<PAGE> 1
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, 1994 Commission File Number 1-10521
CITY NATIONAL CORPORATION
- - --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
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)
</TABLE>
Registrant's telephone number, including area code (213) 550-5400
--------------
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 30, 1994: 45,070,979
This Form 10-Q contains 26 pages.
<PAGE> 2
CITY NATIONAL CORPORATION
Consolidated Balance Sheet
(Unaudited)
ASSETS
<TABLE>
<CAPTION>
March 31 December 31 March 31
1994 1993 1993
-------- ----------- ---------
(Dollars in thousands)
<S> <C> <C> <C>
Cash and due from banks ....................................... $ 238,255 $ 234,504 $ 293,364
Interest-bearing deposits in other banks ...................... 637 649 606
Federal funds sold and securities purchased under
resale agreements ........................................... 215,000 265,000 275,000
Investment securities (market values $765,593, $902,738
and $364,213 at March 31, 1994, December 31, 1993 and
March 31, 1993, respectively) ............................... 781,356 902,481 357,995
Securities available for sale (cost $92,814 and $2,000 at
March 31, 1994 and December 31, 1993, respectively, and
market value of $27,467 at March 31, 1993)................... 92,186 2,000 26,915
Trading account securities .................................... 15,881 39,765 26,405
Loans.......................................................... 1,524,853 1,620,556 1,871,588
Less allowance for credit losses .............................. 111,461 110,499 130,067
---------- ---------- ----------
Net loans ................................................... 1,413,392 1,510,057 1,741,521
Leveraged leases .............................................. 10,059 13,852 13,735
Premises and equipment, net ................................... 18,947 20,359 22,590
Customers' acceptance liability ............................... 4,279 5,150 4,191
Other real estate ............................................. 3,677 5,559 7,324
Deferred tax asset ............................................ 21,345 18,050 35,720
Assets held for accelerated disposition ....................... 2,779 17,450 70,225
Other assets .................................................. 57,890 65,750 53,599
---------- ---------- ----------
Total assets ................................................ $2,875,683 $3,100,626 $2,929,190
========== ========== ==========
LIABILITIES
Demand deposits ............................................... $ 935,604 $1,088,026 $ 927,692
Interest checking deposits .................................... 287,508 324,034 272,440
Money market accounts ......................................... 745,298 742,381 732,661
Savings deposits .............................................. 101,079 107,221 106,646
Time deposits - under $100,000 ................................ 92,824 96,672 112,643
Time deposits - $100,000 and over ............................. 152,369 168,433 215,675
---------- ---------- ----------
Total deposits .............................................. 2,314,682 2,526,767 2,367,757
Federal funds purchased and securities sold
under repurchase agreements ................................. 194,248 202,459 327,972
Other short-term borrowings ................................... 15,000 15,000 15,000
Mortgages payable ............................................. 7,284 26,319 -
Other liabilities ............................................. 33,614 26,857 11,702
Acceptances outstanding ....................................... 4,279 5,150 4,191
---------- ---------- ----------
Total liabilities ........................................... 2,569,107 2,802,552 2,726,622
---------- ---------- ----------
Commitments and contingencies
SHAREHOLDERS' EQUITY
Preferred Stock, authorized-5,000,000 shares since April 1993
none outstanding
Common stock- par value- $1.00
Authorized-75,000,000 shares since April 1993
Outstanding-45,065,730, 45,027,417 and 32,302,041
at March 31, 1994, December 31, 1993 and
March 31, 1993, respectively ................................ 45,066 45,027 32,302
Additional paid in capital .................................... 262,681 262,471 198,638
Unrealized losses on securities available for sale............. (407) - -
Accumulated deficit............................................ (764) (9,424) (28,372)
---------- ---------- ----------
Total shareholders' equity .................................. 306,576 298,074 202,568
---------- ---------- ----------
Total liabilities and shareholders' equity .................. $2,875,683 $3,100,626 $2,929,190
========== ========== ==========
</TABLE>
See accompanying Notes to the Unaudited Consolidated Financial Statements
- 2 -
<PAGE> 3
City National Corporation
Consolidated Statement of Operations
(Unaudited)
<TABLE>
<CAPTION>
For the quarter ended March 31,
-------------------------------
1994 1993
--------------- --------------
(Dollars in thousands)
<S> <C> <C>
Interest income:
Interest and fees on loans ...................... $29,499 $36,118
Interest on federal funds sold and securities
purchased under resale agreements ............ 1,653 1,612
Interest on investment securities:
U.S. Treasury and federal agency securities... 8,841 5,907
Municipal securities ......................... 158 -
Other securities ............................. 243 203
Interest on securities available for sale........ 130 453
Interest on trading account securities........... 214 276
------- --------
Total ........................................ 40,738 44,569
------- --------
Interest expense:
Interest on deposits ............................ 7,167 9,369
Interest on federal funds purchased and
securities sold under repurchase agreements... 1,479 2,634
Interest on other short-term borrowings ......... 103 119
------- --------
Total ........................................ 8,749 12,122
------- --------
Net interest income ............................. 31,989 32,447
Provision for credit losses ..................... 3,000 11,500
------- --------
Net interest income after provision
for credit losses ............................ 28,989 20,947
------- --------
Noninterest income:
Service charges on deposit accounts ............. 2,771 2,704
Trust fees ...................................... 1,810 2,030
Customer trading account income ................. 1,459 1,709
All other income ................................ 2,950 3,386
Gain on sale of leverage leases ................. 1,331 -
Gain on sale of merchant draft business ......... - 1,850
------- --------
Total noninterest income...................... 10,321 11,679
------- --------
Noninterest expense:
Salaries and other employee benefits ............ 16,733 18,380
Net occupancy of premises ....................... 2,641 2,696
Data processing ................................. 1,744 1,995
Professional .................................... 1,586 1,644
FDIC insurance .................................. 1,500 2,091
Office supplies ................................. 1,196 1,292
Depreciation .................................... 1,061 1,116
Promotion ....................................... 811 387
Equipment ....................................... 536 472
Other operating ................................. 2,826 2,354
Other real estate expense (income)............... (4,526) 40,336
------- --------
Total noninterest expense..................... 26,108 72,763
------- --------
Income (loss) before taxes 13,202 (40,137)
Income taxes (benefit) ............................ 4,542 (14,283)
------- --------
Net income (loss) ................................. $ 8,660 $(25,854)
======= ========
Income (loss) per share ........................... $0.19 $(0.80)
===== ======
Shares used to compute earnings (loss) per share... 45,292,079 32,302,041
========== ==========
</TABLE>
