes of the Safe Harbor'
Provisions of the Private Securities Litigation Reform Act of 1995", below.
Average loans increased $818.0 million (45.1%) between third quarters to
$2,632.7 million at September 30, 1996. The majority of this increase reflected
higher average residential first mortgage loans outstanding, up $393.6 million
(88.5%). This increase resulted from both the Bank's internal loan generation as
well as bulk purchases of residential first mortgage loans. Average construction
loans increased $45.6 million (83.1%) from the third quarter of 1995, primarily
as a result of the Bank's increased efforts in generating new construction loan
commitments. Average commercial and real estate mortgage loans increased $288.2
million (33.0%) and $92.9 million (22.8%) respectively, due primarily to the
acquisition of First Los Angeles Bank (First LA) on December 31, 1995 and the
participation in corporate loans originated by third parties.
Total average investments and available for sale securities increased
$149.0 million (21.3%) between third quarters due mainly to the improved
liquidity resulting from the acquisition of First LA which had total loans at
December 31, 1995 of $337.5 million and total deposits of $795.5 million. In
December 1995, the Company reclassified securities with a book value of $402.3
million and a market value of $401.2 million from the investment securities
classification to available for sale as permitted by the Guide to the
Implementation of FASB No. 115. Total average deposits increased $817.6 million
(40.4%) between third quarters due primarily to the acquisition of First LA as
well as increased deposit levels from the Bank's non -First LA customers.
For the first nine months of 1996, average loans increased $777.2 million
(45.7%). Total average investment and available for sale securities increased
$132.6 million (18.7%) from the comparable period of 1995. Total average
deposits for the nine months ended September 30, 1996 increased $787.2 million
(38.6%) compared to the 1995 period. The changes in the nine month average
balances resulted from the same factors that caused the changes between the
third quarter average balances.
The provision for credit losses was zero for the nine months ended
September 30, 1996 and 1995. Loans charged off in the third quarter of 1996 were
$3.8 million, compared to $2.1
-8-
million in the third quarter of 1995. Recoveries were $5.2 million in the third
quarter of 1996, compared to $4.5 million in the third quarter of 1995. The
provision for credit losses is expected to remain at zero levels for the
remainder of 1996. This forward-looking statement is based on an assumption
that general economic conditions in Southern California will not deteriorate
materially in 1996, and if this assumption proves to be inaccurate, an increased
provision for credit losses may be required. See "Cautionary Statement for
Purposes of the Safe Harbor' Provisions of the Private Securities Litigation
Reform Act of 1995", below.
Non-interest income excluding gains and losses on the sale of securities
and assets totaled $11.2 million for the third quarter of 1996, up $1.9 million
(20.2%) from a year earlier. For the nine months ended September 30, 1996, non-
interest income excluding gains and losses on the sale of securities and assets
totaled $31.6 million, an increase of $5.5 million (21.1%) from last year's
total of $26.1 million. Service charges on deposit accounts increased $.6
million (28.3%) and $2.2 million (38.7%), respectively, for the quarter and nine
months ended September 30, 1996 due primarily to the acquisition of First LA and
higher levels of service charges resulting from the lower earnings on deposit
balances as a result of lower interest rates compared to the prior year.
Investment services income increased $.8 million (33.7%) and $2.0 million
(31.1%) for the quarter and nine months ended September 30, 1996 due to higher
fees and new investment products offered to customers. Management expects
modest growth in non-interest income from third quarter 1996 levels during the
remainder of 1996. See "Cautionary Statement for Purposes of the Safe Harbor'
Provisions of the Private Securities Litigation Reform Act of 1995", below.
Excluding net ORE results, non-interest expense totaled $34.8 million in
the third quarter of 1996, an increase of $6.8 million (24.1%) from the third
quarter of 1995. Salaries and other employee benefits increased $3.1 million
(19.4%) and $8.3 million (17.0%) for the quarter and nine months ended September
30, 1996, respectively, from comparable periods in 1995 due primarily to the
personnel added as a result of the acquisition of First LA and the hiring of
additional personnel to pursue other opportunities.
