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 March 31, 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 April 28, 1995: 45,349,252
This Form 10-Q contains 50 pages.
CITY NATIONAL CORPORATION
Consolidated Balance Sheet
(Unaudited)
ASSETS
March 31, December 31, March 31,
1995 1994 1994
--------- ------------ ---------
(Dollars in thousands)
Cash and due from banks...................................... $ 240,609 $ 298,715 $ 238,255
Interest-bearing deposits in other banks..................... 686 674 637
Federal funds sold and securities purchased under
resale agreements.......................................... 135,000 296,966 215,000
Investment securities (market values $609,684, $625,425
and $765,593 at March 31, 1995, December 31, 1994 and
March 31, 1994, respectively).............................. 628,872 659,013 781,356
Securities available for sale (cost $104,512, $96,124 and
$92,814 at March 31, 1995, December 31, 1994 and
March 31, 1994, respectively).............................. 101,238 90,422 92,186
Trading account securities................................... 26,716 25,531 15,881
Loans........................................................ 1,625,569 1,643,918 1,532,865
Less allowance for credit losses............................. 108,358 105,343 111,461
---------- ---------- ----------
Net Loans.................................................. 1,517,211 1,538,575 1,421,404
Leveraged leases............................................. 9,204 9,856 10,059
Premises and equipment, net.................................. 20,677 19,231 18,947
Customers' acceptance liability.............................. 2,706 5,104 4,279
Other real estate............................................ 5,042 4,726 195
Deferred tax asset........................................... 29,925 28,250 21,345
Assets held for accelerated disposition...................... -- -- 2,779
Other assets................................................. 30,171 35,712 53,360
---------- ---------- ----------
Total assets............................................... $2,748,057 $3,012,775 $2,875,683
========== ========== ==========
LIABILITIES
Demand deposits.............................................. $ 910,903 $1,151,709 $ 935,604
Interest checking deposits................................... 264,033 305,659 287,508
Money market accounts........................................ 614,603 669,940 745,298
Savings deposits............................................. 84,258 88,027 101,079
Time deposits - under $100,000............................... 74,295 77,657 92,824
Time deposits - $100,000 and over............................ 124,251 124,770 152,369
---------- ---------- ----------
Total deposits............................................. 2,072,343 2,417,762 2,314,682
Federal funds purchased and securities sold
Under repurchase agreements................................ 278,581 182,120 194,248
Other short-term borrowings.................................. 17,706 50,000 15,000
Mortgages payable............................................ -- -- 7,284
Other liabilities............................................ 34,914 27,068 33,614
Acceptances outstanding...................................... 2,706 5,104 4,279
---------- ---------- ----------
Total liabilities.......................................... 2,406,250 2,682,054 2,569,107
---------- ---------- ----------
Commitments and contingencies
SHAREHOLDERS' EQUITY
Preferred Stock authorized - 5,000,000, none outstanding..... -- -- --
Common stock - par value - $1.00; authorized - 75,000,000
Outstanding - 45,342,370, 45,192,678 and 45,065,730 at
March 31, 1995, December 31, 1994 and March 31, 1994,
respectively............................................... 45,342 45,193 45,066
Surplus...................................................... 264,675 263,609 262,681
Unrealized losses on securities available for sale........... (2,048) (3,564) (407)
Retained earnings (deficit).................................. 33,838 25,483 (764)
---------- ---------- ----------
Total shareholders' equity................................. 341,807 330,721 306,576
---------- ---------- ----------
Total liabilities and shareholders' equity................. $2,748,057 $3,012,775 $2,875,683
========== ========== ==========
See accompanying Notes to the Unaudited Consolidated Financial Statements
2
City National Corporation
Consolidated Statement of Operations
(Unaudited)
For the three months ended March 31,
------------------------------------
1995 1994
------- ------
(Dollars in thousands)
Interest income:
Interest and fees on loans ............................. $37,702 $29,499
Interest on federal funds sold and securities purchased
