<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
----------------
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE YEAR ENDED DECEMBER 31, 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, 90210
BEVERLY HILLS, CALIFORNIA (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE
OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (310) 888-6000
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- ---------------------
<S> <C>
Common Stock, $1.00 par value New York Stock Exchange
</TABLE>
NO SECURITIES ARE REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT
----------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. YES X NO
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
Number of shares of common stock outstanding at February 23, 1996:
44,381,321
Aggregate market value of the voting stock held by non-affiliates of the
Registrant as of February 23, 1996:
$510,086,918
DOCUMENTS INCORPORATED BY REFERENCE
THE INFORMATION REQUIRED TO BE DISCLOSED PURSUANT TO PART III OF THIS REPORT
EITHER SHALL BE (i) DEEMED TO BE INCORPORATED BY REFERENCE FROM SELECTED
PORTIONS OF THE DEFINITIVE PROXY STATEMENT FOR CITY NATIONAL CORPORATION'S
1996 ANNUAL MEETING OF SHAREHOLDERS, IF SUCH PROXY STATEMENT IS FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO THE REGULATION 14A NOT LATER
THAN 120 DAYS AFTER THE END OF THE CORPORATION'S MOST RECENTLY COMPLETED
FISCAL YEAR, OR (ii) INCLUDED IN AN AMENDMENT TO THIS REPORT FILED WITH THE
COMMISSION ON FORM 10-K/A.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART I
ITEM 1. BUSINESS
City National Corporation (the Corporation) was organized in Delaware in
1968 to acquire the outstanding capital stock of City National Bank (the
Bank). Because the Bank comprises substantially all of the business of the
Corporation, references to the "Company" reflect the consolidated activities
of the Corporation and the Bank. The Corporation owns all the outstanding
shares of the Bank.
The Bank, which was founded in 1953, conducts business in Southern
California and during 1995 operated 14 banking offices in Los Angeles County,
one in Orange County, and one in San Diego County. On December 31, 1995, the
Bank completed its acquisition of First Los Angeles Bank (First LA), a ten
branch bank based in Century City, California, for $85.0 million in cash.
First LA had total assets of $867.0 million at the date of acquisition. In
February 1996, the Bank consolidated the Beverly Hills and Downtown Los
Angeles branches of First LA with its existing branches and also consolidated
the Bank's Newport Beach retail branch with the former First LA MacArthur
Court branch.
The Bank primarily serves middle-market companies, professional and business
borrowers and associated individuals with commercial banking and fiduciary
needs. The Bank provides revolving lines of credit, term loans, asset based
loans, real estate secured loans, residential first trust deed mortgages,
trade facilities, and deposit, cash management and other business services.
The Bank's City National Investments Division offers personal, employee
benefit and estate services, and deals in money market and other investments
for its own account and for its customers. The Bank offers mutual funds and
annuity products in association with other companies.
Competition
The banking business is highly competitive. The Bank competes with domestic
and foreign banks for deposits, loans and other banking business. In addition,
other financial intermediaries, such as savings and loans, money market mutual
funds, credit unions and other financial services companies, compete with the
Bank.
Non-depository institutions can be expected to increase the extent to which
they act as financial intermediaries. Large institutional borrowers and
sources of non-bank credit may also increase the extent to which they interact
directly, meeting business credit needs outside the banking system.
Furthermore, the geographic constraints on portions of the financial services
industry can be expected to continue to erode.
Monetary Policy
The earnings of the Bank are affected not only by general economic
conditions, but also by the policies of various governmental regulatory
authorities in the U.S. and abroad. In particular, the Board of Governors of
the Federal Reserve System (Federal Reserve Board) exerts a substantial
influence on interest rates and credit conditions, primarily through open
market operations in U.S. government securities, varying the discount rate on
member bank borrowings and setting reserve requirements against deposits.
Federal Reserve Board monetary policies have had a significant effect on the
operating results of financial institutions in the past and are expected to
continue to do so in the future.
SUPERVISION AND REGULATION
Bank holding companies, banks and their non-bank affiliates are extensively
regulated under both federal and state law. The following is not intended to
be an exhaustive description of the statutes and regulations applicable to the
Corporation's or the Bank's business. The description of statutory and
regulatory provisions is qualified in its entirety by reference to the
particular statutory or regulatory provisions.
<PAGE>
Moreover, major new legislation and other regulatory changes affecting the
Corporation, the Bank, banking and the financial services industry in general
have occurred in the last several years and can be expected to occur in the
future. The nature, timing and impact of new and amended laws and regulations
cannot be accurately predicted.
Bank Holding Companies
Bank holding companies are regulated under the Bank Holding Company Act (BHC
Act) and are supervised by the Federal Reserve Board. Under the BHC Act, the
Corporation files reports of its operations with the Federal Reserve Board and
is subject to examination by it.
The BHC Act requires, among other things, the Federal Reserve Board's prior
approval whenever a bank holding company proposes to (i) acquire all or
substantially all the assets of a bank, (ii) acquire direct or indirect
ownership or control of more than 5% of the voting shares of a bank, or (iii)
merge or consolidate with another bank holding company.
In September 1994, the Riegle-Neal Interstate Banking and Branch Efficiency
Act (the Riegle-Neal Act) was enacted. Under the Riegle-Neal Act, interstate
banking is allowed in three different forms:
. Effective September 1995, a bank owned by a holding company may acquire a
subsidiary bank anywhere in the United States.
. Effective September 1995, a bank owned by a holding company may act as an
agent in accepting deposits or servicing loans for any other bank or
savings or loan owned by the holding company.
. Effective June 1, 1997, a bank may establish a branch or merge with a
bank in another state, but only if the bank's home state permits
interstate mergers and branches, and the other state has not passed a law
to prohibit interstate mergers or branches.
Interstate bank subsidiaries and branch banks are subject to concentration
limits, Community Reinvestment Act requirements, bank supervisory controls and
other restrictions of the Riegle-Neal Act or of state law.
California law permits bank holding companies in other states to acquire
California banks and bank holding companies, provided the acquiring company's
home state has enacted "reciprocal" legislation that expressly authorizes
California bank holding companies to acquire banks or bank holding companies
in that state on terms and conditions substantially no more restrictive than
those applicable to such an acquisition in California by a bank holding
company from the other state.
The BHC Act also prohibits a bank holding company, with certain exceptions,
from acquiring more than 5% of the voting shares of any company that is not a
bank and from engaging in any activities without the Federal Reserve Board's
prior approval other than (1) managing or controlling banks and other
subsidiaries authorized by the BHC Act, or (2) furnishing services to, or
performing services for, its subsidiaries. The BHC Act authorizes the Federal
Reserve Board to approve the ownership of shares in any company, the
activities of which have been determined to be so closely related to banking
or to managing or controlling banks as to be a proper incident thereto.
Consistent with its "source of strength" policy (see "Capital Adequacy
Requirements," below), the Federal Reserve Board has stated that, as a matter
of prudent banking, a bank holding company generally should not pay cash
dividends unless its net income available to common shareholders has been
sufficient to fund fully the dividends, and the prospective rate of earnings
retention appears consistent with the company's capital needs, asset quality
and overall financial condition.
A bank holding company and its subsidiaries are prohibited from engaging in
certain tying arrangements in connection with the extension of credit.
The Federal Reserve Board may, among other things, issue cease-and-desist
orders with respect to activities of bank holding companies and nonbanking
subsidiaries that represent unsafe or unsound practices or violate a
2
<PAGE>
law, administrative order or written agreement with a federal banking
regulator. The Federal Reserve Board can also assess civil money penalties
against companies or individuals who violate the BHC Act or other federal laws
or regulations, order termination of nonbanking activities by nonbanking
subsidiaries of bank holding companies and order termination of ownership and
control of a nonbanking subsidiary by a bank holding company.