See accompanying Notes to the Unaudited Consolidated Financial Statements
- 3 -
<PAGE> 4
City National Corporation
Consolidated Statement of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
For the three months
ended March 31
-----------------------
1994 1993
----------- ----------
(Dollars in thousands)
<S> <C> <C>
Operating Activities
Net income (loss) ...................................................... $ 8,660 $ (25,854)
Adjustment to net income (loss):
Provision for credit losses ......................................... 3,000 11,500
Writedowns on ORE ................................................... - 39,620
Gain on sales of ORE and Disposition Program assets.................. (4,591) -
Depreciation ........................................................ 1,061 1,116
Net (increase) decrease in trading securities ....................... 23,884 (16,147)
Net (increase) decrease in deferred tax benefits .................... (3,295) 1,400
Other, net .......................................................... 7,510 9,246
--------- ---------
Net cash provided by operating activities......................... 36,229 20,881
--------- ---------
Investing Activities
Net decrease in short-term investments ................................. 12 14,350
Maturities of securities available for sale............................. - 3,240
Purchases of securities available for sale ............................. (90,813) -
Maturities of investment securities .................................... 308,562 62,394
Purchases of investment securities...................................... (187,752) (6,850)
Loans originations and principal collections, net ...................... 86,824 175,427
Proceeds from sales of ORE and Disposition Program assets .............. 7,368 2,628
Other, net ............................................................. 13,368 (9,260)
--------- ---------
Net cash provided by investing activities ........................... 137,569 241,929
--------- ---------
Financing Activities
Net decrease in federal funds purchased and securities sold
under repurchase agreements ......................................... (8,211) (11,177)
Net decrease in deposits ............................................... (212,085) (543,519)
Proceeds from issuance of stock......................................... 229 433
Other, net ............................................................. 20 -
--------- ---------
Net cash used in financing activities ............................... (220,047) (554,263)
--------- ---------
Net decrease in cash and cash equivalents ............................. (46,249) (291,453)
Cash and cash equivalents at beginning of period ....................... 499,504 859,817
--------- ---------
Cash and cash equivalents at end of period ............................. $ 453,255 $ 568,364
========= =========
Supplemental disclosures of cash flow information
Cash paid (received) during the period for:
Interest.......................................................... $ 8,852 $ 12,475
Income taxes...................................................... - (30,023)
Non-cash investing activities:
Transfer from loans to ORE and Disposition Program................ - 70,225
</TABLE>
See accompanying Notes to the Unaudited Consolidated Financial Statements
-4-
<PAGE> 5
CITY NATIONAL CORPORATION
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(Unaudited)
<TABLE>
<CAPTION>
For the three months ended
March 31
--------------------------
1994 1993
---------- -----------
(Dollars in thousands)
<S> <C> <C>
Common Stock
Balance, beginning of period ......... $ 45,027 $ 32,240
Stock options exercised ............... 39 62
-------- --------
Balance, end of period ................ 45,066 32,302
-------- --------
Additional paid in capital
Balance, beginning of period ......... 262,471 198,222
Stock options exercised ............... 190 371
Tax benefit from stock options ........ 20 45
-------- --------
Balance, end of period ................ 262,681 198,638
-------- --------
Unrealized losses on securities held for sale
Balance, beginning of period ......... - -
Change during period .................. (407) -
-------- --------
Balance, end of period ................ (407) -
-------- --------
Accumulated deficit
Balance, beginning of period ........ (9,424) (2,518)
Net income (loss) ..................... 8,660 (25,854)
-------- --------
Balance, end of period ................ (764) (28,372)
-------- --------
Total shareholders' equity ..................... $306,576 $202,568
======== ========
</TABLE>
See accompanying Notes to the Unaudited Consolidated Financial Statements
-5-
<PAGE> 6
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,
1993.
2. In March of 1993, the Company adopted a program (Disposition Program) to
accelerate the disposition of certain assets, consisting of other real
estate owned (ORE), including in-substance foreclosures, and certain
nonaccrual loans. The assets included in this program are segregated as
"assets held for accelerated disposition" on the consolidated balance
sheet. The book value of these assets prior to the adoption of the
disposition program was $88.9 million of ORE and $30.6 million of
nonaccrual loans. A credit loss provision of $4.0 million and additional
ORE writedowns and expense accruals of $36.5 million and certain charge
offs in the amount of $12.4 million were recorded during the first quarter
of 1993 to record the assets at their estimated liquidation values. The
Bank signed a definitive agreement to sell, as of November 1, 1993, all six
asset pools in the Disposition Program. The sale of the loans contained in
the Disposition Program for $48.3 million closed concurrently with the
signing of the definitive agreement and a gain of $12.8 million was
recognized at that time. During the first quarter of 1994, the Company
closed the sale of substantially all of the ORE contained in the
Disposition Program and recorded a gain of $3.5 million.
3. 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
-6-
<PAGE> 7
and reported as a net amount after taxes, in a separate component of
shareholders' equity, until realized.
4. 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.
5. On April 20, 1993, the shareholders of the Company authorized an additional
25 million shares of common stock and 5 million shares of preferred stock,
$1.00 par value. The rights and preferences of the preferred stock will be
determined by the Company's Board of Directors at such time, if any, as the
issuance of the preferred stock is authorized.
-7-
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
The following discussion summarizes some of the developments significant to
City National Corporation during the first quarter of 1994. However, the
Company's consolidated financial statements for the quarter and the entire
Management's Discussion and Analysis of Financial Condition and Results of
Operations included in this Quarterly Report should be reviewed for a more
complete understanding of the Company's financial position and its results of
operations.
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 Company, references to the Company in this Item 2 reflect
the consolidated activities of the Company and the Bank.
The Company recorded consolidated net income of $8.7 million, or $.19 per
share, in the first quarter of 1994, compared to a loss of $25.9 million, or
$.80 per share, in the first quarter of 1993, and net income of $4.6 million,
or $.10 per share, in the fourth quarter of 1993. The change between first
quarters primarily was the result of a decrease in net ORE results of $44.9
million, a decrease in the credit loss provision of $8.5 million and a $1.8
million decrease in noninterest expense other than ORE expense. These factors
were partially offset by a decrease in noninterest income of $1.4 million due
to lower volumes.