The expense categories other than staff increased $3.7 million overall
(30.4%) and $8.6 million overall (22.2%) for the quarter and nine months ended
September 30, 1996, respectively, from the comparable periods in 1995. The
increases in professional expenses resulted primarily from higher consulting
expenses, the increases in promotion expenses resulted from the
-9-
Company's increased advertising program and the other increases were as a result
of the acquisition of First LA, including $.7 million in acquisition related
costs incurred in the first quarter of 1996 to cover certain integration
expenses.
The Company's effective tax rate decreased to 33.8% in the third quarter
of 1996 from 38.1% in the third quarter of 1995. The decrease resulted from
the recognition of $.9 million in previously unrecognized deferred tax benefits
and a higher level of municipal leases, municipal bonds and preferred stock
holdings in the securities portfolio as compared with the prior year. The
Company expects the effective tax rate for the remainder of 1996 to remain near
1996 third quarter levels and expects the effective tax rate in 1997 to increase
from 1996 levels since the recognition of previously unrecognized deferred tax
benefits is not expected to reoccur in 1997. See "Cautionary Statement For
Purposes of the Safe Harbor' Provisions of the Private Securities Litigation
Reform Act of 1995", below.
-10-
N e t I n t e r e s t I n c o m e S u m m a r y
The following table presents the components of net interest income for the
quarters ended September 30,1996 and 1995.
September 30, 1996 September 30, 1995
---------------------------------------- ----------------------------------------
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 $ 1,161,373 $ 26,184 8.97 % $ 873,223 $ 22,080 10.03 %
Real estate - construction 100,494 2,916 11.54 54,878 1,706 12.33
Real estate - mortgage 499,851 12,018 9.56 406,940 10,107 9.85
Residential first mortgages 838,190 16,499 7.83 444,638 8,762 7.82
Installment loans 32,758 901 10.94 35,022 921 10.43
----------- --------- ----- ---------- --------- ------
Total loans 2,632,666 58,518 8.84 1,814,701 43,576 9.53
----------- --------- ----- ---------- --------- ------
Due from banks-interest bearing 25,529 310 4.83 686 7 4.05
State and municipal investment securities 71,733 1,261 6.99 22,110 369 6.62
Taxable investment securities 120,120 1,893 6.27 519,722 7,097 5.42
Securities available for sale 658,131 10,860 6.56 159,137 2,544 6.34
Federal funds sold and securities
purchased under resale agreements 56,575 793 5.58 107,195 1,594 5.90
Trading account securities 39,832 603 6.02 37,908 488 5.11
----------- --------- ----- ---------- --------- ------
Total earning assets 3,604,586 74,238 8.19 2,661,459 55,675 8.30
----------- --------- ----- ---------- --------- ------
Reserve for credit losses (127,706) (110,637)
Cash and due from banks 271,141 231,598
Other nonearning assets 162,813 99,483
----------- -----------
Total assets $ 3,910,834 $ 2,881,903
----------- -----------
----------- -----------
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 $ 1,165,508 - - $ 888,277 - -
Interest-bearing deposits:
Interest checking accounts 302,032 764 1.01 257,192 643 0.99
Money market accounts 740,223 5,569 2.99 575,778 4,267 2.94
Savings deposits 132,299 1,056 3.18 77,235 383 1.97
Time deposits - under $100,000 142,992 1,846 5.14 82,261 1,034 4.99
Time deposits - $100,000 and over 360,829 4,549 5.02 145,492 1,966 5.36
----------- --------- ----- ---------- --------- ------
Total interest - bearing deposits 1,678,375 13,784 3.27 1,137,958 8,293 2.89
----------- ----------- ----- ---------- --------- ------
Total deposits 2,843,883 2,026,235
Federal funds purchased and securities
sold under repurchase agreements 271,304 3,500 5.13 326,793 4,638 5.63
Other borrowings 366,761 5,062 5.49 137,262 2,143 6.19
----------- --------- ----- ---------- --------- ------
Total interest - bearing liabilities 2,316,440 22,346 3.83 1,602,013 15,074 3.73
----------- --------- ----- ---------- --------- ------
Other liabilities 54,081 35,538
Shareholders' equity 374,805 356,075
----------- ----------
Total liabilities and shareholders'
equity $ 3,910,834 $ 2,881,903
----------- ----------
----------- ----------
Net interest spread 4.36 4.57
----- -----
----- -----
Fully taxable equivalent net interest income $ 51,892 $ 40,601
---------- --------
Net interest margin 5.73% 6.05 %
----- -----
----- -----
(1) Fully taxable equivalent basis.