under resale agreements .............................. 1,201 1,653
Interest on investment securities:
U.S. Treasury and federal agency securities .......... 7,439 8,841
Municipal securities ................................. 287 158
Other securities ..................................... 543 243
Interest on securities available for sale............... 1,742 130
Interest on trading account securities.................. 456 214
------- -------
Total ................................................ 49,370 40,738
------- -------
Interest expense:
Interest on deposits ................................... 7,218 7,167
Interest on federal funds purchased and securities sold
under repurchase agreements .......................... 3,133 1,479
Interest on other short-term borrowings ................ 506 103
------- -------
Total ................................................ 10,857 8,749
------- -------
Net interest income .................................... 38,513 31,989
Provision for credit losses ............................ -- 3,000
------- -------
Net interest income after provision for credit losses .. 38,513 28,989
------- -------
Noninterest income:
Service charges on deposit accounts .................... 1,839 2,771
Trust fees ............................................. 1,638 1,810
Investment services income ............................ 1,984 1,459
Gain on sale of leverage leases ........................ -- 1,331
Gain (loss) on sales of securities .................... 344 --
All other income ....................................... 2,761 2,950
------- -------
Total noninterest income.............................. 8,566 10,321
------- -------
Noninterest expense:
Salaries and other employee benefits ................... 16,593 16,733
Net occupancy of premises .............................. 1,994 2,641
Data processing ........................................ 1,772 1,744
Professional ........................................... 1,737 1,586
FDIC insurance ......................................... 1,233 1,500
Office supplies ........................................ 1,070 1,196
Depreciation ........................................... 1,002 1,061
Promotion .............................................. 1,128 811
Equipment .............................................. 417 536
Other operating ........................................ 2,679 2,826
Other real estate expense (income)...................... 152 (4,526)
------- -------
Total noninterest expense............................. 29,777 26,108
------- -------
Income before taxes....................................... 17,302 13,202
Income taxes ............................................. 6,685 4,542
------- -------
Net income ............................................... $10,617 $8,660
======= =======
Net Income per share ..................................... $0.23 $0.19
======= =======
Shares used to compute net income per share .............. 45,843 45,292
======= =======
See accompanying Notes to the Unaudited Consolidated Financial Statements
3
City National Corporation
Consolidated Statement of Cash Flows
(Unaudited)
For the three months
ended March 31,
----------------------
1995 1994
----------------------
(Dollars in thousands)
Operating Activities
Net income $10,617 $ 8,660
Adjustment to net income:
Provision for credit losses -- 3,000
Gain on sales of ORE and Disposition Program -- (4,591)
Depreciation 1,002 1,061
Net (increase) decrease in trading securities (1,185) 23,884
Net increase in deferred tax benefits (1,675) (3,295)
Income tax refund 4,500 --
Other, net 6,766 7,510
--------- ---------
Net cash provided by operating activites 20,025 36,229
--------- ---------
Investing Activities
Net (increase) decrease in short-term investments (12) 12
Purchase of securities available for sale (10,552) (90,813)
Sales and maturities of securities available for sale 2,224 --
Maturities of investment securities 29,588 308,562
Purchase of investment securities -- (187,752)
Purchase of residential mortgage loans (43,210) --
Other loan originations and principal collections, net 58,594 86,824
Proceeds from sales of ORE and Disposition Program assets -- 7,368
Other, net 4,054 13,368
--------- --------
Net cash provided by investing activities 40,686 137,569
--------- --------
Financing Activities
Net increase (decrease) in federal funds purchased
and securities sold under repurchase agreements 96,461 (8,211)
Net decrease in deposits (345,419) (212,085)
Net decrease in short term borrowings (32,294) --
Proceeds from issuance of stock 1,216 229
Cash dividends paid (2,263) --
Other, net 1,516 20
--------- ---------
Net cash provided by (used in) financing activities (280,783) (220,047)
--------- ---------
Net increase (decrease) in cash and cash equivalents (220,072) (46,249)