National Banks
The Bank is a national bank and, as such, is subject to supervision and
examination by the Office of the Comptroller of the Currency (OCC) and
requirements and restrictions under federal and state law, including
requirements to maintain reserves against deposits, restrictions on the types
and amounts of loans that may be granted and the interest that may be charged,
and limitations on the types of investments that may be made and services that
may be offered. Various consumer laws and regulations also affect the Bank's
operations. These laws primarily protect depositors and other customers of the
Bank, rather than the Corporation and its shareholders.
"Brokered deposits" are deposits obtained by a bank from a "deposit broker"
or that pay above-market rates of interest. Because the Bank is categorized as
a well capitalized financial institution, the Bank can accept brokered
deposits without the prior approval of the Federal Deposit Insurance
Corporation (FDIC).
The Corporation's principal asset is its investment in, and its loans and
advances to, the Bank. Bank dividends are one of the Corporation's principal
sources of liquidity. The Bank's ability to pay dividends is limited by
certain statutes and regulations. OCC approval is required for a national bank
to pay a dividend if the total of all dividends declared in any calendar year
exceeds the total of the bank's net profits (as defined) for that year
combined with its retained net profits for the preceding two calendar years,
less any required transfer to surplus. A national bank may not pay any
dividend that exceeds its net profits then on hand after deducting its loan
losses and bad debts, as defined by the OCC. The OCC and the Federal Reserve
Board have also issued banking circulars emphasizing that the level of cash
dividends should bear a direct correlation to the level of a national bank's
current and expected earnings stream, the bank's need to maintain an adequate
capital base and other factors. National banks that are not in compliance with
regulatory capital requirements generally are not permitted to pay dividends.
The Bank is in compliance with such requirements. The OCC also can prohibit a
national bank from engaging in an unsafe or unsound practice in its business.
Depending on the bank's financial condition, payment of dividends could be
deemed to constitute an unsafe or unsound practice. Except under certain
circumstances and with prior regulatory approval, a bank may not pay a
dividend if, after so doing, it would be undercapitalized. The Bank's ability
to pay dividends in the future is, and could be further, influenced by
regulatory policies or agreements and by capital guidelines.
The Bank's ability to make funds available to the Corporation is also
subject to restrictions imposed by federal law on the Bank's ability to extend
credit to the Corporation to purchase assets from it, to issue a guarantee,
acceptance or letter of credit on its behalf (including an endorsement or
standby letter of credit), to invest in its stock or securities, or to take
such stock or securities as collateral for loans to any borrower. Such
extensions of credit and issuances generally must be secured and are generally
limited, with respect to the Corporation, to 10% of the Bank's capital stock
and surplus.
The Bank is insured by the FDIC and therefore is subject to its regulations.
Among other things, the Federal Deposit Insurance Corporation Improvement Act
of 1991 (FDICIA) provided authority for special assessments against insured
deposits and required the FDIC to develop a general risk-based assessment
system. During 1995, the Bank Insurance Fund reached its targeted level of
1.25% of estimated insured deposits. The FDIC has reduced the assessment rate
for well capitalized banks to $2,000 per year for 1996.
Banks and bank holding companies are also subject to the Community
Reinvestment Act of 1977, as amended (CRA). CRA requires the Bank to ascertain
and meet the credit needs of the communities it serves, including low- and
moderate-income neighborhoods. The Bank's compliance with CRA is reviewed and
3
<PAGE>
evaluated by the OCC, which assigns the Bank a publicly available CRA rating
at the conclusion of the examination. Further, an assessment of CRA compliance
is also required in connection with applications for OCC approval of certain
activities, including establishing or relocating a branch office that accepts
deposits or merging or consolidating with, or acquiring the assets or assuming
the liabilities of, a federally regulated financial institution. An
unfavorable rating may be the basis for OCC denial of such an application, or
approval may be conditioned upon improvement of the applicant's CRA record. In
the case of a bank holding company applying for approval to acquire a bank or
other bank holding company, the Federal Reserve Board will assess the CRA
record of each subsidiary bank of the applicant, and such records may be the
basis for denying the application.
In the most recently completed CRA compliance examination, conducted in
1995, the OCC assigned the Bank a rating of "Satisfactory," the second highest
of four possible ratings. From time to time, banking legislation has been
proposed that would require consideration of the Bank's CRA rating in
connection with applications by the Corporation or the Bank to the Federal
Reserve Board or the OCC for permission to engage in additional lines of
business. The Corporation cannot predict whether such legislation will be
adopted, or its effect upon the Bank and the Corporation if adopted. In April
1995, the federal regulatory agencies issued a comprehensive revision to the
rules governing CRA compliance. In assigning a CRA rating to a bank, the new
regulations place greater emphasis on measurements of performance in the areas
of lending (specifically, the bank's home mortgage, small business, small farm
and community development loans), investment (the bank's community development
investments) and service (the bank's community development services and the
availability of its retail banking services), although examiners are still
given a degree of flexibility in taking into account unique characteristics
and needs of the bank's community and its capacity and constraints in meeting
such needs. The new regulations also require increased collection and
reporting of data regarding certain kinds of loans. Although the regulations
became generally effective on July 1, 1995, various provisions have different
effective dates, and the new CRA evaluation criteria will go into effect for
examinations beginning on July 1, 1997. Although management cannot predict the
impact of the substantial changes in the new rules on the Bank's CRA rating,
it will continue to take steps to comply with the requirements in all
respects.
In 1995, the OCC adopted regulations under FDICIA incorporating guidelines
establishing standards for safety and soundness, including operational and
managerial standards relating to internal controls and information systems,
internal audit systems, loan documentation, credit underwriting, interest rate
exposure, asset growth and compensation, fees and benefits, as well as
prohibiting compensation deemed excessive. If the OCC finds that a bank has
failed to meet any applicable standard, it may require the institution to
submit an acceptable plan to achieve compliance, and if the bank fails to
comply, the OCC must, by order, require it to correct the deficiency. The
guidelines are general in nature and are not expected to require material
changes in the Bank's operations.
The OCC has enforcement powers with respect to national banks for violations
of federal laws or regulations that are similar to the powers of the Federal
Reserve Board with respect to bank holding companies and nonbanking
subsidiaries. See "Bank Holding Companies," above.
Capital Adequacy Requirements
Both the Federal Reserve Board and the OCC have adopted similar, but not
identical, "risk-based" and "leverage" capital adequacy guidelines for bank
holding companies and national banks, respectively. Under the risk-based
capital guidelines, different categories of assets are assigned different risk
weights, ranging from zero percent for risk-free assets (e.g., cash) to 100%
for relatively high-risk assets (e.g., commercial loans). These risk weights
are multiplied by corresponding asset balances to determine a risk-adjusted
asset base. Certain off-balance sheet items (e.g., standby letters of credit)
are added to the risk-adjusted asset base. The minimum required ratio of total
capital to risk-weighted assets for both bank holding companies and national
banks is presently 8%, but the Federal Reserve Board and the OCC may increase
the minimum ratios applicable to a bank holding company or bank to reflect
various kinds of risk. At least half of the total capital is required to be
"Tier 1 capital," consisting principally of common shareholders' equity, a
limited amount of perpetual preferred stock and minority interests in the
equity accounts of consolidated subsidiaries, less certain goodwill items. The
4
<PAGE>
remainder (Tier 2 capital) may consist of a limited amount of subordinated
debt, certain hybrid capital instruments and other debt securities, preferred
stock and a limited amount of the general loan-loss allowance. As of December
31, 1995, the Corporation had a ratio of total capital to risk-weighted assets
(total risk-based capital ratio) of 14.91% and a ratio of Tier 1 capital to
risk-weighted assets (Tier 1 risk-based capital ratio) of 13.60%, while the
Bank had a total risk-based capital ratio of 13.95% and a Tier 1 risk-based
capital ratio of 12.64%.