(2) Includes average nonaccrual loans of $43,124 and $38,492 for 1996 and
1995, respectively.
(3) Loan income includes loan fees of $1,863 and $1,877 for 1996 and 1995,
respectively.
-11-
N e t I n t e r e s t I n c o m e S u m m a r y
The following table presents the components of net interest income for the nine
months ended September 30, 1996 and 1995.
September 30, 1996 September 30, 1995
---------------------------------------- ---------------------------------------
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 $ 1,085,105 $ 73,615 9.06% $ 857,464 $ 64,359 9.99%
Real estate - construction 88,431 7,709 11.64 46,147 4,338 12.57
Real estate - mortgage 511,529 37,068 9.68 434,042 32,623 10.05
Residential first mortgages 758,567 45,279 7.97 328,094 19,139 7.80
Installment loans 34,729 2,748 10.57 35,456 2,638 9.95
--------- -------- ----- ---------- -------- -----
Total loans 2,478,361 166,419 8.97 1,701,203 123,097 9.64
--------- -------- ----- ---------- -------- -----
Due from banks-interest bearing 27,318 1,146 5.60 687 15 2.92
State and municipal investment securities 50,996 2,713 7.11 24,074 1,250 6.94
Taxable investment securities 118,643 5,684 6.40 570,947 22,725 5.32
Securities available for sale 674,092 32,328 6.41 116,072 5,910 6.81
Federal funds sold and securities
purchased under resale agreements 71,117 2,958 5.56 97,536 4,471 6.13
Trading account securities 34,245 1,543 6.02 35,382 1,557 5.88
--------- -------- ----- ---------- --------- -----
Total earning assets 3,454,772 212,791 8.23 2,545,901 159,025 8.33
--------- -------- ----- ---------- -------- -----
Reserve for credit losses (129,429) (109,299)
Cash and due from banks 283,560 235,419
Other nonearning assets 161,312 96,776
------------ ------------
Total assets $ 3,770,215 $ 2,768,797
------------ ------------
------------ ------------
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 $ 1,157,868 - - $ 879,185 - -
Interest-bearing deposits:
Interest checking accounts 314,985 2,370 1.01 267,558 1,951 0.97
Money market accounts 727,304 16,177 2.97 600,445 12,578 2.80
Savings deposits 132,432 3,089 3.12 80,698 1,188 1.97
Time deposits - under $100,000 136,758 5,301 5.18 78,088 2,682 4.59
Time deposits - $100,000 and over 354,594 13,472 5.07 130,801 4,825 4.93
--------- -------- ----- ---------- --------- -----
Total interest - bearing deposits 1,666,073 40,409 3.24 1,157,590 23,224 2.68
--------- -------- ----- ---------- -------- -----
Total deposits 2,823,941 2,036,775
Federal funds purchased and securities
sold under repurchase agreements 268,661 10,176 5.06 276,271 11,801 5.71
Other borrowings 253,636 10,627 5.60 75,213 3,472 6.17
--------- -------- ----- ---------- -------- -----
Total interest - bearing liabilities 2,188,370 61,212 3.74 1,509,074 38,497 3.41
--------- -------- ----- ---------- -------- -----
Other liabilities 56,770 34,463
Shareholders' equity 367,207 346,075
---------- -----------
Total liabilities and shareholders'
equity $3,770,215 $ 2,768,797
---------- -----------
---------- -----------
Net interest spread 4.49 4.92
---- ----
---- ----
Fully taxable equivalent net interest income $ 151,579 $ 120,528
--------- ---------
--------- ---------
Net interest margin 5.86% 6.31%
------ -----
------ -----
(1) Fully taxable equivalent basis.