Cash and cash equivalents at beginning of year 595,681 499,504
--------- ---------
Cash and cash equivalents at end of year $ 375,609 $ 453,255
--------- ---------
Supplemental disclosures of cash flow information:
Cash paid (received) during the quarter for:
Interest 10,709 8,852
Income taxes (4,500) --
See accompanying Notes to the Unaudited Consolidated Financial Statements
4
CITY NATIONAL CORPORATION
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(Unaudited)
For the three months ended
March 31,
--------------------------
1995 1994
----------- -----------
(Dollars in thousands)
Common Stock
Balance, beginning of period........................ $ 45,193 $ 45,027
Stock options exercised............................. 149 39
-------- --------
Balance, end of period.............................. 45,342 45,066
-------- --------
Surplus
Balance, beginning of period........................ 263,609 262,471
Stock options exercised............................. 921 190
Tax benefit from stock options...................... 145 20
-------- --------
Balance, end of period.............................. 264,675 262,681
-------- --------
Unrealized net losses on securities available for sale
Balance, beginning of period........................ (3,564) --
Change during period................................ 1,516 (407)
-------- --------
Balance, end of period.............................. (2,048) (407)
-------- --------
Retained earnings
Balance, beginning of period........................ 25,483 (9,424)
Net income.......................................... 10,617 8,660
Dividends paid...................................... (2,262) --
-------- --------
Balance, end of period.............................. 33,838 (764)
-------- --------
Total shareholders' equity............................ $341,807 $306,576
======== ========
See accompanying Notes to the Unaudited Consolidated Financial Statements
5
NOTES TO THE 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
included in other real estate and other assets have been reclassified as
nonaccrual loans. At March 31, 1995 the Company had identified impaired
loans that were carried at a net investment amount of $41.8 million. An
allowance for credit losses in the amount of $234 thousand was allocated
to these loans. The Company's policy is to record cash receipts received
on impaired loans first as reductions to principal and then to interest
income.
6
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 $10.6 million, or $.23
per share, in the first quarter of 1995, compared to net income of $8.7 million,
or $.19 per share, in the first quarter of 1994, and net income of $9.9 million,
or $.21 per share, in the fourth quarter of 1994. Most of the change between
first quarters resulted from an increase in net interest income in the first
quarter of 1995 of $6.5 million and a decrease in the provision for credit
losses of $3.0 million. Returns on average assets and on average equity for the
first quarter of 1995 were 1.60% and 12.83%, respectively, compared with 1.23%
and 11.65% in the first quarter of 1994.
Taxable equivalent net interest income was $39.0 million in the first
quarter of 1995, up 21.0% from the year-ago quarter. The increase resulted
primarily from the increase in the net interest spread from 4.19% to 5.10%. The
net interest spread improved because the increases in the prime interest rate
during the last twelve months resulted in higher yields on loans, while rates
paid on interest bearing liabilities increased only slightly between quarters.
The net interest margin increased from 5.04% in 1994 to 6.36% in 1995. Due to an
anticipated leveling or decrease in the general interest rate environment during
the remainder of 1995 and a relatively constant level of earning assets,
management does not expect significant increases in quarterly net interest
income for the remainder of 1995 from first quarter 1995 levels.
Throughout the remainder of 1995 management expects interest earning
assets to increase slightly from the $2.458 billion average level for the first
quarter of 1995. Average loans increased $47.6 million (3.0%) between the first
quarters of 1995 and 1994 to $1.620 billion primarily due to purchases of
residential first mortgage loans. Total average taxable investment and
available for sale securities decreased $62.6 million (8.1%) between first
quarters because maturities of securities were used to meet the decrease in
deposits during the last twelve months. Total deposits decreased $224.8 million
(9.8%) between first quarters. The Company believes that
7
much of the decrease is due to disintermediation in the general market place
typical of a higher interest rate environment.