Return on average assets for the first quarters of 1994 and 1993 was 1.23%
and (3.41%), respectively. Return on average equity for the first quarters of
1994 and 1993 was 11.65% and (46.1%), respectively.
The allowance for credit losses at March 31, 1994 was $111.5 million, or
7.31% of loans outstanding, up from 6.82% at December 31, 1993 and 6.95% at
March 31, 1993. Net charge offs totaled $2.0 million in the first quarter of
1994, or .51% of average loans, down from $18.4 million, or 4.63% of average
loans, in the fourth quarter of 1993, and less than the $17.5 million, or 3.53%
of average loans, in the first quarter of 1993.
Based on existing economic indicators and independent economic forecasts,
management believes that a recovery in the Southern California economy is
likely to begin in the later part of 1994, but the strength, timing and
consistency of any such recovery is not
-8-
<PAGE> 9
yet determinable. Based on its review of the loan portfolio, management
anticipates that net charge offs and provisions for credit losses for 1994 will
decrease from 1993 levels.
Nonaccrual loans totaled $65.1 million at March 31, 1994, or 4.3% of total
loans, down from $71.1 million, or 4.4%, at December 31, 1993, and $113.8
million, or 6.1%, a year earlier. ORE totaled $3.7 million at March 31, 1994,
down from $5.6 million at December 31, 1993, and $7.3 million at March 31,
1993. The reduction in nonaccrual loans between first quarters was principally
attributable to payments, restoration of loans to accrual status and charge
offs.
During the first quarter of 1994, the Bank completed the sale of
substantially all of the ORE contained in its accelerated asset disposition
program (Disposition Program) and recognized a pretax gain of $3.5 million,
which was included in net ORE results.
In April, 1994, the Bank completed a consolidation plan to improve
efficiency and operational productivity in its branch network. The
streamlining reduced the Bank's total number of branches from 22 to 16, while
designating four of the remaining locations as regional commercial lending
centers. In addition to providing a full array of regular banking services,
the centers house teams of lenders specializing in serving mid-size businesses,
as well as the Bank's larger, more complex relationships. Completion of the
branch restructuring is expected to result in an expense savings of
approximately $8.0 million per year, before the effect of inflation and other
factors. However, this will be partially offset by decreased income resulting
from reductions in loans and deposits caused by the consolidation.
On January 21, 1994, the Office of the Comptroller of the Currency (OCC)
terminated the written agreement with the Bank (Agreement) that had been in
effect since November 18, 1992. In February 1994, the Federal Reserve Bank of
San Francisco notified the Corporation that the Memorandum of Understanding
(MOU), which it had entered into with the Corporation in February 1993, was
also terminated.
On January 17, 1994 and during the days thereafter, Los Angeles was struck
by a series of strong earthquakes. Based on the information currently
available, the Bank does not believe that earthquake-related losses, including
those related to its facilities, will be material to the Bank's financial
position.
-9-
<PAGE> 10
NET INTEREST INCOME
Taxable equivalent net interest income was $32.2 million in the first
quarter of 1994, down 2.3% from the year-ago quarter. The decline resulted
primarily from a $67 million (2.5%) decrease in average interest earning assets
for the first quarter from the year ago quarter. The net interest margin
increased slightly from 5.03% in 1993 to 5.04% in 1994.
Management expects interest earning assets to increase from the $2.590
billion average level for the first quarter of 1994, primarily due to increased
purchases of securities. The increases in interest earning assets and the
recent increases in the prime interest rate, if sustained, are expected to
result in higher net interest income for the remainder of 1994, compared to the
first quarter of 1994.
Average loans declined $410.1 million (20.7%) between first quarters to
$1.572 billion at March 31, 1994. The majority of this decrease reflected
lower average commercial loans outstanding, down $210.3 million (18.9%). This
decline resulted from decreased loan demand because of the recession in
Southern California. Average construction loans decreased $86.1 million
(87.6%) from the first quarter of 1993, primarily because the Bank
significantly curtailed new construction loan commitments beginning in late
1990. Average real estate mortgage loans decreased $98.4 million (13.8%)
between first quarters, primarily because of the sale of $73.7 million of
equity line of credit (ELC) loans in April 1993.
Average taxable investment securities increased $372.2 million (93.0%)
between first quarters, as a result of the investment of the Bank's excess
liquidity in government and agency securities during the last twelve months.
Average state and municipal securities decreased $17.0 million (60.5%) between
first quarters due to maturities.
The Bank's interest bearing deposits decreased between first quarters
partly as a result of the low interest rates paid to depositors, while total
deposits decreased due to the weak economy and the uncertainty caused by the
Bank's losses and the Agreement. Average non-interest bearing deposits
decreased $20.8 million (2.2%), while average interest bearing core deposits
decreased $53.8 million (4.2%) between first quarters. Average time deposits
of $100,000 and over decreased $78.2 million, or 33.1%.
Average federal funds purchased and securities sold under repurchase
agreements decreased $169.4 million (46.0%) between first quarters due to the
Company's improved liquidity.
-10-
<PAGE> 11
NET INTEREST INCOME SUMMARY
The following table presents the components of net interest income for the
quarters ended March 31, 1994 and 1993.