(2) Includes average nonaccrual loans of $47,430 and $50,472 for 1996 and
1995, respectively.
(3) Loan income includes loan fees of $5,405 and $5,235 for 1996 and 1995,
respectively.
-12-
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,
1996 vs 1995 1995 vs 1994
----------------------------------------------------------------------
Increase Increase
Dollars in thousands - (decrease) Net (decrease) Net
Fully taxable equivalent basis due to (1): increase due to (1): increase
--------------------- --------------------
Volume Rate (decrease) Volume Rate (decrease)
---------- ---------- ---------- ---------- --------- ----------
Interest earned on:
Interest-bearing deposits
in other banks $ 301 $ 2 $ 303 $ 1 $ 1 $ 2
Loans 18,306 (3,364) 14,942 8,109 2,341 10,450
Taxable investment securities (6,169) 965 (5,204) (2,155) 945 (1,210)
Non-taxable investment securities 870 22 892 23 (27) (4)
Securities available for sale 8,224 92 8,316 (789) 67 (722)
Trading account securities 26 89 115 46 18 64
Federal funds sold and
securities purchased
under resale agreements (719) (82) (801) (695) 448 (247)
---------- ---------- ---------- ---------- ---------- ----------
Total interest-earning
assets 20,839 (2,276) 18,563 4,540 3,793 8,333
---------- ---------- ---------- ---------- ---------- ----------
Interest paid on:
Interest checking 108 13 121 (48) 15 (33)
Money market deposits 1,228 74 1,302 (959) 1,045 86
Savings deposits 361 312 673 (75) 2 (73)
Other time deposits 3,502 (107) 3,395 (8) 944 936
Other borrowings 2,357 (576) 1,781 3,093 1,172 4,265
---------- ---------- ---------- ---------- ---------- ----------
Total interest-bearing
liabilities 7,556 (284) 7,272 2,003 3,178 5,181
---------- ---------- ---------- ---------- ---------- ----------
$ 13,283 $ (1,992) $ 11,291 $ 2,537 $ 615 $ 3,152
---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ----------
Nine Months Ended September 30, Nine Months Ended September 30,
1996 vs 1995 1995 vs 1994
-------------------------------- ---------------------------------
Increase Increase
Dollars in thousands - (decrease) Net (decrease) Net
Fully taxable equivalent basis due to (1): increase due to (1): increase
---------------------- ---------------------
Volume Rate (decrease) Volume Rate (decrease)
---------- ---------- ---------- ---------- ---------- ----------
Interest earned on:
Interest-bearing deposits
in other banks $ 1,105 $ 26 $ 1,131 $ 1 $ 1 $ 2
Loans 52,780 (9,458) 43,322 12,575 16,006 28,581
Taxable investment securities (20,911) 3,870 (17,041) (5,504) 2,255 (3,249)
Non-taxable investment securities 1,431 32 1,463 420 (82) 338
Securities available for sale 26,785 (367) 26,418 (1,001) 998 (3)
Trading account securities (51) 37 (14) 308 360 668
Federal funds sold and
securities purchased
under resale agreements (1,126) (387) (1,513) (2,983) 2,260 (723)
---------- ---------- ---------- ---------- ---------- ----------
Total interest-earning
assets 60,013 (6,247) 53,766 3,816 21,798 25,614
---------- ---------- ---------- ---------- ---------- ----------
Interest paid on:
Interest checking 340 79 419 (130) 21 (109)
Money market deposits 2,796 803 3,599 (2,384) 2,790 406
Savings deposits 995 906 1,901 (249) 7 (242)
Other time deposits 10,768 498 11,266 (879) 2,274 1,395
Other borrowings 6,908 (1,378) 5,530 4,267 4,695 8,962
---------- ---------- ---------- ---------- ---------- ----------
Total interest-bearing
liabilities 21,807 908 22,715 625 9,787 10,412
---------- ---------- ---------- ---------- ---------- ----------
$ 38,206 $ (7,155) $ 31,051 $ 3,191 $ 12,011 $ 15,202
---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ----------
(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.