The provision for credit losses was zero for the quarter ended March
31, 1995, compared with $3.0 million for the corresponding quarter in 1994.
Loans charged off in the first quarter of 1995 were $2.9 million, compared to
$8.9 million in the first quarter of 1994. Recoveries were $6.0 million in the
first quarter of 1995, compared to $6.9 million in the first quarter of 1994.
The provision for credit losses is expected to remain at reduced levels in 1995,
compared with those of the recent past, provided a deterioration of economic
conditions does not occur.
Non-interest income, excluding gains and losses on the sale of
securities and assets, totaled $8.2 million for the first quarter of 1995,
down $.8 million (8.5%) from a year earlier. Service charges on deposit
accounts decreased $.9 million (33.6%) for the quarter ended March 31, 1995 as
customers paid for services with higher earnings on deposit balances as a
result of increased interest rates. Investment services income increased $.5
million (36.0%) for the quarter ended March 31, 1995 due to higher fees and
new investment products offered to customers. Other income in 1994 included a
pre- tax gain of $1.3 million from the sale of two leveraged leases. All other
income decreased $.2 million (6.4%) for the quarter ended March 31, 1995,
because of lower foreign exchange, letter of credit and proof of deposit fees.
Management does not expect significant changes in non-interest income from
first quarter 1995 level during the remaining quarters of 1995.
Excluding net ORE results, non-interest expense totaled $29.6 million
in the first quarter of 1995, a decrease of $1.0 million (3.3%) from the first
quarter of 1994. Net occupancy of premises expenses decreased $.6 million
(24.5%) from the first quarter of 1994 due to the impact of the branch
consolidation program completed in the second quarter of 1994. Salaries and
other employee benefits decreased $.1 million (.8%) for the quarter ended March
31, 1995 from the first quarter of 1994. Higher costs associated with
performance incentives and contributions to the profit sharing plan were largely
offset by a decrease in salary expense due to the branch consolidation program.
Net ORE results in the first quarter of 1995 were an expense of $.2
million, compared to income of $4.5 million in the prior year, $3.5 million of
which was due to the completion of the Company's Accelerated Asset Disposition
Program.
8
The first quarter 1995 effective tax rate increased to 38.6%, compared
to 34.4% for the first quarter of 1994 as California net operating loss
carryforwards were fully utilized in 1994.
9
Net Interest Income Summary
The following table presents the components of net interest income for the
quarters ended March 31, 1995 and 1994.
3-31-95 3-31-94
----------------------------- ------------------------------
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 $867,346 $20,479 9.58% $ 902,365 $16,482 7.41%
Real estate - construction 35,856 1,131 12.79 12,154 247 8.24
Real estate - mortgage 450,409 11,317 10.19 603,894 11,741 7.88
Residential first mortgages 230,973 4,129 7.25 10,473 143 5.54
Installment loans 34,929 894 10.38 43,047 1,008 9.50
---------- ------- ----- ---------- ------- -----
Total loans 1,619,513 37,950 9.40 1,571,933 29,621 7.64
---------- ------- ----- ---------- ------- -----
Due from banks-interest bearing 683 3 1.78 650 5 3.12
State and municipal investment securities 25,723 446 7.03 11,117 246 8.97
Taxable investment securities 616,944 7,979 5.25 759,141 9,084 4.85
Securities available for sale 92,813 1,742 7.61 13,220 130 3.99
Federal funds sold and securities