The minimum Tier 1 leverage ratio, consisting of Tier 1 capital to average
adjusted total assets, is 3% for bank holding companies and national banks
that have the highest regulatory examination rating and are not contemplating
significant growth or expansion. All other bank holding companies and national
banks are expected to maintain a ratio of at least 1% to 2% or more above the
stated minimum. As of December 31, 1995, the Corporation had a Tier 1 leverage
ratio of 11.17%, and the Bank's Tier 1 leverage ratio was 10.40%.
The OCC has adopted regulations under FDICIA establishing capital categories
for national banks and requiring prompt corrective actions for
undercapitalized institutions. The regulations create five capital categories:
well capitalized, adequately capitalized, undercapitalized, significantly
undercapitalized and critically undercapitalized. The following table shows
the minimum total risk-based capital, Tier 1 risk-based capital and Tier 1
leverage ratios, all of which must be satisfied for a bank to be classified as
well capitalized, adequately capitalized or undercapitalized, respectively,
together with the Bank's ratios at December 31, 1995:
<TABLE>
<CAPTION>
MINIMUM TOTAL MINIMUM TIER
RISK-BASED 1 RISK-BASED MINIMUM TIER 1
CAPITAL RATIO CAPITAL RATIO LEVERAGE RATIO
------------- ------------- --------------
<S> <C> <C> <C>
City National Bank (at
December 31, 1995).......... 13.95% 12.64% 10.40%
Well capitalized(1).......... 10.00% 6.00% 5.00%
Adequately capitalized....... 8.00% 4.00% 4.00%(2)
Undercapitalized............. 6.00% 4.00% 3.00%
</TABLE>
- --------
(1) A bank may not be classified as well capitalized if it is subject to a
specific agreement with the OCC to meet and maintain a specified level of
capital.
(2)3% for institutions having a composite rating of "1" in the most recent OCC
examination.
If any one or more of a bank's ratios are below the minimum ratios required
to be classified as undercapitalized, it will be classified as significantly
undercapitalized or, if in addition its ratio of tangible equity to total
assets is 2% or less, it will be classified as critically undercapitalized. A
bank may be reclassified by the OCC to the next level below that determined by
the criteria described above if the OCC finds that it is in an unsafe or
unsound condition or if it has received a less-than-satisfactory rating for
any of the categories of asset quality, management, earnings or liquidity in
its most recent examination and the deficiency has not been corrected, except
that a bank cannot be reclassified as critically undercapitalized for such
reasons.
Under FDICIA and its implementing regulations, the OCC may subject national
banks to a broad range of restrictions and regulatory requirements. A national
bank may not pay management fees to any person having control of the
institution, nor, except under certain circumstances and with prior regulatory
approval, make any capital distribution if, after doing so, it would be
undercapitalized. Undercapitalized banks are subject to increased monitoring
by the OCC, are restricted in their asset growth, must obtain regulatory
approval for certain corporate activities, such as acquisitions, new branches
and new lines of business, and, in most cases, must submit to the OCC a plan
to bring their capital levels to the minimum required in order to be
classified as adequately capitalized. The OCC may not approve a capital
restoration plan unless each company that controls the bank guarantees that
the bank will comply with it. Significantly and critically undercapitalized
banks are subject to additional mandatory and discretionary restrictions and,
in the case of critically undercapitalized institutions, must be placed into
conservatorship or receivership unless the OCC and the FDIC agree otherwise.
5
<PAGE>
Under Federal Reserve Board policy, a bank holding company is expected to
act as a source of financial strength to its subsidiary banks and to commit
resources to support each such bank. In addition, a bank holding company is
required to guarantee that its subsidiary bank will comply with any capital
restoration plan required under FDICIA. The amount of such a guarantee is
limited to the lesser of (i) 5% of the bank's total assets at the time it
became undercapitalized, or (ii) the amount which is necessary (or would have
been necessary) to bring the bank into compliance with all applicable capital
standards as of the time the bank fails to comply with the capital restoration
plan. A holding company guarantee of a capital restoration plan results in a
priority claim to the holding company's assets ahead of its other unsecured
creditors and shareholders that is enforceable even in the event of the
holding company's bankruptcy or the subsidiary bank's insolvency.
ITEM 2. PROPERTIES
The Company has its principal offices in the City National Bank Building,
400 North Roxbury Drive, Beverly Hills, California 90210, which the Bank owns
and occupies. As of December 31, 1995, the Bank and its subsidiaries actively
maintained premises composed of 27 banking offices (including offices acquired
upon the merger with First LA), a computer center, and certain other
properties.
Since 1967, the Bank's Pershing Square Regional Office and a number of Bank
departments have been the major tenant of the office building located at 600
South Olive Street in downtown Los Angeles. The building was originally
developed and built by a partnership between a wholly-owned subsidiary of the
Bank, Citinational Bancorporation, and Buckeye Construction Co. and Buckeye
Realty and Management Corporation (two corporations then affiliated with Mr.
Bram Goldsmith, Chairman of the Board of the Corporation); since its
completion, the building has been owned by Citinational-Buckeye Building Co.,
a limited partnership of which Citinational Bancorporation and Olive-Sixth
Buckeye Co. are the only general partners, each with a 29% partnership
interest. Citinational Bancorporation has an additional 3% interest as a
limited partner of Citinational-Buckeye Building Co.; the remainder is held by
other, unaffiliated limited partners. Olive-Sixth Buckeye Co. is a limited
partnership of which Mr. Goldsmith is a 49% general partner; therefore, Mr.
Goldsmith has an indirect 14% ownership interest in Citinational-Buckeye
Building Co. The remaining general partner and all limited partners of Olive-
Sixth Buckeye Co. are not affiliated with the Corporation. Since 1990,
Citinational-Buckeye Building Co. has managed the building, which is expected
to require a substantial capital investment, the source of which is uncertain.
The major encumbrance on real properties owned directly by the Bank or its
subsidiaries is a deed of trust on the 600 South Olive Street building,
securing a note in favor of City National Bank on which the unpaid principal
balance at December 31, 1995, was $16,186,978.
The Bank's subsidiary, Citinational Bancorporation, also owns two buildings
located on Olympic Boulevard in downtown Los Angeles, approximately 80,000
square feet of which is subject to a lease between Citinational Bancorporation
and ALLTEL Financial Information Systems, Inc. (formerly Systematics Financial
Services, Inc.), that expires on December 31, 2000.
Twenty-two additional branch locations throughout Southern California and
two non-branch locations acquired from First LA are leased by the Bank at
annual rentals (exclusive of operating charges and real property taxes) of
approximately $10,600,000, with expiration dates ranging from 1996 to 2016,
exclusive of renewal options.
ITEM 3. LEGAL PROCEEDINGS
The Corporation and its subsidiaries are defendants in various pending
lawsuits claiming substantial amounts. Based on present knowledge, management
and in-house counsel are of the opinion that the final outcome of such
lawsuits will not have a material adverse effect upon the Corporation.
6
<PAGE>
The Company is not aware of any material proceedings to which any director,
officer or affiliate of the Company, any owner of record or beneficially of
more than 5% of the voting securities of the Company, or any associate of any
such director, officer or security holder is a party adverse to the Company or
any of its subsidiaries or has a material interest adverse to the Company or
any of its subsidiaries.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There was no submission of matters to a vote of security holders during the
fourth quarter of the year ended December 31, 1995.
EXECUTIVE OFFICERS OF THE REGISTRANT
Shown below are names and ages of all executive officers of the Corporation
and officers of the Bank who may be deemed to be executive officers of the
Corporation, with indication of all positions and offices with the Corporation
and the Bank. Mr. Russell Goldsmith is the son of Mr. Bram Goldsmith.