-13-
BALANCE SHEET ANALYSIS
LOAN PORTFOLIO
A comparative period-end table of outstanding loans is presented below:
September 30, December 31, September 30,
1996 1995 1995
------------- ------------- -------------
(Dollars in thousands)
Commercial $1,200,624 $1,080,125 $ 910,779
Residential first mortgage 829,460 593,546 499,603
Real estate - construction 106,854 81,318 59,376
Real estate -mortgage 505,026 553,095 396,648
Installment 32,278 38,527 34,387
------------- ------------- -------------
Total loans, gross 2,674,242 2,346,611 1,900,793
Less: Allowance for credit losses (128,589) (131,514) (111,503)
------------- ------------- -------------
Total loans, net $2,545,653 $2,215,097 $1,789,290
------------- ------------- -------------
------------- ------------- -------------
Gross loans at September 30, 1996 amounted to $2,674.2 million, up $773.4
million (40.7%) from September 30, 1995. Approximately $200.0 million of the
increase, concentrated primarily in real estate mortgage loans, was due to the
acquisition of First LA. The $329.9 million increase in residential first
mortgage loans resulted from the purchase of residential first mortgages
originated by third parties and the Bank's own originations, net of sales of
mortgages totalling $61.5 million during the third quarter. Construction loans
also increased significantly from September 30, 1995, up $47.5 million to $106.9
million at September 30, 1996 as the Company continued to expand its lending for
single family residential construction development. The Company expects that
the Bank's loan portfolio will continue to increase from third quarter 1996
levels due both to its own internal generation and, to a lesser extent, to
purchases of loans originated by third parties. See "Cautionary Statement For
Purposes of the Safe Harbor' Provisions of the Private Securities Litigation
Reform Act of 1995", below.
-14
The following table presents information concerning nonaccrual loans, ORE,
and restructured loans.
September 30, December 31, September 30,
1996 1995 1995
------------- ------------- -------------
(Dollars in thousands)
Nonaccrual loans:
Real estate - mortgages $ 32,889 $ 39,536 $ 30,025
Commercial 9,727 8,316 5,135
Installment - 272 -
------------- ------------- -------------
Total 42,616 48,124 35,160
ORE 17,156 7,439 4,179
------------- ------------- -------------
Total nonaccrual loans
and ORE $ 59,772 $ 55,563 $ 39,339
------------- ------------- -------------
------------- ------------- -------------
Restructured loans, accrual status $ 2,964 $ 5,483 $ 2,840
------------- ------------- -------------
------------- ------------- -------------
Additional potential problems loans $ 3,400 $ 19,100 $ 10,100
------------- ------------- -------------
------------- ------------- -------------
Ratio of nonaccrual loans
to total loans 1.59% 2.05% 1.85%
Ratio of nonperforming assets
to total assets 1.51 1.34 1.28
Ratio of allowance for credit
losses to nonaccrual loans 301.74 273.28 317.13
The table below summarizes the approximate changes in nonaccrual loans for the
quarters and nine months ended September 30, 1996 and September 30, 1995.