<TABLE>
<CAPTION>
3-31-94 3-31-93
--------------------------------- ---------------------------------
Interest Average Interest Average
Average income/ interest Average income/ interest
Dollars in thousands-fully taxable equivalent basis(1) Balance expense rate Balance expense rate
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS(2)
Earning assets
Loans:(3)
Commercial loans $ 902,365 $16,360 7.41% $1,112,705 $19,872 7.34%
Real estate - construction 12,154 247 8.24 98,214 1,762 7.28
Real estate - mortgage 614,367 11,884 7.84 712,720 13,014 7.41
Installment loans 43,047 1,008 9.50 58,428 1,470 10.20
---------- ------- ---- ---------- ------- -----
Total loans 1,571,933 29,499 7.64 1,982,067 36,118 7.44
---------- ------- ---- ---------- ------- -----
Due from banks - interest bearing 650 5 3.12 1,503 10 3.11
State and municipal securities 11,117 158 8.97 28,149 453 9.52
Other securities 772,361 9,214 4.84 400,165 6,110 6.19
Federal funds sold and securities
purchased under resale agreements 208,419 1,648 3.21 214,455 1,602 3.03
Trading account securities 26,160 214 3.55 31,096 276 4.25
---------- ------- ---- ---------- ------- -----
Total earning assets 2,590,640 40,738 6.41 2,657,435 44,569 6.88
---------- ------- ---- ---------- ------- -----
Reserve for credit losses (113,508) (139,258)
Cash and due from banks 252,889 313,630
Other nonearning assets 126,092 239,942
---------- ----------
Total assets $2,856,113 $3,071,749
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Noninterest-bearing deposits $ 907,342 - - $ 928,132 - -
Interest-bearing deposits:
Interest checking accounts 292,246 696 0.97 289,262 1,018 1.43
Money market accounts 733,504 3,930 2.17 766,184 4,751 2.51
Savings deposits 102,350 493 1.95 105,554 634 2.44
Time deposits - under $100,000 95,372 847 3.60 116,238 1,110 3.87
Time deposits - $100,000 and over 158,052 1,201 3.08 236,275 1,856 3.19
---------- ------- ---- ---------- ------- -----
Total interest-bearing deposits 1,381,524 7,167 2.10 1,513,513 9,369 2.51
---------- ------- ---- ---------- ------- -----
Total deposits 2,288,866 2,441,645
Federal funds purchased and securities
sold under repurchase agreements 198,955 1,479 3.01 368,322 2,634 2.90
Other short-term borrowings 14,245 103 2.93 14,515 119 3.32
---------- ------- ---- ---------- ------- -----
Total interest-bearing liabilities 1,594,724 8,749 2.22 1,896,350 12,122 2.59
Other liabilities 52,509 ------- ---- 19,781 -------
Shareholders' equity 301,538 227,486
---------- ----------
Total liabilities and shareholders'
equity $2,856,113 $3,071,749
========== ==========
Net interest income/spread 31,989 4.19 32,447 4.29
======= ==== ======= ====
Fully taxable equivalent net interest income $32,215 $32,959
======= =======
Net interest margin(4) 5.04% 5.03%
</TABLE>
(1) The interest income and average rate data in this table are presented on a
taxable equivalent basis. Interest income exempt from federal income taxes,
or income taxed at a rate less than the statutory tax rates, has been
adjusted to a taxable equivalent basis using the federal income tax rates
in effect during the years presented.
(2) Includes average nonaccrual loans of $65,452 and $134,149 for 1994 and
1993, respectively.
(3) Loan income includes loan fees of $1,085 and $1,182 for 1994 and 1993,
respectively.
(4) Fully taxable net interest income divided by interest-earning assets.
-11-
<PAGE> 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.
<TABLE>
<CAPTION>
Quarter Ended March 31 Quarter Ended March 31
1994 vs 1993 1993 vs 1992
--------------------------------- --------------------------------
Increase Increase
Dollars in thousands - (decrease) (decrease)
Fully taxable equivalent basis (1) due to (2): Net due to (2): Net
----------------- increase ----------------- increase
Volume Rate (decrease) Volume Rate (decrease)
------ ---- ---------- ------ ---- ----------
<S> <C> <C> <C> <C> <C> <C>
Interest earned on:
Interest-bearing deposits
in other banks $ (7) $ 2 $ (5) $ 9 $ (1) $ 8
Loans (7,708) 952 (6,756) (10,228) (3,384) (13,612)
Taxable securities 4,579 (1,479) 3,100 (2,323) (1,237) (3,560)
Non-taxable securities (438) (64) (502) (1,755) 44 (1,711)
Federal funds sold and
securities purchased
under resale agreements (46) 92 46 (2,365) (1,029) (3,394)
------- ------- ------- -------- ------- --------
Total interest-earning
assets (3,620) (497) (4,117) (16,662) (5,607) (22,269)
------- ------- ------- -------- ------- --------
Interest paid on:
Interest checking 11 (333) (322) (262) (599) (861)
Money market deposits (196) (625) (821) (2,242) (2,309) (4,551)
Savings deposits (18) (123) (141) 39 (220) (181)
Other time deposits (808) (110) (918) (4,155) (2,028) (6,183)
Short-term borrowings (1,253) 82 (1,171) (1,283) (1,038) (2,321)
------- ------- ------- -------- ------- --------
Total interest-bearing
liabilities (2,264) (1,109) (3,373) (7,903) (6,194) (14,097)
------- ------- ------- -------- ------- --------
$(1,356) $ 612 $ (744) $ (8,759) $ 587 $ (8,172)
======= ======= ======= ======== ======= ========
</TABLE>
(1) The changes in interest income in this table are presented on a fully
taxable equivalent basis. Interest income exempt from federal income
taxes, or income taxed at a rate less than the statutory tax rates, has
been adjusted to a fully taxable equivalent basis using the federal income
tax rates in effect in the periods presented.
(2) 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.
-12-
<PAGE> 13
PROVISION FOR CREDIT LOSSES
The provision for credit losses was $3.0 million in the first quarter of
1994, compared to $11.5 million, $7.5 million, $5.5 million and $5.5 million
for the first through fourth quarters of 1993. The provision for credit losses
in the first quarter of 1993 included $4.0 million resulting from the Bank's
Disposition Program (see "Accelerated Asset Disposition Program," below).
Loans charged off in the first quarter of 1994 were $8.9 million, compared to
$24.3 million in the first quarter of 1993, including $12.4 million resulting
from the adoption of the Disposition Program. Recoveries were $6.9 million in
the first quarter of 1994, compared to $6.8 million in the first quarter of
1993.
The provision for credit losses charged to operations reflects management's
judgment of the adequacy of the allowance for credit losses and is determined
through periodic analysis of the loan portfolio. This analysis includes a
detailed review of the classification and categorization of problem and
potential problem loans and loans to be charged off; an assessment of the
overall quality and collectability of the portfolio; and consideration of the
loan loss experience, trends in problem loans and concentrations of credit
risk, as well as current and expected future economic conditions (particularly
in Southern California). The Bank has an internal risk analysis and review
staff that reports to the Board of Directors and continuously reviews loan
quality. Such reviews also assist management in establishing the level of the
allowance for credit losses.