Capacities in which served:
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION AND PRINCIPAL
NAME AGE OCCUPATION DURING THE PAST FIVE YEARS
---- --- ------------------------------------------
<C> <C> <S>
Bram Goldsmith.......... 73 Chief Executive Officer (until October 1995) and
Chairman of the Board, City National Corporation;
Chairman of the Board and Chief Executive
Officer, City National Bank, until October 1995
Russell Goldsmith....... 46 Chief Executive Officer and Vice Chairman, City
National Corporation, October 1995 to present;
Chairman of the Board and Chief Executive
Officer, City National Bank, October 1995 to
present; President, Goldsmith Entertainment
Company, production and media company, 1994 to
1995; Consultant, Spelling Entertainment Group,
Inc., television and home video company, 1994 to
1995; Chairman of the Board and Chief Executive
Officer, Republic Pictures Corporation,
entertainment company, until 1994
George H. Benter, Jr.... 54 President and Chief Operating Officer, City
National Bank, since 1992; President, City
National Corporation, since 1993; Vice Chairman
and Chief Credit Officer, Security Pacific
National Bank, commercial bank, until 1992
Frank P. Pekny.......... 52 Vice Chairman and Chief Financial Officer, City
National Bank since 1995; Executive Vice
President and Chief Financial Officer, City
National Bank, 1992 to October 1995; Executive
Vice President and Treasurer/Chief Financial
Officer, City National Corporation, since 1992;
Executive Vice President, BankAmerica
Corporation, bank holding company, April 1992 to
September 1992; Executive Vice President,
Security Pacific Corporation, bank holding
company, 1990 to 1992; Vice Chairman and Chief
Financial Officer, Security Pacific National
Bank, commercial bank, 1988 to 1992
Robert A. Moore......... 53 Executive Vice President and Manager, Credit
Services, City National Bank, since 1992; Senior
Vice President and Chief Credit Officer,
Corporate Banking Group, Security Pacific
National Bank, commercial bank, 1991 to 1992;
Senior Vice President, Wells Fargo Bank,
commercial bank, 1988 to 1991
Jeffery L. Puchalski.... 40 Executive Vice President and Senior Risk
Management Officer, Risk Management, City
National Bank, from 1991; Principal, The Secura
Group, national bank and thrift consulting firm,
until 1991
Richard H. Sheehan, Jr.. 52 Senior Vice President, Secretary and General
Counsel, City National Bank and City National
Corporation, 1994 to present; Senior Vice
President and Assistant General Counsel, Bank of
America, NT & SA, commercial bank, 1992 to 1994;
Senior Vice President and Assistant General
Counsel, Security Pacific National Bank,
commercial bank, until 1992
Heng W. Chen............ 43 Senior Vice President, Finance, City National
Bank, from 1988; Assistant Treasurer, City
National Corporation, from 1991
</TABLE>
7
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Corporation's common stock is listed and traded principally on the New
York Stock Exchange under the symbol "CYN." Information concerning the range
of high and low sales prices for the Corporation's common stock, and the
dividends declared, for each quarterly period within the past two fiscal years
is set forth below.
<TABLE>
<CAPTION>
DIVIDENDS
QUARTER ENDED HIGH LOW DECLARED
------------- ------ ------ ---------
<S> <C> <C> <C>
1995
March 31........................................... $12.38 $10.00 $.05
June 30............................................ 11.75 9.75 .07
September 30....................................... 15.38 11.25 .07
December 31........................................ 14.25 12.63 .07
1994
March 31........................................... $ 9.25 $ 7.13 $ --
June 30............................................ 11.75 8.00 --
September 30....................................... 12.13 9.88 --
December 31........................................ 11.63 8.25 .05
</TABLE>
As of February 23, 1996 the closing price of the Corporation's common stock
on the New York Stock Exchange was $13.625 per share. As of the date, there
were approximately 2,275 record holders of the Corporation's common stock.
For a discussion of dividend restrictions on the Corporation's common stock,
see Note 14 (Availability of Funds From Subsidiaries, Restrictions on Cash
Balances; Capital) to the consolidated financial statements on page A-45 of
this report.
ITEM 6. SELECTED FINANCIAL DATA
The information required by this item appears on page A-2, under the caption
"SELECTED FINANCIAL INFORMATION," and is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
The information required by this item appears on pages A-3 through A-25,
under the caption "MANAGEMENT'S DISCUSSION AND ANALYSIS," and is incorporated
herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item appears on pages A-28 through A-50,
and on page A-26 under the captions "1995 QUARTERLY OPERATING RESULTS" and
"1994 QUARTERLY OPERATING RESULTS" and is incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
8
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item, to the extent not included under the
caption "Executive Officers of the Registrant" in Part I of this report, or
below, will appear under the caption "Election of Directors" in the
Corporation's definitive proxy statement for the 1996 Annual Meeting of
Stockholders (the "1996 Proxy Statement"), and such information either shall
be (i) deemed to be incorporated herein by reference to that portion of the
1996 Proxy Statement, if filed with the Securities and Exchange Commission
pursuant to Regulation 14A not later than 120 days after the end of the
Corporation's most recently completed fiscal year, or (ii) included in an
amendment to this report filed with the Commission on Form 10-K/A.
The Corporation's Board is composed of the following directors:
<TABLE>
<CAPTION>
NAME OCCUPATION AND EMPLOYER
---- -----------------------
<S> <C>
George H. Benter, Jr................ President and Chief Operating Officer, City
National Bank and City National Corporation
Richard L. Bloch.................... President, Pinon Farm, Inc., equestrian
training facility
Mirion P. Bowers, M.D............... President and Chief Executive Officer,
Hospital of Good Samaritan, acute care
hospital; practicing physician
Stuart D. Buchalter................. Of counsel, Buchalter, Nemer, Fields &
Younger, a Professional Corporation, law
firm
Bram Goldsmith...................... Chairman of the Board, City National
Corporation
Russell Goldsmith................... Vice Chairman and Chief Executive Officer,
City National Corporation; Chairman of the
Board and Chief Executive Officer, City
National Bank
Burton S. Horwitch.................. Chairman, Deena, Inc., manufacturer of
women's apparel
Charles E. Rickershauser, Jr........ Attorney
Edward Sanders...................... Principal, Sanders, Barnet, Goldman, Simons
& Mosk, a Professional Corporation, law
firm
Andrea L. Van De Kamp............... Senior Vice President and Managing Director
of West Coast Operations, Sotheby's,
appraisals and auctions
Kenneth Ziffren..................... Senior partner, Ziffren, Brittenham, Branca
& Fischer, law firm
</TABLE>
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item will appear under the captions
"Compensation of Directors and Executive Officers," "Board Compensation and
Directors Nominating Committee Report on Executive Compensation" and
"Stockholder Return Graph" in the 1996 Proxy Statement, and such information
either shall be (i) deemed to be incorporated herein by reference to those
portions of the 1996 Proxy Statement, if filed with the Securities and
Exchange Commission pursuant to Regulation 14A not later than 120 days after
the end of the Corporation's most recently completed fiscal year, or (ii)
included in an amendment to this report filed with the Commission on Form 10-
K/A.
9
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item will appear under the caption "Record
Date, Number of Shares Outstanding and Voting Rights; Security Ownership of
Certain Beneficial Owners" and "Security Ownership of Management" in the 1996
Proxy Statement, and such information either shall be (i) deemed to be
incorporated herein by reference to that portion of the 1996 Proxy Statement,
if filed with the Securities and Exchange Commission pursuant to Regulation
14A not later than 120 days after the end of the Corporation's most recently
completed fiscal year, or (ii) included in an amendment to this report filed
with the Commission on Form 10-K/A.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item will appear under the caption "Certain
Transactions With Management and Others" in the 1996 Proxy Statement, and such
information either shall be (i) deemed to be incorporated herein by reference
to that portion of the 1996 Proxy Statement, if filed with the Securities and
Exchange Commission pursuant to Regulation 14A not later than 120 days after
the end of the Corporation's most recently completed fiscal year, or (ii)
included in an amendment to this report filed with the Commission on Form 10-
K/A. Also see Note 5 (Loans and Allowance for Credit Losses) to the
consolidated financial statements on page A-38 of this report.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
1. Financial Statements:
<TABLE>
<S> <C>
Managements' Responsibility for Financial Statements............... A-27
Independent Auditors' Report....................................... A-28
Consolidated Balance Sheet at December 31, 1995 and 1994........... A-29
Consolidated Statement of Operations for each of the years in the
three-year period ended December 31, 1995......................... A-30
Consolidated Statement of Cash Flows for each of the years in the
three-year period ended December 31, 1995......................... A-31
Consolidated Statement of Changes in Shareholders' Equity for each
of the years in the three-year period ended December 31, 1995..... A-32
Notes to Consolidated Financial Statements......................... A-33
Condensed Balance Sheet (Parent Company) at December 31, 1995 and
1994.............................................................. A-49
Condensed Statement of Operations (Parent Company) for each of the
years in the three-year period ended December 31, 1995............ A-49
Condensed Statement of Cash Flows (Parent Company) for each of the
years in the three-year period ended December 31, 1995............ A-50
</TABLE>
2. All other schedules and separate financial statements of 50% or less
owned companies accounted for by the equity method have been omitted because
they are not applicable.