purchased under resale agreements 74,376 1,201 6.55 208,419 1,648 3.21
Trading account securities 28,243 502 7.21 26,160 230 3.55
---------- ------- ----- ---------- ------- -----
Total earning assets 2,458,295 49,823 8.15 2,590,640 40,964 6.41
---------- ------- ----- ---------- ------- -----
Reserve for credit losses (107,432) (113,508)
Cash and due from banks 241,182 252,889
Other nonearning assets 95,930 126,092
---------- ----------
Total assets $2,687,975 $2,856,113
========== ==========
Liabilities and Shareholders' Equity
Noninterest-bearing deposits $ 879,699 -- -- $ 907,342 -- --
Interest-bearing deposits:
Interest checking accounts 274,232 654 0.97 292,246 696 0.97
Money market accounts 627,067 4,080 2.64 733,504 3,930 2.17
Savings deposits 85,188 413 1.97 102,350 493 1.95
Time deposits - under $100,00 76,188 762 4.06 95,372 847 3.60
Time deposits - $100,000 and over 121,732 1,309 4.36 158,052 1,201 3.08
---------- ------- ----- ---------- ------- -----
Total interest - bearing deposits 1,184,407 7,218 2.47 1,381,524 7,167 2.10
---------- ------- ----- ---------- ------- -----
Total deposits 2,064,106 2,288,866
Federal funds purchased and securities
sold under repurchase agreements 221,544 3,133 5.74 198,955 1,479 3.01
Other short-term borrowings 34,570 506 5.94 14,245 103 2.93
---------- ------- ----- ---------- ------- -----
Total interest - bearing liabilities 1,440,521 10,857 3.05 1,594,724 8,749 2.22
---------- ------- ----- ---------- ------- -----
Other liabilities 32,173 52,509
Shareholders' equity 335,582 301,538
---------- ----------
Total liabilities and shareholders'
equity $2,687,975 $2,856,113
========== ==========
Net interest spread 5.10 4.19
==== ====
Fully taxable equivalent net
interest income $38,966 $32,215
======= =======
and margin 6.36% 5.04%
(1) Fully taxable equivalent basis
(2) Includes average nonaccrual loans of $61,503 and $65,452 for 1995 and
1994, respectively.
(3) Loan income includes loan fees of $1,742 and $1,085 for 1995 and 1994,
respectively.
10
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 March 31 Quarter Ended March 31
1995 vs 1994 1994 vs 1993
------------------------------------- -------------------------------
Increase Increase
Dollars in thousands - (decrease) (decrease)
Fully taxable equivalent basis due to (1): Net due to (1): Net
---------------- increase --------------- increase
Volume Rate (decrease) Volume Rate (decrease)
------ ---- ---------- ------ ---- ----------
Interest earned on:
Interest-bearing deposits
in other banks $ 0 $ (2) $ (2) $ (7) $ 2 $ (5)
Loans 921 7,408 8,329 (7,708) 952 (6,756)
Taxable investment securities (1,807) 702 (1,105) 4,773 (1,608) 3,165
Non-taxable investment securities 263 (63) 200 (337) 130 (207)
Securities available for sale 1,401 211 1,612 (178) (136) (314)
Trading account securities 19 253 272 (44) (2) (46)
Federal funds sold and
securities purchased
under resale agreements (1,482) 1,035 (447) (46) 92 46
------- ------ ------- ------- ------- -------
Total interest-earning
assets (685) 9,544 8,859 (3,547) (570) (4,117)
------- ------ ------- ------- ------- -------
Interest paid on:
Interest checking (42) 0 (42) 11 (333) (322)
Money market deposits (622) 772 150 (196) (625) (821)
Savings deposits (85) 5 (80) (18) (123) (141)
Other time deposits (504) 527 23 (808) (110) (918)
Short-term borrowings 372 1,685 2,057 (1,253) 82 (1,171)
------- ------ ------- ------- ------- -------
Total interest-bearing
liabilities (881) 2,989 2,108 (2,264) (1,109) (3,373)
------- ------ ------- ------- ------- -------
$ 196 $ 6,555 $ 6,751 $(1,283) $ 539 $ (744)
======= ====== ======== ======= ======= =======
(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.