Quarter ended Nine months ended
September 30, September 30,
------------------------- -------------------------
1996 1995 1996 1995
---------- ---------- ---------- ----------
(Dollars in millions)
Balance, beginning of period $ 46.9 $ 42.4 $ 48.1 $ 58.8
Loans placed on nonaccrual 7.3 4.5 32.3 23.3
Charge offs (2.3) (1.5) (12.2) (7.1)
Loans returned to accrual (3.0) (0.6) (5.2) (4.8)
Repayments (including interest
applied to principal) (4.1) (9.6) (9.9) (34.8)
Transfer to ORE (2.2) - (10.5) (0.2)
---------- ---------- ---------- ----------
Balance, end of period $ 42.6 $ 35.2 $ 42.6 $ 35.2
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
-15-
ALLOWANCE FOR CREDIT LOSSES
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,
------------------------------ ------------------------------
1996 1995 1996 1995
---------- ---------- ---------- -----------
(Dollars in millions)
Average amount of loans outstanding $ 2,632.7 $ 1,814.7 $ 2,478.4 $ $1,701.2
---------- ---------- ---------- -----------
---------- ---------- ---------- -----------
Balance of allowance for credit losses,
beginning of period 127.2 109.1 131.5 $105.3
Loans charged off:
Commercial 2.6 2.0 13.6 9.4
Real estate loans - construction - - -
Real estate loans - mortgage 1.2 0.1 3.5 1.2
Installment - - - -
---------- ---------- ---------- -----------
Total loans charged off 3.8 2.1 17.1 10.6
---------- ---------- ---------- -----------
Less recoveries of loans previously
charged off:
Commercial 4.6 3.9 10.5 14.7
Real estate loans - construction - - - -
Real estate loans - mortgage 0.6 0.4 3.7 1.6
Installment - 0.2 - 0.5
---------- ---------- ---------- -----------
Total recoveries 5.2 4.5 14.2 16.8
---------- ---------- ---------- -----------
Net loans charged off (recovered) (1.4) (2.4) 2.9 (6.2)
Provisions charged to operating
expense - - - -
---------- ---------- ---------- -----------
Balance, end of period $ 128.6 $ 111.5 $ 128.6 $ 111.5
---------- ---------- ---------- -----------
---------- ---------- ---------- -----------
Ratio of net charge-offs to
average loans NM* NM* 0.16% NM*
---------- ---------- ---------- -----------
---------- ---------- ---------- -----------
Ratio of allowance for credit losses
to total period end loans 4.81% 5.87% 4.81% 5.87%
---------- ---------- ---------- -----------
---------- ---------- ---------- -----------
* Not meaningful.
-16-
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, 1996, the balance
remaining in the consolidation reserve was $4.2 million. The Bank is continuing
to negotiate settlements of lease commitments and believes the reserve balance
at September 30, 1996 is adequate to cover these lease liabilities.
CAPITAL ADEQUACY REQUIREMENTS
As of September 30, 1996, the Company had a ratio of Tier 1 capital to
risk-weighted assets (Tier 1 risk-based capital ratio) of 13.72%, a ratio of
total capital to risk weighted assets (total risk-based capital ratio) of
15.01%, and a ratio of Tier 1 capital to average adjusted total assets (Tier 1
leverage ratio) of 9.55%, while the Bank had a Tier 1 risk-based capital ratio
of 12.61%, a total risk-based capital ratio of 13.91% and a Tier 1 leverage
ratio of 8.71%.
At September 30, 1996, the Corporation had repurchased 2.2 million shares
of its stock for approximately $28.9 million, leaving 53,800 shares remaining
to be purchased in the 5% share repurchase program announced on May 3, 1995. In
October 1996, the Corporation announced a repurchase program for an additional
400,000 shares to be used for recently announced acquisitions.
On October 23, 1996, the Board of Directors of the Company declared a
regular quarterly dividend of $.09 per share, payable November 14, 1996 to
shareholders of record as of November 4, 1996.
ACQUISITIONS
On September 16, 1996, the Company announced the signing of a definitive
agreement pursuant to which Ventura County National Bancorp (VCNB) will be
merged into the Company in a transaction totaling $46.2 million. VCNB
shareholders will receive, at their election, cash, stock or a combination
thereof valued at $5.03 per share, with 55 percent stock in the aggregate.
VCNB is the holding company for Ventura County National Bank, the largest
independent bank headquartered in Ventura County, and Frontier Bank, N.A.,
headquartered in Orange County. VCNB has six branches and approximately $272
million in assets at September 30, 1996.