Unless there is significant deterioration in economic conditions,
management anticipates, based on its review of the loan portfolio, that net
charge offs and provisions for credit losses for 1994 will continue to decrease
from 1993 levels. However, no assurance can be given that the Bank will not in
any particular period sustain credit losses that are sizable in relation to the
allowance for credit losses, or that subsequent evaluations of the loan
portfolio, in light of the factors then prevailing, including economic
conditions and further declines in property values, will not require
significant increases in the allowance for credit losses.
NONINTEREST INCOME
Noninterest income for the first quarter of 1994 totaled $10.3 million,
down $1.4 million (11.6%) from a year earlier. Service charges on deposit
accounts increased slightly,
-13-
<PAGE> 14
$0.1 million (2.5%), between first quarters. Due to the effect of recent
increases in interest rates utilized for purposes of account analysis, service
charges on deposit accounts may be less than first quarter 1994 levels in
future quarters. Customer trading account income decreased $0.2 million
(14.6%) between first quarters, due primarily to lower volumes and reduced
spreads on trading account transactions with customers. Trust fees decreased
$0.2 million (10.8%) between first quarters due to lower volumes. Other income
in the first quarter of 1994 included pre-tax gain of $1.3 million from sale of
two leveraged leases, and other income in the first quarter of 1993 included
$1.9 million from sale of the Bank's merchant credit card business. All other
income decreased $0.4 million (12.9%) between first quarters because of lower
escrow, foreign exchange, letter of credit and proof of deposit fees.
Management does not expect a significant increase in noninterest income from
first quarter 1994 levels during the remainder of 1994.
NONINTEREST EXPENSE
Excluding net ORE results, noninterest expense totaled $30.6 million in the
first quarter of 1994, a decrease of $1.8 million (5.5%) from the first quarter
of 1993. Salaries and other employee benefits decreased $1.6 million (9.0%)
between first quarters. This decrease was due primarily to decreases in staff
levels, which have declined from approximately 1,650 at December 31, 1992 to
1,280 at March 31, 1994.
The remaining expense categories besides staff decreased $.1 million (1.0%)
between first quarters. Decreases of $.6 million in FDIC insurance and $.3
million in data processing expenses were mostly offset by increases of $.4
million in promotion expense due to the increased level of the Bank's
advertising program and a $.5 million increase in other operating expenses due
to the Bank's share of losses in a real estate investment partnership.
Management anticipates that non-interest expenses for the remainder of 1994
will decrease from first quarter 1994 levels due to the completion of the
branch consolidation program.
Net ORE results in the first quarter of 1994 were a credit of $4.5 million
resulting from the sale of Disposition Program ORE for a gain of $3.5 million
and sales of other ORE for gains totalling $1.0 million, compared to an expense
of $40.3 million ($36.5 million resulting from the Disposition Program) in the
first quarter of 1993.
-14-
<PAGE> 15
INCOME TAXES
The first quarter 1994 effective tax expense rate was 34.4%, compared to an
effective tax benefit rate of 35.6% for the first quarter of 1993. The
effective rates differed from the statutory federal tax rates of 34% for 1993
and 35% for 1994 due primarily to tax exempt income.
The California franchise tax provision recorded for the first quarter of
1994 was $.1 million consisting of the Company's California alternative minimum
tax liability. Due to the Company's net operating loss carry-forwards, no
regular California franchise tax provision was recorded. At March 31, 1994,
the Company had a California net operating loss carry-forward of $21.5 million,
of which $10.7 million will expire in 1997 and $10.8 million will expire in
1998.
BALANCE SHEET ANALYSIS
LOAN PORTFOLIO
A comparative period-end loan table is presented below:
<TABLE>
<CAPTION>
March 31, December 31, March 31,
1994 1993 1993
---------- ---------- ----------
(Dollars in thousands)
<S> <C> <C> <C>
Commercial and financial(1) $ 876,716 $ 939,719 $1,064,563
Real estate - construction 12,651 11,699 87,960
Real estate - mortgage 593,380 623,653 662,193
Installment 42,106 45,485 56,872
---------- ---------- ----------
Total loans, gross 1,524,853 1,620,556 1,871,588
Less: Allowance for credit losses (111,461) (110,499) (130,067)
---------- ---------- ----------
Total loans, net $1,413,392 $1,510,057 $1,741,521
========== ========== ==========
</TABLE>
(1) Commercial and financial loans include unsecured loans to real estate
developers and customers involved in real estate investments and commercial
loans where real estate partially secures the borrowing.
Gross loans at March 31, 1994 amounted to $1,525 million, down $347
million (18.5%) from March 31, 1993. The decrease in loans resulted from
decreased loan demand because of the recession and the sale of $73.7 million of
the Bank's ELC loans in April 1993. Commercial loans continue to constitute
the major portion of the Bank's lending activity, 57.5% at March 31, 1994 and
56.9% at March 31, 1993. Real estate construction loans decreased $75.3
million, or 85.6%, between March 31, 1993 and March 31, 1994,
-15-
<PAGE> 16
because new construction lending was curtailed beginning in late 1990, and
certain construction loans were transferred to the real estate mortgage
category after completion of construction. Real estate mortgage loans
decreased $68.8 million, or 10.4%, between March 31, 1993 and 1994, primarily
due to pay downs and the sale of $73.7 million of ELC loans.
Substantially all of the Bank's loans are in Southern California. At
March 31, 1994, real estate construction and mortgage loans constituted 39.7%
of the Bank's loan portfolio. No other industry comprised 10% or more of the
portfolio.