11
BALANCE SHEET ANALYSIS
LOAN PORTFOLIO
A comparative period-end loan table is presented below:
March 31, December 31, March 31,
1995 1994 1994
----------- ------------- -----------
(Dollars in thousands)
Commercial $ 826,642 $ 906,417 $ 881,246
Real estate - construction 44,030 31,201 12,651
Real estate - mortgage 459,308 457,030 583,207
Residential first mortgage 260,502 212,595 13,655
Installment 35,087 36,675 42,106
---------- ---------- ----------
Total loans, gross 1,625,569 1,643,918 1,532,865
Less: Allowance for credit losses (108,358) (105,343) (111,461)
---------- ---------- ----------
Total loans, net $1,517,211 $1,538,575 $1,421,404
========== ========== ==========
Gross loans at March 31, 1995 amounted to $1,626 million, up $93 million
(6.0%) from March 31, 1994. The decrease in commercial loans and real estate
mortgage resulted from loan payoffs in excess of new loans funded. However,
residential first mortgage loans increased $246.8 million between March 31, 1994
and 1995, primarily as a result of purchases of residential mortgages originated
by third parties.
12
The following table presents information concerning nonaccrual loans and
ORE.
March 31, December 31, March 31,
1995 1994 1994
---------- ------------- ----------
(Dollars in thousands)
Nonaccrual loans:
Real estate - mortgages $30,961 $35,534 $50,815
Real estate - construction - - -
Commercial 28,958 23,267 22,337
Installment - - -
------- ------- -------
Total 59,919 58,801 73,152
ORE 5,042 4,726 195
------- ------- -------
Total nonaccrual loans
and ORE $64,961 $63,527 $73,347
======= ======= =======
Restructured loans:
On accrual status $ 2,004 $ 2,061 $ 1,907
On nonaccrual status 7,041 7,043 -
------- ------- -------
Total $ 9,045 $ 9,104 $ 1,907
======= ======= =======
Ratio of nonaccrual loans
to total loans 3.69% 3.57% 4.77%
Ratio of nonaccrual loans and
ORE to total loans and ORE 3.98 3.85 4.78
Ratio of allowance for credit
losses to nonaccrual loans 180.84 179.15 152.37
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 March 31, 1994 and 1995 reflects the
Company's commitment to improving credit quality through initial credit review
and approval policies, and aggressive collection efforts when loans become
questionable.
13
The table below summarizes the approximate changes in nonaccrual loans for the
quarters ended March 31, 1995 and March 31, 1994.
Quarter ended
----------------------
March 31, March 31,
1995 1994
---------- ----------
(Dollars in millions)
Balance, beginning of period $58.8 $ 79.4
Loans placed on nonaccrual 11.5 19.0
Charge offs (1.2) (6.7)
Loans returned to accrual (0.5) (6.4)
Repayments (including interest
applied to principal) (8.7) (12.1)
----- ------
Balance, end of period $59.9 $ 73.2
===== ======
At March 31, 1995, in addition to loans disclosed above as past due or
nonaccrual, management had also identified $4.0 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.
14
The following table summarizes average loans outstanding and changes in
the allowance for credit losses for the periods presented:
Quarter ended
-----------------------
March 31, March 31,
1995 1994
----------- ----------
(Dollars in millions)
Average amount of loans outstanding $1,619.5 $1,571.9
======== ========
Balance of allowance for credit losses,
beginning of period $ 105.3 $ 110.5
Loans charged off:
Commercial 2.3 5.3
Real estate loans - construction - -
Real estate loans - mortgage 0.6 3.4
Installment - 0.2
-------- --------
Total loans charged off 2.9 8.9
-------- --------
Less recoveries of loans previously
charged off:
Commercial 5.2 6.7
Real estate loans - construction - 0.1
Real estate loans - mortgage 0.6 -
Installment 0.2 0.1
-------- --------
Total recoveries 6.0 6.9
-------- --------
Net loans charged off (recovered) (3.1) 2.0
Provisions charged to operating
expense - 3.0
-------- --------
Balance, end of period $ 108.4 $ 111.5
======== ========
Ratio of net charge-offs to
average loans NM .51%
======== ========
Ratio of allowance for credit 6.67% 7.27%
losses to total loans ======== ========
CONSOLIDATION CHARGE RESERVE
In March 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 March 31, 1995, the balance
remaining in the consolidation reserve was $6.7 million. The Bank is continuing
to negotiate settlements of lease commitments and believes the reserve balance
at March 31, 1995 is adequate to cover these lease liabilities and the remaining
expenses expected to be incurred as part of the consolidation program.