10
<PAGE>
3. Exhibits (listed by numbers corresponding to Exhibit Table of Item 601 in
Regulation S-K)
<TABLE>
<CAPTION>
NO.
-------
<C> <S>
3.1 Certificate of Incorporation (This Exhibit is incorporated by
reference to the Company's Annual Report on Form 10-K for the year
ended December 31, 1990.)
3.2 By-Laws, as amended to date (This Exhibit is incorporated by
reference to the Company's Annual Report on Form 10-K for the year
ended December 31, 1994.)
10.1 Data Processing Agreement by and between Systematics, Inc. and
City National Bank dated January 1, 1991, as amended (This Exhibit
is incorporated by reference to the Company's Annual Report on
Form 10-K for the year ended December 31, 1991.)
10.2.2 Employment Agreement made as of March 21, 1995 by and between Bram
Goldsmith and City National Bank (This Exhibit is incorporated by
reference to the Company's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1995.) (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 the Company's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1995.)
10.3 Split Dollar Life Insurance Agreement Collateral Assignment Plan
between City National Bank and the Goldsmith 1980 Insurance Trust,
dated as of June 13, 1980, as amended to date (This Exhibit is
incorporated by reference to the Company's Annual Report on
Form 10-K for the year ended December 31, 1991.)
10.3.1 Fifth Amendment to Split Dollar Life Insurance Agreement
Collateral Assignment Plan dated as of May 5, 1995.
10.6 Lease dated January 11, 1991, between Citinational-Buckeye
Building Co. and City National Bank for rental of space on the
20th floor until December 31, 1996, as amended (This Exhibit is
incorporated by reference to the Company's Annual Report on Form
10-K for the year ended December 31, 1991.)
10.7 Lease dated September 30, 1991, between Citinational-Buckeye
Building Co. and City National Bank for rental of space on the 9th
floor until December 31, 1996 (This Exhibit is incorporated by
reference to the Company's Annual Report on Form 10-K for the year
ended December 31, 1991.)
10.13 Asset Purchase Agreement by and between Systematics Financial
Services, Inc. and City National Bank, dated December 17, 1992
(This Exhibit is incorporated by reference to the Company's Annual
Report in Form 10-K for the year ended December 31, 1992.)
10.18 Asset Sale Agreement (Pool 1) by and between City National Bank as
Seller and WHC-THREE Investors, L.P., as Purchaser, dated November
1, 1993 (This Exhibit is incorporated by reference to the
Company's Annual Report on Form 10-K for the year ended December
31, 1993.)
10.19 Asset Sale Agreement (Pools 2 Through 6) by and between City
National Bank as Seller and WHC-THREE Investors, L.P., as
Purchaser, dated November 1, 1993 (This Exhibit is incorporated by
reference to the Company's Annual Report on Form 10-K for the year
ended December 31, 1993.)
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 the property located at 12515
Ventura Boulevard, Studio City, California (This Exhibit is
incorporated by reference to the Company's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1995.)
10.21 Stock Purchase Agreement dated August 17, 1995 by and among City
National Bank, First Los Angeles Bank, San Paolo U.S. Holding
Company and San Paolo Bank Holding S.P.A. (This Exhibit is
incorporated by reference to the Company's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1995.)
10.21.1 Amendment to Stock Purchase Agreement dated December 1995, by and
among City National Bank, First Los Angeles Bank, San Paolo U.S.
Holding Company and San Paolo Bank Holding S.P.A. (This Exhibit is
incorporated by reference to Exhibit 2.2 to the Company's Current
Report on Form 8-K dated January 11, 1996.)
10.22 Employment Agreement dated as of October 16, 1995, between Russell
Goldsmith and City National Bank
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
NO.
-------
<C> <S>
10.22.1 Stock Option Agreement Under the City National Corporation 1985
Stock Option Plan dated as of October 16, 1995, between City
National Corporation and Russell Goldsmith
10.23 Agreement for Separation From Employment and Release dated
November 3, 1995, between City National Bank and Steven D. Broidy
10.24 City National Corporation 1995 Omnibus Plan
21 Subsidiaries of the registrant
23.1 Consent of KPMG Peat Marwick LLP
27 Financial Data Schedule
</TABLE>
(b) During the calendar quarter ended December 31, 1995, the registrant did
not file any current reports on Form 8-K.
12
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED
ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
City National Corporation
(Registrant)
/s/ Russell Goldsmith
By __________________________________
Russell Goldsmith
Chief Executive Officer
February 28, 1996
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Russell Goldsmith Vice Chairman, Chief February 28, 1996
____________________________________ Executive Officer and
Russell Goldsmith Director
(Principal Executive Officer)
/s/ Frank P. Pekny Executive Vice President and February 28, 1996
____________________________________ Chief Financial Officer
Frank P. Pekny
(Principal Financial Officer)
/s/ Heng W. Chen Assistant Treasurer February 28, 1996
____________________________________
Heng W. Chen
(Principal Accounting Officer)
/s/ Bram Goldsmith Chairman of the Board and February 28, 1996
____________________________________ Director
Bram Goldsmith
/s/ George H. Benter, Jr. President and Director February 28, 1996
____________________________________
George H. Benter, Jr.
/s/ Richard L. Bloch Director February 28, 1996
____________________________________
Richard L. Bloch
/s/ Mirion P. Bowers, M.D. Director February 28, 1996
____________________________________
Mirion P. Bowers, M.D.
/s/ Stuart D. Buchalter Director February 28, 1996
____________________________________
Stuart D. Buchalter
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Burton S. Horwitch Director February 28, 1996
____________________________________
Burton S. Horwitch
/s/ Charles E. Rickershauser, Jr. Director February 28, 1996
____________________________________
Charles E. Rickershauser, Jr.