-17-
On October 16, 1996, the Company announced the signing of an definitive
agreement in which Riverside National Bank (RNB) will be merged into City
National Bank in a transaction totaling $39.1 million. RNB shareholders will
receive, at their election, cash, stock or a combination thereof valued at $18
per share, with a minimum of approximately 48 percent and a maximum of
approximately 60 percent stock in the aggregate. Riverside National Bank, the
largest independent bank headquartered in Riverside County, has four branches
and approximately $248 million in assets as of September 30, 1996. The Company
will use previously repurchased shares as well as an additional 400,000 shares
authorized by its board of directors to be repurchased for the stock portions of
the transactions.
The Company has filed the application for the merger with VCNB with the
Federal Reserve Board and the Bank has filed the application for the merger
of Ventura County National Bank and Frontier Bank into City National Bank
with the office of the Comptroller of the Currency. The Bank is in the
process of completing the application for the merger of Riverside National
Bank into City National Bank. Both acquisitions are anticipated to close in
the first quarter of 1997. Both acquisitions are expected to increase the
Company's presence in Southern California and are expected to augument the
Bank's lending portfolio and add to its base of core deposits. Both
acquisitions are expected to be accretive to the Company's earnings during
1997. See "Cautionary Statement For Purposes of the "Safe Harbor" provisions
of the Private Securities Litigation Reform Act of 1995", below.
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 71.3% of total funding in the third quarter
of 1996, compared to 75.5% in the third quarter of 1995. 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.
-18-
The following table shows that the Company's cumulative one year interest
rate sensitivity gap decreased from $110.0 million at September 30, 1995 to
($418.9) million at September 30, 1996. This change resulted from the Company's
effort to lower its exposure to decreases in net interest income due to a rapid
decline in interest rates. The Company has increased its portfolio of loans that
reprice after one year by $523.0 million during the last twelve months. In
addition, the Company has entered into interest rate swap contracts with
remaining maturities in excess of one year totaling $150.0 million to eliminate
its asset sensitivity. At September 30, 1996 the unrealized losses on the
Company's interest rate swap contracts were $.9 million. The Company's liability
sensitive position during a period of slowly rising interest rates is not
expected to have a significant negative impact on net interest income since
rates paid on the Company's large base of interest checking, savings and money
market deposit accounts historically have not increased proportionately with
increases in interest rates.
-19-
INTEREST RATE SENSITIVITY MANAGEMENT
At September 30, 1996 and 1995, 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
------- ------------- ------------ ------- ---------
(Dollars in millions)
SEPTEMBER 30, 1996
Rate-sensitive assets:
Interest-bearing deposits in other banks . . . . . . . . $ 30.2 $ - $ - $ - $ 30.2
Loans. . . . . . . . . . . . . . . . . . . . . . . . . . 1,330.8 359.3 251.2 690.3 2,631.6
Investment securities. . . . . . . . . . . . . . . . . . 1.0 8.6 125.6 51.5 186.7
Securities available for sale. . . . . . . . . . . . . . 50.1 24.1 304.6 288.2 667.0
Trading account. . . . . . . . . . . . . . . . . . . . . 23.0 - - - 23.0
Interest rate swap . . . . . . . . . . . . . . . . . . . (275.0) 125.0 150.0 0.0
Federal funds sold and securities
purchased with agreement to resell . . . . . . . . . 80.0 - - - 80.0
-------- ------- ------- --------- ---------
Total rate-sensitive assets . . . . . . . . . . . . 1,240.1 517.0 831.4 1,030.0 3,618.5
-------- ------- ------- --------- ---------
Rate-sensitive liabilities: (1)
Interest checking. . . . . . . . . . . . . . . . . . . . 297.9 - - - 297.9
Money market deposits. . . . . . . . . . . . . . . . . . 708.8 - - - 708.8
Savings deposits . . . . . . . . . . . . . . . . . . . . 132.0 - - - 132.0
Other time deposits. . . . . . . . . . . . . . . . . . . 212.5 258.3 55.2 0.7 526.7
Short-term borrowings. . . . . . . . . . . . . . . . . . 481.7 50.0 - - 531.7
Long-term debt . . . . . . . . . . . . . . . . . . . . . - 34.8 - - 34.8
-------- ------- ------- --------- ---------
Total rate-sensitive liabilities . . . . . . . . . . 1,832.9 343.1 55.2 0.7 2,231.9
-------- ------- ------- --------- ---------
Interest rate sensitivity gap . . . . . . . . . . . . . . . $ (592.8) $ 173.9 $ 776.2 $ 1,029.3 $ 1,386.6
-------- ------- ------- --------- ---------
-------- ------- ------- --------- ---------
Cumulative interest rate sensitivity gap. . . . . . . . . . $ (592.8) $ (418.9) $ 357.3 $ 1,386.6
-------- ------- ------- --------- ---------
-------- ------- ------- --------- ---------
Cumulative ratio of rate-sensitive assets to rate-sensitive
liabilities. . . . . . . . . . . . . . . . . . . . . . . 68% 81% 116% 162% 162%
-------- ------- ------- --------- ---------
-------- ------- ------- --------- ---------
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
-------- ------------- ------------- ------- ---------
(Dollars in millions)
SEPTEMBER 30, 1995
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%
-------- -------- -------- ----------- -----------
-------- -------- -------- ----------- -----------
(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.