15
CAPITAL ADEQUACY REQUIREMENTS
As of March 31, 1995, the Company had a ratio of Tier 1 capital to risk-
weighted assets (Tier 1 risk-based capital ratio) of 19.32%, a ratio of total
capital to risk weighted assets (total risk-based capital ratio) of 20.63%, and
a ratio of Tier 1 capital to average adjusted total assets (Tier 1 leverage
ratio) of 12.82%, while the Bank had a Tier 1 risk-based capital ratio of
18.22%, a total risk-based capital ratio of 19.53% and a Tier 1 leverage ratio
of 12.08%.
The Corporation paid its first dividend of $.05 per share of common stock
in the fourth quarter of 1994 since suspending payment of dividends in August,
1991. A dividend of $.05 per share for the first quarter of 1995 was paid on
February 16, 1995. On April 18, 1995, the Board of Directors of City National
Corporation approved an increase in the Company's quarterly common stock
dividend by 40% to $.07 per share payable on May 9, 1995 to shareholders of
record on April 28, 1995.
On May 3, 1995, the Corporation announced that the Board of Directors has
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.
LIQUIDITY
The Company's liquidity continues to be strong. Average core deposits
comprised 83.7% of total funding in the first quarter of 1995, compared to 85.2%
in the first quarter of 1994.
At March 31, 1995, investment securities maturing within one year
amounted to $125.0 million, and securities available for sale amounted to $101.2
million. Maturing loans also provide liquidity, and $.7 billion 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 slightly from $962.4 million at March 31, 1994 to
$998.9 million at March 31, 1995. The Company's asset sensitive position in the
period of rising interest rates has had a positive effect on net interest
income. If interest rates decline or interest paid on liabilities increases
faster than rates earned on assets, net interest income could be negatively
impacted. The Company, through the use of either on balance sheet or off
balance sheet financial instruments, has the ability to manage the risk to net
interest income posed by certain changes in market interest rates.
Consequently, while the interest rate sensitivity gap is a useful measure and
contributes towards effective asset and liability management, it is difficult to
predict the net interest margin based solely on that measure.
16
Interest Rate Sensitivity Management
At March 31, 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
-------- ------------- ---------- ------- -----
March 31, 1995 (Dollars in millions)
Rate-sensitive assets:
Interest-bearing deposits in other banks........ $ 0.7 $ -- $ -- $ -- $ 0.7
Loans........................................... 914.9 378.5 163.2 107.5 1,564.1
Investment securities........................... 94.6 144.7 160.4 229.2 628.9
Securities available for sale................... -- -- 65.8 35.4 101.2
Trading account................................. 26.7 -- -- -- 26.7
Federal funds sold and securities
purchased with agreement to resell........... 135.0 -- -- -- 135.0
-------- ------ ------ ------ --------
Total rate-sensitive assets.................. 1,171.9 523.2 389.4 372.1 2,456.6
-------- ------ ------ ------ --------
Rate-sensitive liabilities: (1)
Interest checking.............................. 264.0 -- -- -- 264.0
Money market deposits.......................... 614.6 -- -- -- 614.6
Savings deposits............................... 84.2 -- -- -- 84.2
Other time deposits............................ 94.4 70.7 33.5 -- 198.6
Short-term borrowings.......................... 296.3 -- -- -- 296.3
-------- ------ ------ ------ --------
Total rate-sensitive liabilities............ 1,353.5 70.7 33.5 -- 1,457.7
-------- ------ ------ ------ --------