REAL ESTATE CONSTRUCTION LOANS BY TYPE
<TABLE>
<CAPTION>
March 31, December 31, March 31,
1994 1993 1993
--------- ----------- ---------
(Dollars in thousands)
<S> <C> <C> <C>
Condominium and apartment $ - $ - $ 19,559
Shopping center - - 15,456
1-4 family 832 594 11,597
Office building 7,517 7,282 24,380
Industrial - - 6,571
Other 4,302 3,823 10,397
-------- -------- --------
$ 12,651 $ 11,699 $ 87,960
======= ======= =======
</TABLE>
REAL ESTATE MORTGAGE LOANS BY TYPE
<TABLE>
<CAPTION>
March 31, December 31, March 31,
1994 1993 1993
--------- ------------ ---------
(Dollars in thousands)
<S> <C> <C> <C>
Equity lines of credit $ 31,878 $ 47,279 $144,395(1)
Industrial 118,849 123,594 141,637
Office building 104,142 110,183 107,528
Shopping center 62,309 68,236 65,590
Other 1-4 family(2) 40,021 37,347 34,491
Condominium and apartment 45,010 54,040 41,549
Land, non-residential 32,242 32,885 27,411
Other 158,928 150,089 99,592
-------- -------- ---------
$ 593,380 $ 623,653 $ 662,193
======== ======== ========
</TABLE>
(1) Equity lines of credit are carried as loans held for sale at March 31,
1993. At June 30, 1993, due to the Bank's improved liquidity and management's
decision to hold the remaining portfolio of equity lines of credit until
maturity, the remaining loans were reclassified from loans held for sale to
real estate mortgage loans.
(2) Does not include condominium and apartment loans or equity lines of credit.
-16-
<PAGE> 17
RISK ELEMENTS
NONACCRUAL, PAST DUE AND RESTRUCTURED LOANS
The following table presents information concerning nonaccrual loans,
ORE, accruing loans which are contractually past due 90 days or more as to
interest or principal payments and still accruing, and restructured loans.
<TABLE>
<CAPTION>
March 31, December 31, March 31,
1994 1993 1993
-------- ---------- --------
(Dollars in thousands)
<S> <C> <C> <C>
Nonaccrual loans:
Real estate - construction $ - $ - $ 22,022
Real estate - mortgage 47,333 48,016 33,193
Commercial 17,807 23,040 58,123
Installment - - 505
------- ------- -------
Total 65,140 71,056 113,843
ORE 3,677 5,559 7,324
------- ------- -------
Total nonaccrual loans
and ORE $ 68,817 $ 76,615 $121,167
======= ======= =======
Assets held for
accelerated disposition $ 2,779 $ 17,450 $ 70,225
======= ======= =======
In-substance foreclosures - intangible assets $ 4,530 $ 4,740 $ 5,677
======= ======= =======
Ratio of nonaccrual loans
to total loans 4.27% 4.38% 6.08%
Ratio of nonaccrual loans
and ORE to total loans and ORE 4.50 4.71 6.45
Ratio of allowance for credit
losses to nonaccrual loans 171.11 155.51 114.25
Accruing loans past due
90 days or more:
Real estate $ 18,046 $ 17,412 $ 17,979
Commercial 10,453 11,382 3,568
Installment 138 155 33
------- ------- -------
Total $ 28,637 $ 28,949 $ 21,580
======= ======= =======
Restructured loans; all
on accrual status $ 1,907 $ 958 $ 1,103
======= ======= =======
</TABLE>
-17-
<PAGE> 18
NONACCRUAL LOANS
The table below summarizes the approximate changes in nonaccrual loans
for the quarters ended March 31, 1994, December 31, 1993, and March 31, 1993,
and for the year ended December 31, 1993.
<TABLE>
<CAPTION>
Quarter ended
--------------------------------------------- Full
March 31 December 31, March 31, year
1994 1993 1993 1993
-------- ---------- --------- -----
(Dollars in millions)
<S> <C> <C> <C> <C>
Balance, beginning of period $ 71.1 $ 97.3 $160.3 $ 160.3
Loans placed on nonaccrual 19.0 19.5 40.3 105.7
Charge offs (6.5) (19.3) (22.3) (66.8)
Loans returned to accrual (6.4) (12.5) (17.5) (43.1)
Repayments (including interest
applied to principal) (12.1) (11.8) (18.7) (56.4)
Transfers to ORE - (2.1) (7.0) (13.9)
Transfer from (to)
Disposition Program, net - - (21.3) (14.7)
------- ------- ------ ------
Balance, end of period $ 65.1 $ 71.1 $113.8 $ 71.1
====== ====== ===== ======
</TABLE>
The additional interest income that would have been recorded from
nonaccrual loans (including restructured loans on nonaccrual status), if the
loans had not been on nonaccrual status, was $.4 million and $2.9 million for
the quarters ended March 31, 1994 and 1993, respectively. Interest payments
received on nonaccrual loans are applied to principal, unless there is no doubt
as to ultimate full repayment of principal, in which case the interest payment
is recognized as interest income. Interest income included $1.4 million and
$.8 million for the quarters ended March 31, 1994 and 1993, respectively, from
the collection of interest related to nonaccrual loans, including loans paid
off during the quarter. Interest income not recognized on nonaccrual loans
reduced the net interest margin by 7 and 45 basis points for the quarters ended
March 31, 1994 and 1993, respectively.
POTENTIAL PROBLEM LOANS
At March 31, 1994, in addition to loans disclosed above as past due,
nonaccrual or restructured, management had also identified $46.0 million of
loans about which it had serious doubts as to the ability of the borrowers to
comply with the present loan payment terms in the future. This amount was
determined based on analysis of information known to management about the
borrower's financial condition and current and expected economic
-18-
<PAGE> 19
conditions. Unfunded loan commitments pertaining to these potential problem
loans totaled $1.2 million. If economic conditions change, or if additional
information relating to borrowers' financial condition come to light, then the
amount of such potential problem loans may change significantly. Currently
estimated potential losses from these potential problem loans have been
considered in determining the adequacy of the allowance for credit losses.