-20-
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995
The Company wishes to take advantage of the "safe harbor" provisions of the
Private Securities Litigation Reform Act of 1995 as to "forward looking"
statements in this Quarterly Report which are not historical facts. The Company
cautions readers that the following important factors could affect the Company's
business and cause actual results to differ materially from those expressed in
any forward looking statement made by, or on behalf of, the Company.
- -- Economic conditions. The Company's results are strongly influenced by
general economic conditions in its market area, Southern California, and a
deterioration in these conditions could have a material adverse impact on
the quality of the Bank's loan portfolio and the demand for its products and
services. In particular, changes in economic conditions in the real estate
and entertainment industries may affect the Company's performance.
- -- Interest rates. Management anticipates that interest rate levels will remain
generally constant in 1996, but if interest rates vary substantially from
present levels, this may cause the Company's results to differ materially.
- -- Government regulation and monetary policy. All forward-looking statements
presume a continuation of the existing regulatory environment and U. S.
Government monetary policies. The banking industry is subject to extensive
federal and state regulations, and significant new laws or changes in, or
repeals of, existing laws may cause results to differ materially. Further,
federal monetary policy, particularly as implemented through the Federal
Reserve System, significantly affects credit conditions for the Bank,
primarily through open market operations in U.S. government securities, the
discount rate for member bank borrowing and bank reserve requirements, and
a material change in these conditions would be likely to have an impact on
results.
- -- Competition. The Bank competes with numerous other domestic and foreign
financial institutions and non-depository financial intermediaries.
Results may differ if circumstances affecting the nature or level of
competitive change, such as the merger of competing financial institutions
or the acquisition of California institutions by out-of-state companies.
-21-
- -- Credit quality. A significant source of risk arises from the possibility
that losses will be sustained because borrowers, guarantors and related
parties may fail to perform in accordance with the terms of their loans.
The Bank has adopted underwriting and credit monitoring procedures and
credit policies, including the establishment and review of the allowance
for credit losses, that management believes are appropriate to minimize
this risk by assessing the likelihood of nonperformance, tracking loan
performance and diversifying the Bank's credit portfolio, but such policies
and procedures may not prevent unexpected losses that could adversely
affect the Company's results.
- -- Other risks. From time to time, the Company details other risks to its
businesses and/or its financial results in its filings with the Securities
and Exchange Commission.
While management believes that its assumptions regarding these and other factors
on which forward-looking statements are based are reasonable, such assumptions
are necessarily speculative in nature, and actual outcomes can be expected to
differ to some degree. Consequently, there can be no assurance that the
results described in such forward-looking statements will, in fact, be
achieved.
-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
None
(b) Reports on Form 8-K
Report dated September 30, 1996, reporting the agreement and plan of
merger between City National Corporation and Ventura County National
Bancorp.
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 7, 1996 /s/ FRANK P. PEKNY
-----------------------------------
FRANK P. PEKNY
Executive Vice President
and Chief Financial Officer
-23-