Interest rate sensitivity gap..................... $ (181.6) $452.5 $355.9 $372.1 $ 998.9
======== ====== ====== ====== ========
Cumulative interest rate sensitivity gap.......... $ (181.6) $270.9 $626.8 $998.9
======== ====== ====== ======
Cumulative ratio of rate-sensitive assets to
rate sensitive liabilities...................... 87% 119% 143% 169% 169%
======== ====== ====== ====== ========
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
-------- ------------- ---------- ------- -----
March 31, 1994 (Dollars in millions)
Rate-sensitive assets:
Interest-bearing deposits in other banks........ $ 0.6 $ -- $ -- $ -- $ 0.6
Loans........................................... 1,194.6 92.6 149.3 23.4 1,459.9
Investment securities........................... 119.9 84.9 318.9 243.4 767.1
Securities available for sale................... -- -- 56.3 35.9 92.2
Trading account................................. 15.9 -- -- -- 15.9
Federal funds sold and securities
purchased with agreement to resell........... 215.0 -- -- -- 215.0
-------- ------ ------ ------ --------
Total rate-sensitive assets.................. 1,546.0 177.5 524.5 302.7 2,550.7
-------- ------ ------ ------ --------
Rate-sensitive liabilities: (1)
Interest checking.............................. 287.5 -- -- -- 287.5
Money market deposits.......................... 745.3 -- -- -- 745.3
Savings deposits............................... 101.1 -- -- -- 101.1
Other time deposits............................ 143.1 63.5 38.6 -- 245.2
Short-term borrowings.......................... 209.2 -- -- -- 209.2
-------- ------ ------ ------ --------
Total rate-sensitive liabilities............ 1,486.2 63.5 38.6 -- 1,588.3
-------- ------ ------ ------ --------
Interest rate sensitivity gap..................... $ 59.8 $114.0 $485.9 $302.7 $ 962.4
======== ====== ====== ====== ========
Cumulative interest rate sensitivity gap.......... $ 59.8 $173.8 $659.7 $962.4
======== ====== ====== ======
Cumulative ratio of rate-sensitive assets to
rate sensitive liabilities...................... 104% 111% 142% 161% 161%
======== ====== ====== ====== ========
(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.
17
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
10.2.2 Employment Agreement made as of March 21, 1995 by and between
Bram Goldsmith and City National Bank (Exhibit A to Employment
Agreement is incorporated by reference to Exhibit 10.3 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1991 and by reference to Exhibit 10.3.1 to this
Quarterly Report on Form 10-Q).
10.3.1 Fifth Amendment to Split Dollar Life Insurance Agreement
Collateral Assignment Plan dated as of May 5, 1995.
10.20 Purchase and Sale Agreement and Escrow Instructions dated
March 1995 by and between Weddington Investment Partnership
and City National Bank for purchase of the property located
at 12515 Ventura Boulevard, Studio City, California.
27. Financial Data Schedule
(b) Reports on Form 8-K
None
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: May 12, 1995 /s/ Frank P. Pekny
------------------- -------------------
FRANK P. PEKNY
Executive Vice President
and Treasurer
18
INDEX TO EXHIBITS
Exhibit No. Exhibit Page No.
- ----------- ------- --------
10.2.2 Employment Agreement made as of March 21, 1995, by and
between Bram Goldsmith and City National Bank..................20
10.3.1 Fifth Amendment to Split Dollar Life Insurance Agreement
Collateral Assignment Plan dated as of May 15, 1995 between
The Goldsmith 1980 Insurance Trust and City National Bank......31
10.20 Purchase and Sale Agreement and Escrow Instructions dated
March 2, 1995, by and between Weddington Investment Partnership
and City National Bank for purchase of property located at
12515 Ventura Boulevard, Studio City, California...............33
27 Financial Data Schedule (EDGAR Only)
19