/s/ Edward Sanders Director February 28, 1996
____________________________________
Edward Sanders
/s/ Andrea L. Van De Kamp Director February 28, 1996
____________________________________
Andrea L. Van De Kamp
/s/ Kenneth Ziffren Director February 28, 1996
____________________________________
Kenneth Ziffren
</TABLE>
14
<PAGE>
CITY NATIONAL CORPORATION AND SUBSIDIARIES
INDEX TO FINANCIAL DATA
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
FINANCIAL HIGHLIGHTS....................................................... A-1
SELECTED FINANCIAL INFORMATION............................................. A-2
MANAGEMENT'S DISCUSSION AND ANALYSIS
Overview................................................................. A-3
Operations Summary Analysis.............................................. A-5
Balance Sheet Analysis................................................... A-12
CONSOLIDATED FINANCIAL STATEMENTS
Management's Responsibility for Financial Statements..................... A-27
Independent Auditors' Report............................................. A-28
Consolidated Balance Sheet............................................... A-29
Consolidated Statement of Operations..................................... A-30
Consolidated Statement of Cash Flows..................................... A-31
Consolidated Statement of Changes in Shareholders' Equity................ A-32
Notes to Consolidated Financial Statements............................... A-33
</TABLE>
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
DOLLARS IN
THOUSANDS, INCREASE
EXCEPT PER SHARE (DECREASE)
AMOUNTS 1995 1994 AMOUNT
- ---------------- ---------- ---------- ----------
<S> <C> <C> <C>
FOR THE YEAR
Net income............................... $ 48,792 $ 37,163 $ 11,629
Net income, per common share............. 1.06 0.81 0.25
Dividends, per common share.............. 0.26 0.05 0.21
AT YEAR END
Assets................................... $4,157,551 $3,012,775 $1,144,776
Deposits................................. 3,248,035 2,417,762 830,273
Loans(1)................................. 2,346,611 1,643,918 702,693
Securities............................... 975,407 749,435 225,972
Shareholders' equity..................... 366,957 330,721 36,236
Book value, per common share............. 8.19 7.32 0.87
AVERAGE BALANCES
Assets................................... $2,849,807 $2,831,471 $ 18,336
Deposits................................. 2,062,412 2,241,175 (178,763)
Loans(1)................................. 1,758,671 1,537,997 220,674
Securities............................... 705,122 854,823 (149,701)
Shareholders' equity..................... 350,551 313,196 37,355
SELECTED RATIOS
Return on average assets................. 1.71% 1.31% 0.40%
Return on average shareholders' equity... 13.92 11.87 2.05
Tier 1 leverage.......................... 11.17 11.87 (0.70)
Tier 1 risk-based capital................ 13.60 17.50 (3.90)
Total risk-based capital................. 14.91 18.81 (3.90)
Dividend payout ratio.................... 24.53 6.17 18.36
</TABLE>
- --------
(1) Data for 1994 have been reclassified to reflect adoption of Statements of
Financial Accounting Standards 114 and 118.
A-1
<PAGE>
SELECTED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
AS OF OR FOR THE YEAR ENDED DECEMBER 31,
DOLLARS IN THOUSANDS, ------------------------------------------------------------
EXCEPT PER SHARE DATA 1995 1994 1993 1992 1991
- --------------------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Interest income........ $ 217,594 $ 181,825 $ 169,792 $ 233,049 $ 360,834
Interest expense....... 55,331 38,414 41,996 84,433 180,319
---------- ---------- ---------- ---------- ----------
Net interest income.... 162,263 143,411 127,796 148,616 180,515
Provision for credit
losses(1)............. -- 7,535 60,163 128,878 118,600
Noninterest income
(other than gains and
losses on securities
transactions)......... 35,162 36,180 45,810 45,365 43,332
Gains (losses) on
securities
transactions.......... (596) (3,383) -- 1,629 --
Noninterest expense
(other than ORE and
consolidation
charge)(1)............ 118,684 121,296 129,226 150,546 148,302
Consolidation charge... -- -- 12,000 -- --
ORE expense
(income)(1)........... (608) (5,297) (4,489) 8,788 1,948
---------- ---------- ---------- ---------- ----------
Income (loss) from
continuing operations
before taxes.......... 78,753 52,674 (23,294) (92,602) (45,003)
Income taxes (benefit). 29,961 15,511 (9,260) (32,450) (22,387)
---------- ---------- ---------- ---------- ----------
Income (loss) from
continuing operations. 48,792 37,163 (14,034) (60,152) (22,616)
Income from
discontinued
operations............ -- -- 7,128 804 1,396
---------- ---------- ---------- ---------- ----------
Net income (loss)..... $ 48,792 $ 37,163 $ (6,906) $ (59,348) $ (21,220)
========== ========== ========== ========== ==========
PER SHARE DATA:
Income (loss) per share
from continuing
operations............ $ 1.06 $ 0.81 $ (0.35) $ (1.87) $ (0.70)
Net income (loss) per
share................. 1.06 0.81 (0.17) (1.84) (0.66)
Cash dividends
declared.............. 0.26 0.05 -- -- 0.32
Book value per share... 8.19 7.32 6.62 7.07 8.91
Shares used to compute
income (loss) per
share................. 45,886 45,626 39,580 32,240 32,214
BALANCE SHEET DATA--AT
PERIOD END:
Assets................. $4,157,551 $3,012,775 $3,100,626 $3,514,102 $4,571,262
Loans(1)............... 2,346,611 1,643,918 1,628,803 2,167,992 2,662,077
Securities............. 975,407 749,435 904,481 443,922 731,196
Interest-earning
assets(1)............. 3,784,245 2,716,524 2,838,698 3,105,978 4,040,757
Deposits............... 3,248,035 2,417,762 2,526,767 2,911,276 3,664,219
Shareholders' equity... 366,957 330,721 298,074 227,944 287,064
BALANCE SHEET DATA--
AVERAGE BALANCES:
Assets................. $2,849,807 $2,831,471 $2,944,461 $3,918,949 $4,605,075
Loans(1)............... 1,758,671 1,537,997 1,762,663 2,403,657 2,869,081
Securities............. 705,122 854,823 517,059 548,734 665,071
Interest-earning
assets(1)............. 2,624,436 2,594,241 2,623,164 3,550,920 4,180,860
Deposits............... 2,062,412 2,241,175 2,380,106 3,133,109 3,706,621
Shareholders' equity... 350,551 313,196 260,649 259,629 318,776
ASSET QUALITY:
Nonaccrual loans(1).... $ 48,124 $ 58,801 $ 79,303 $ 253,089 $ 199,431
ORE(1)................. 7,439 4,726 2,052 8,637 26,368
---------- ---------- ---------- ---------- ----------
Total nonaccrual loans
and ORE.............. $ 55,563 $ 63,527 $ 81,355 $ 261,726 $ 225,799
========== ========== ========== ========== ==========
Assets held for
accelerated
disposition............ $ -- $ -- $ 17,450 $ -- $ --
========== ========== ========== ========== ==========
PERFORMANCE RATIOS:
Return on average
assets................ 1.71% 1.31% (0.23)% (1.51)% (0.46)%
Return on average
shareholders' equity.. 13.92 11.87 (2.65) (22.84) (6.65)
Net interest spread(1). 4.84 4.60 4.12 3.44 3.30
Net interest margin(1). 6.26 5.57 4.92 4.30 4.47
Average shareholders'
equity to average
assets................ 12.30 11.06 8.85 6.62 6.92
ASSET QUALITY RATIOS:
Nonaccrual loans to
total loans(1)........ 2.05% 3.58% 4.87 % 11.67 % 7.49 %
Nonaccrual loans and
ORE to total
assets(1)............. 1.34 2.11 2.62 7.45 4.94
Allowance for credit
losses to total
loans(1).............. 5.60 6.41 6.78 6.28 4.72
Allowance for credit
losses to nonaccrual
loans(1).............. 273.28 179.15 139.34 53.77 63.06
Net charge offs
(recoveries) to
average loans(1)...... (0.40) 0.83 4.78 4.93 1.84
</TABLE>
- --------
(1) Data for years prior to 1995 have been reclassified to reflect adoption of
Statements of Financial Accounting Standards 114 and 118.
A-2
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OVERVIEW
City National Corporation (the "Company") is the holding company for City
National Bank (the "Bank"). Because the Bank comprises substantially all of
the business of the Company, references to the "Company" mean the Company and
the Bank together.
At the close of business December 31, 1995 the Bank purchased all the
outstanding stock of First Los Angeles Bank ("First LA"), which was
immediately merged into the Bank. The business combination has been accounted
for as a purchase transaction; consequently the consolidated financial
statements and management's discussion and analysis that follow include the
balances of First LA as of December 31, 1995, but do not include the results
of operations or average balances of First LA for the years ended December 31,
1995, 1994 and 1993.
Consolidated net income was $48.8 million, or $1.06 per share in 1995,
compared to $37.2 million or $.81 per share in 1994. The increased net income
reflects the improved credit quality of the Company during the year, the
benefit of rising interest rates on net interest income as the result of the
Company's asset sensitive position, and moderate increases in average earning
asset levels during the year. Net interest income in 1995 increased $18.9
million over 1994, the provision for credit losses decreased $7.5 million
compared with 1994, and securities losses in 1995 were $.6 million, compared
with losses of $3.4 million in 1994. Offsetting these improvements to earnings
were increases in income taxes of $14.5 million in 1995, compared with 1994,
and a reduction in ORE income of $4.7 million in 1995.