OTHER REAL ESTATE
The following tables summarize the changes in the Company's ORE
balances and ORE by type:
<TABLE>
<CAPTION>
CHANGES IN ORE BALANCES
Quarter ended
------------------------------------------------------------------
March 31, December 31, March 31,
1994 1993 1993
---------- ----------- ----------
(Dollars in thousands)
<S> <C> <C> <C>
Balance, beginning of period $ 5,559 $ 5,114 $ 94,065
Additions - 1,359 6,952
Sales (1,817) (824) (2,628)
Writedowns - - (39,620)
Payments and other reductions (65) (90) (2,556)
Transfer to Disposition Program - - (48,889)
-------- -------- --------
Balance, end of period $ 3,677 $ 5,559 $ 7,324
======= ======= ========
</TABLE>
-19-
<PAGE> 20
ALLOWANCE FOR CREDIT LOSSES
The following table summarizes average loans outstanding and changes
in the allowance for credit losses for the periods presented:
<TABLE>
<CAPTION>
Quarter ended Year ended
----------------------------------------------------------- ------------
March 31, December 31, March 31, December 31,
1994 1993 1993 1993
---------- ---------- ---------- ---------
(Dollars in millions)
<S> <C> <C> <C> <C>
Average amount of loans outstanding $ 1,571.9 $ 1,589.1 $ 1,982.1 $ 1,737.4
======== ======== ======== ========
Balance of allowance for credit losses,
beginning of period $ 110.5 $ 123.4 $ 136.1 $ 136.1
-------- -------- -------- --------
Loans charged off:
Commercial 5.3 24.3 8.0 56.0
Real estate loans - construction - - 2.4 3.2
Real estate loans - mortgage 3.4 0.7 13.4 23.1
Installment 0.2 - 0.5 0.6
---------- ---------- ---------- ----------
Total loans charged off 8.9 25.0 24.3 82.9
---------- --------- -------- ---------
Less recoveries of loans previously
charged off:
Commercial 6.7 6.1 6.8 27.8
Real estate loans - construction 0.1 - - -
Real estate loans - mortgage - 0.5 - .8
Installment 0.1 - - .2
---------- ---------- ---------- ---------
Total recoveries 6.9 6.6 6.8 28.8
---------- --------- --------- ---------
Net loans charged off 2.0 18.4 17.5 54.1
Provisions charged to operating
expense 3.0 5.5 11.5 30.0
Other(1) - - - (1.5)
---------- ---------- --------- ---------
Balance, end of period $ 111.5 $ 110.5 $ 130.1 $ 110.5
======== ======== ======= ========
Ratio of net charge-offs to
average loans .51% 4.63% 3.53% 3.12%
========= ========= ======== ========
</TABLE>
(1) Credit loss allowance allocated to $73.7 million of equity line of credit
loans sold in April 1993.
The allowance for credit losses decreased from $130.1 million at March
31, 1993 to $111.5 million at March 31, 1994, primarily due to net charge offs
in excess of provisions for credit losses during the twelve months ended March
31, 1994.
At March 31, 1994, the allowance for credit losses was 7.31% of gross
loans, compared to 6.95% at March 31, 1993. The allowance at March 31, 1994
was equal to 171.1% of total nonaccrual loans, as compared to 114.3% at March
31, 1993.
-20-
<PAGE> 21
The Company has not yet determined when it will implement SFAS No.
114, "Accounting by Creditors for Impairment of a Loan," which becomes
effective January 1, 1995, but management believes that the adoption of SFAS
No. 114 will not have a material impact on its results of operations or
shareholder's equity.
INVESTMENT SECURITIES
A comparative period-end table is presented below:
<TABLE>
<CAPTION>
March 31, December 31, March 31,
1994 1993 1993
----------- ----------- ----------
(Dollars in thousands)
<S> <C> <C> <C>
Investment securities:
Cost $ 781,356 $ 902,481 $ 357,995
======== ========== ========
Market $ 765,593 $ 902,738 $ 364,213
======== ========== ========
Market in excess of (below) cost $ (15,763) $ 257 $ 6,218
======== =========== =========
</TABLE>
The Company has the ability and management has the intent to hold its
investment securities until maturity.
Due to the rise in interest rates in the first quarter of 1994, the
market value of the Company's investment securities portfolio is $15.8 million
(2.0%) lower than its carrying value.
SECURITIES AVAILABLE FOR SALE
Securities available for sale amounted to $92.2 million at market
(cost of $92.8 million) at March 31, 1994, compared to $2.0 million (both cost
and market) at December 31, 1993 and $26.9 million (market value $27.5 million)
at March 31, 1993. In order to provide flexibility with respect to future loan
funding, the Company has designated certain securities purchased during the
first quarter with its excess liquidity as securities available for sale.
DEFERRED TAX BENEFITS
Deferred tax benefits amounted to $21.3 million at March 31, 1994 and
$35.7 million at March 31, 1993. These deferred tax benefits were primarily
due to the inability of the Bank to take loan loss deductions with respect to
anticipated loan losses for income tax
-21-
<PAGE> 22
purposes, but for which a reserve had been established on its financial
accounting records. It is more likely than not that the reversing deductible
temporary differences, net of the recorded valuation allowances, at March 31,
1994 will be realized by the availability of reversing taxable temporary
differences, recovery of taxes paid in applicable carry-back years, and
projected taxable income for 1994.
ASSETS HELD FOR ACCELERATED DISPOSITION
In March 1993, the Bank adopted an accelerated asset disposition
program to aggressively dispose of ORE and certain problem loans with an
aggregate book value before the Disposition Program of $119.5 million.
The Bank signed a definitive agreement to sell, as of November 1,
1993, all six asset pools in its Accelerated Asset Disposition Program to
WHC-THREE Investors, L.P. ("WHC-THREE"), a limited partnership. The sale of
the loans contained in the Disposition Program for $48.3 million closed
concurrently with the signing of the definitive agreement and a gain of $12.8
million was recognized at that time, net of disposition expenses and reserves.
The sale of substantially all of the Disposition Program ORE closed in the
first quarter of 1994, and a pretax gain of $3.5 million was recognized at that
time. At March 31, 1994, the remaining Disposition Program assets were carried
at $2.8 million, net of disposition expenses and reserves. No losses are
anticipated upon final resolution of these assets. At March 31, 1994, the Bank
had interim mortgages on certain Disposition Program ORE properties totalling
$7.3 million which will be cancelled in exchange for title to the properties at
the closing of the sale of these properties or upon repurchase of the
properties by the Bank if valuation differences cannot be satisfactorily
resolved with WHC-THREE.
The Bank provided loans totaling $56.0 million (75% financing) for
this sale at terms comparable with other real estate loans in its portfolio.
The terms of the notes require annual pay downs and payment of the remaining
principal in five years, in addition to payments when individual real estate
assets securing the loans are sold or refinanced.