The return on average assets was 1.71% and the return on average common
equity was 13.92% in 1995 compared with 1.31% and 11.87%, respectively, in
1994.
Average assets increased from $2,831.5 million in 1994 to $2,849.8 million
in 1995, an increase of $18.3 million or 0.6%, largely due to the increase in
average loans offset by lower securities balances. Total average loans
increased $220.7 million or 14.3% between 1994 and 1995, due primarily to
originations and purchases of residential first mortgage loans. Residential
first mortgage loans purchased during 1995 totaled $178.1 million and
originations totaled $209 million during the year. Average core deposits
(checking, savings and money market accounts and time certificates of deposit
of less than $100,000) declined from $2,095.7 million in 1994 to $1,922.4
million in 1995, a decrease of $173.3 million or 8.3%. Average borrowed funds
increased $166.4 million to $401.9 million during 1995 to replace the decrease
in deposit balances.
Nonaccrual loans totaled $48.1 million at December 31, 1995, or 2.05% of
total loans, down from $58.8 million or 3.58% a year earlier. ORE totaled $7.4
million at year end, up from $4.7 million a year earlier. Nonaccrual loans and
ORE included in the December 31, 1995 totals above include $12.6 million and
$4.9 million, respectively, from the acquisition of First LA.
The allowance for credit losses at December 31, 1995 was $131.5 million or
5.60% of loans outstanding at year end. Net recoveries of previously charged
off loans totaled $7.1 million in 1995, compared with net charge offs of $12.7
million or .83% of average loans in 1994.
Russell Goldsmith, a seventeen year member of the Board of Directors and
former chairman of Republic Pictures, succeeded Bram Goldsmith as Chief
Executive Officer of the Corporation and Chairman and Chief Executive Officer
of the Bank effective October 16, 1995. Bram Goldsmith continued to serve as
Chairman of the Corporation's Board of Directors.
In November 1993, the Bank announced a consolidation plan to improve
efficiency and operational productivity in its branch network. To cover the
costs associated with this action, the Bank recorded a consolidation charge of
$12.0 million in the fourth quarter of 1993. Completion of this consolidation
occurred in the second quarter of 1994 and has resulted in an decrease in
noninterest expense of approximately $8 million in 1995 and 1994 before the
effects of inflation and other factors.
A-3
<PAGE>
Based on its review of the loan portfolio, including loans acquired in the
First LA purchase, management considers the allowance for credit losses to be
adequate and anticipates that a provision for credit losses may not be
required for 1996. However, credit quality will be influenced by underlying
trends in the economic cycle, particularly in Southern California, among other
factors, which management cannot completely predict. Consequently, no
assurances can be given that the Company will not sustain loan losses, in any
particular period, that are sizable in relation to the allowance for credit
losses. Additionally, subsequent evaluations of the loan portfolio, in light
of factors then prevailing, by the Company and its regulators may indicate a
requirement for increases in the allowance for credit losses through charges
to the provision for credit losses.
The Company paid a dividend of $.05 per share of common stock in the first
quarter of 1995 and increased the dividend to $.07 per share for the second,
third and fourth quarters of 1995. On January 24, 1996 the Board of Directors
authorized a regular quarterly cash dividend on common stock at an increased
rate of $.09 per share to shareholders of record on February 5, 1996, payable
on February 15, 1996.
In May of 1995 the Board of Directors authorized the purchase of up to 5%,
or 2.28 million shares of the Corporation's common stock from time to time in
open market transactions. As of December 31, 1995 a total of 762,500 shares
had been repurchased at a cost of $9.9 million.
OPERATIONS SUMMARY
<TABLE>
<CAPTION>
INCREASE INCREASE
(DECREASE) (DECREASE)
------------- --------------
1995 AMOUNT % 1994 AMOUNT % 1993 1992 1991
-------- ------ ---- -------- -------- ---- -------- -------- --------
DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest income (1)..... $219,626 $36,666 20 $182,960 $ 11,826 7 $171,134 $237,283 $367,043
Interest expense........ 55,331 16,917 44 38,414 (3,582) (9) 41,996 84,433 180,319
-------- ------- ---- -------- -------- ---- -------- -------- --------
Net interest income..... 164,295 19,749 14 144,546 15,408 12 129,138 152,850 186,724
Provision for credit
losses (2)............. -- (7,535) (100) 7,535 (52,628) (87) 60,163 128,878 118,600
Noninterest income...... 35,162 (1,018) (3) 36,180 (9,630) (21) 45,810 45,365 43,332
Gain (loss) on
securities
transactions........... (596) 2,787 82 (3,383) (3,383) NM -- 1,629 --
Noninterest expense:
Staff expense.......... 65,375 979 2 64,396 (5,387) (8) 69,783 83,563 83,211
Other expense (2)...... 53,309 (3,591) (6) 56,900 (2,543) (4) 59,443 66,983 65,091
Consolidation charge... -- -- -- -- (12,000) (100) 12,000 -- --
ORE expense
(income)(2)........... (608) 4,689 89 (5,297) (808) (18) (4,489) 8,788 1,948
-------- ------- ---- -------- -------- ---- -------- -------- --------
Total................ 118,076 2,077 2 115,999 (20,738) (15) 136,737 159,334 150,250
-------- ------- ---- -------- -------- ---- -------- -------- --------
Income (loss) before
income taxes........... 80,785 26,976 50 53,809 75,761 345 (21,952) (88,368) (38,794)
Income taxes (benefit).. 29,961 (14,450) (93) 15,511 (24,771) (268) (9,260) (32,450) (22,387)
Less adjustments (1).... 2,032 897 79 1,135 207 15 1,342 4,234 6,209
-------- ------- ---- -------- -------- ---- -------- -------- --------
Income (loss) from
continuing operations.. 48,792 11,629 31 37,163 51,197 365 (14,034) (60,152) (22,616)
Income from discontinued
operations............. -- -- -- -- (7,128) (100) 7,128 804 1,396
-------- ------- ---- -------- -------- ---- -------- -------- --------
Net income (loss).... $ 48,792 $11,629 31 $ 37,163 $ 44,069 638 $ (6,906) $(59,348) $(21,220)
======== ======= ==== ======== ======== ==== ======== ======== ========
Net income (loss) per
share............... $ 1.06 $ 0.25 31 $ 0.81 $ 0.98 576 $ (0.17) $ (1.84) $ (0.66)
======== ======= ==== ======== ======== ==== ======== ======== ========
</TABLE>
- --------
(1) Includes amounts to convert nontaxable income to a fully taxable
equivalent basis.
(2) Data for years prior to 1995 have been reclassified to reflect adoption of
Statements of Financial Accounting Standards 114 and 118.
A-4
<PAGE>
OPERATIONS SUMMARY ANALYSIS
NET INTEREST INCOME
1995 Compared With 1994
Taxable equivalent net interest income totaled $164.3 million in 1995, up
$19.7 million or 13.7% from 1994. The increase from 1994 to 1995 was due to
improvement in the net interest margin from 5.57% to 6.26% resulting primarily
from the asset sensitive nature of the Bank's balance sheet and the generally
higher interest rate levels in 1995, compared with 1994. The recent decreases
in interest rates, if continued in 1996, could negatively impact the Company's
net interest income in the future.
Average loans increased from $1,538.0 million in 1994 to $1,758.7 million in
1995, an increase of $220.7 million or 14.3%. The majority of this increase
reflects higher average residential first mortgage loans outstanding, up
$307.2 million or 446.7%. During 1995 the Bank continued to purchase
residential mortgages to supplement its in-house origination program. This
increase and an increase in average construction loans of $31.2 million or
173.9% offset decreases in average real estate mortgage loans of $122.3
million or 22.4%. Average loan balances are expected to increase in 1996,
resulting from the full year impact of the First LA acquisition and continued
loan growth, including purchases of mortgage loans and syndicated commercial
loans.