CAPITAL ADEQUACY REQUIREMENTS
As of March 31, 1994, the Company had a ratio of Tier 1 capital to
risk-weighted assets (Tier 1 risk-based capital ratio) of 17.64%, a ratio of
total capital to risk weighted
-22-
<PAGE> 23
assets (total risk-based capital ratio) of 18.96%, and a ratio of Tier 1
capital to average adjusted total assets (Tier 1 leverage ratio) of 10.75%,
while the Bank had a Tier 1 risk-based capital ratio of 16.59%, a total
risk-based capital ratio of 17.91% and a Tier 1 leverage ratio of 10.14%.
Based on the availability of recovery of taxes paid in prior years and
projected taxable income for the next twelve months, there is no limitation on
the amount of recorded deferred tax assets includable in regulatory capital at
March 31, 1994 under OCC guidelines.
LIQUIDITY
A fundamental aspect of the asset/liability management strategy of the
Company is adequate liquidity -- the ability to meet the requirements of
customers for loans and deposit withdrawals in the most timely and economical
manner.
For most financial institutions, the most manageable sources of
liquidity are composed of liabilities, especially core deposits. Average core
deposits increased to 85.2% of total funding in the first quarter of 1994,
compared to 78.1% in the first quarter of 1993.
Liquidity is also provided by assets such as federal funds sold,
securities purchased under resale agreements and trading account securities
which may be immediately converted into cash at a minimal cost. Liquidity may
also be provided by maturing investment securities. At March 31, 1994,
investment securities maturing within one year amounted to $188.6 million and
securities available for sale amounted to $92.2 million. Maturing loans also
provide liquidity, and $1.0 billion of the Bank's loans are scheduled to mature
in the next twelve months.
City National Corporation has no outstanding debt obligations and
limited financial requirements. At March 31, 1994, it had repurchase
agreements with the Bank of $2.0 million and securities of $16.1 million.
Interest sensitivity is related to liquidity because both are affected
by the interrelationships of maturing assets and liabilities. Interest rate
sensitivity management, however, is concerned with the timing and magnitude of
repricing assets compared to liabilities. It is the objective of interest
rate-sensitivity management to control the risks associated with interest rate
movement.
-23-
<PAGE> 24
INTEREST RATE SENSITIVITY MANAGEMENT
At March 31, 1994 and 1993, the Company's distribution of rate-sensitive assets
and liabilities was as follows:
<TABLE>
<CAPTION>
Maturing or repricing in
---------------------------------------------------------------
After 3 After 1 year
3 months months but but within After
or less within 1 year 5 years 5 years Total
-------- ------------- ------------ ------- --------
MARCH 31, 1994 (Dollars in millions)
<S> <C> <C> <C> <C> <C>
Rate-sensitive assets:
Interest-bearing deposits in other banks .....................$ 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 securities.................................... 15.9 - - - 15.9
Federal funds sold and securities
purchased under resale agreements ......................... 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 $962.4
======== ====== ====== ======
Cumulative ratio of rate-sensitive assets to
rate-sensitive liabilities.................................... 104% 111% 142% 161% 161%
======== ====== ====== ====== ========
</TABLE>
<TABLE>
<CAPTION>
Maturing or repricing in
---------------------------------------------------------------
After 3 After 1 year
3 months months but but within After
or less within 1 year 5 years 5 years Total
-------- ------------- ----------- -------- --------
MARCH 31, 1993 (Dollars in millions)
<S> <C> <C> <C> <C> <C>
Rate-sensitive assets:
Interest-bearing deposits in other banks .....................$ 0.6 $ - $ - $ - $ 0.6
Loans ........................................................ 1,520.8 69.5 131.5 36.0 1,757.8
Investment securities ........................................ 56.9 150.9 117.3 32.9 358.0
Securities available for sale ................................ 7.1 14.1 5.6 0.1 26.9
Trading account securities ................................... 26.4 - - - 26.4
Federal funds sold and securities
purchased under resale agreements ......................... 275.0 - - - 275.0
-------- ------ ------ ------ --------
Total rate-sensitive assets ............................... 1,886.8 234.5 254.4 69.0 2,444.7
-------- ------ ------ ------ --------
Rate-sensitive liabilities:(1)
Interest checking ............................................ 272.4 - - - 272.4
Money market deposits ........................................ 732.7 - - - 732.7
Savings deposits ............................................. 106.6 - - - 106.6
Other time deposits .......................................... 210.1 79.0 39.2 - 328.3
Short-term borrowings ........................................ 343.0 - - - 343.0
-------- ------ ------ ------ --------
Total rate-sensitive liabilities .......................... 1,664.8 79.0 39.2 - 1,783.0
-------- ------ ------ ------ --------
Interest rate sensitivity gap ...................................$ 222.0 $155.5 $215.2 $ 69.0 $ 661.7
======== ====== ====== ====== ========
Cumulative interest rate sensitivity gap ........................$ 222.0 $377.5 $592.7 $661.7
======== ====== ====== ======
Cumulative ratio of rate-sensitive assets to
rate-sensitive liabilities ................................... 113% 122% 133% 137% 137%
======== ====== ====== ====== ========
</TABLE>
(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.
-24-
<PAGE> 25
The interest rate-sensitivity gap is defined as the difference between
interest-earning assets and interest-bearing liabilities maturing or repricing
within a given time period. A gap is considered positive when the amount of
interest rate-sensitive assets exceeds the amount of interest rate-sensitive
liabilities. A gap is considered negative when the amount of interest
rate-sensitive liabilities exceeds interest rate-sensitive assets. During a
period of rising interest rates, a negative gap would tend to adversely affect
net interest income, while a positive gap would tend to result in an increase
in net interest income. During a period of falling interest rates, a negative
gap would tend to result in an increase in net interest income, while a
positive gap would tend to affect net interest income adversely.
The preceding table shows that the Company's positive interest rate
sensitivity gap increased from $661.7 million at March 31, 1993 to $962.4
million at March 31, 1994. This increase was due primarily to a $194.7 million
decline in rate sensitive liabilities, especially time deposits and short-term
borrowings. Rate-sensitive assets increased $106.0 million, primarily as a
result of the use of proceeds from the issuance of common stock and sale of
assets in the Disposition Program to purchase securities. The Company's highly
asset sensitive position in this period of rising interest rates will have a
positive effect on net interest income. 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.
-25-
<PAGE> 26
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
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 16, 1994 /s/ Frank P. Pekny
------------ ----------------------------
FRANK P. PEKNY
Executive Vice President and
Treasurer
-26-