Average investment securities decreased $174.9 million or 24.5% between 1994
and 1995 as a result of the maturities of securities, the proceeds of which
were used to fund loans. Average federal funds sold and securities purchased
under resale agreements decreased $57.1 million or 32.9% between 1994 and
1995. Average securities available-for-sale increased $25.2 million or 18.1%
between 1994 and 1995.
Average noninterest-bearing deposits declined from $907.2 million in 1994 to
$898.6 million in 1995, a decrease of $8.6 million or .9%, while average
interest-bearing core deposits declined from $1,188.5 million in 1994 to
$1,023.8 million in 1995, a decrease of $164.7 million or 13.8%. Average time
deposits of $100,000 or more decreased $5.4 million or 3.7% between 1994 and
1995. The Bank's interest and noninterest-bearing deposits decreased as a
result of disintermediation as depositors were attracted to higher yields on
alternative investments, including the money market mutual funds offered by
the Bank, and as a result of higher earnings credited to depositors' accounts,
thereby allowing them to maintain lower balances to pay for bank services.
Average federal funds purchased and securities sold under repurchase
agreements increased $98.0 million or 45.6% between 1994 and 1995. During 1995
the Bank became a member of the Federal Home Loan Bank of San Francisco (the
FHLB). As of December 31, 1995 the Bank had outstanding borrowings from the
FHLB of $90.0 million, of which $65.0 million matures in 1996 and the
remaining $25.0 million in 1997. These changes reflect the Company's increased
use of wholesale funding sources.
RATIOS TO AVERAGE ASSETS
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Net interest income (1).................. 5.76% 5.10% 4.39% 3.90% 4.05%
Noninterest income....................... 1.21 1.16 1.56 1.20 0.94
Less provision for credit losses......... -- 0.27 2.04 3.29 2.58
Less noninterest expense:
Staff expense............................ 2.29 2.27 2.37 2.13 1.81
Other expense............................ 1.87 2.01 2.02 1.71 1.41
Consolidation charge..................... -- -- 0.41 -- --
ORE expense (income)..................... (0.02) (0.19) (0.15) 0.22 0.04
----- ----- ----- ----- -----
Total................................ 4.14 4.09 4.65 4.06 3.26
----- ----- ----- ----- -----
Income (loss) before income taxes (1).... 2.83 1.90 (0.74) (2.25) (0.85)
----- ----- ----- ----- -----
Net income (loss) from continuing
operations.............................. 1.71 1.31 (0.47) (1.53) (0.49)
Net income from discontinued operations.. -- -- 0.24 0.02 0.03
----- ----- ----- ----- -----
Net income (loss).................... 1.71% 1.31% (0.23)% (1.51)% (0.46)%
===== ===== ===== ===== =====
</TABLE>
- --------
(1) Fully taxable equivalent basis.
A-5
<PAGE>
1994 Compared With 1993
Fully taxable equivalent net interest income totaled $144.5 million in 1994,
up $15.4 million or 11.9% from 1993. The increase from 1993 to 1994 was due in
part to the favorable impact of higher interest rates during 1994 on the
Company's asset-sensitive balance sheet. The net interest margin increased
from 4.92% in 1993 to 5.57% in 1994.
Average loans declined from $1,762.7 million in 1993 to $1,538.0 million in
1994 a decrease of $224.7 million or 12.7%. The majority of this decrease
reflected lower average commercial loans outstanding, down $141.7 million or
14.1%. This decline resulted form weak loan demand because of the struggling
Southern California economy and the Bank's efforts to achieve a more
diversified risk profile in its loan portfolio. Average construction loans
decreased $52.8 million or 74.6%, primarily because of the transfer of certain
construction loans to the real estate mortgage category after completion of
construction and because the Bank had curtailed new construction loan
commitments beginning in 1990. Average real estate mortgage loans decreased
$83.5 million or 13.3% due to payoffs and charge offs of commercial real
estate loans, net of amounts transferred from the construction portfolio.
Average residential first mortgages increased to $68.8 million in 1994 from
$3.1 million in 1993, primarily as a result of purchases beginning in April of
1994 of residential mortgages originated by third parties.
Average taxable securities increased $321.9 million or 62.5% between 1993
and 1994 as a result of investing the Company's excess liquidity in government
and agency securities. Average federal funds sold and securities purchased
under agreements to resell decreased $133.6 million or 43.5% between 1993 and
1994. The Bank's improved financial condition allowed management to reduce the
level of liquidity previously being maintained.
Average noninterest-bearing deposits were $907.2 million in 1994 compared
with $914.6 million in 1993, while average interest-bearing core deposits
decreased to $1,188.5 million in 1994 from $1,262.3 million in 1993, a
decrease of $73.8 million or 5.8%. Average time deposits of $100,000 or more
decreased $57.7 million or 28.4% between 1993 and 1994. The Bank's deposit
levels were impacted by higher yields available on alternative investments and
by the closure of six offices in early 1994, although the latter did not have
a significant effect on the Bank's overall deposit levels.
CHANGE IN NET INTEREST INCOME
<TABLE>
<CAPTION>
1995 VS 1994 1994 VS 1993
----------------------------- ------------------------------
INCREASE INCREASE
(DECREASE) (DECREASE)
DUE TO: NET DUE TO: NET
DOLLARS IN THOUSANDS--FULLY ----------------- INCREASE ------------------ INCREASE
TAXABLE EQUIVALENT BASIS VOLUME(1) RATE(1) (DECREASE) VOLUME(1) RATE(1) (DECREASE)
- --------------------------- --------- ------- ---------- --------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
Interest earned on:
Interest-bearing deposits
in other banks.......... $ 360 $ 47 $ 407 $ (6) $ (7) $ (13)
Loans.................... 20,107 19,291 39,398 (17,938) 16,766 (1,172)
Taxable securities....... (9,425) 3,064 (6,361) 9,845 (2,748) 7,097
State and municipal
securities.............. 434 (37) 397 1,186 (42) 1,144
Securities available for
sale.................... 1,585 633 2,218 7,545 (692) 6,853
Trading account
securities.............. 518 340 858 (329) 339 10
Federal funds sold and
securities purchased
under resale agreements. (2,841) 2,590 (251) (4,893) 2,800 (2,093)
------- ------- ------- -------- ------- -------
Total interest-earning
assets................ 10,738 25,928 36,666 (4,590) 16,416 11,826
------- ------- ------- -------- ------- -------
Interest paid on:
Interest checking........ (174) 54 (120) 25 (646) (621)
Money market deposits.... (3,093) 3,773 680 (1,062) (584) (1,646)
Savings deposits......... (305) -- (305) (169) (217) (386)
Other time deposits...... (490) 3,251 2,761 (2,691) 393 (2,298)
Other borrowings......... 8,466 5,435 13,901 (1,458) 2,827 1,369
------- ------- ------- -------- ------- -------
Total interest-bearing
liabilities........... 4,404 12,513 16,917 (5,355) 1,773 (3,582)
------- ------- ------- -------- ------- -------
$ 6,334 $13,415 $19,749 $ 765 $14,643 $15,408
======= ======= ======= ======== ======= =======
</TABLE>
- --------
(1) The change in interest due to both rate and volume has been allocated to
the change due to volume and rate in proportion to the relationship of the
absolute dollar amounts of the change in each.
A-6
<PAGE>
NET INTEREST INCOME SUMMARY
<TABLE>
<CAPTION>
1995 1994
------------------------------- -------------------------------
INTEREST AVERAGE INTEREST AVERAGE
AVERAGE INCOME/ INTEREST AVERAGE INCOME/ INTEREST
DOLLARS IN THOUSANDS BALANCE EXPENSE(1) RATE BALANCE EXPENSE(1) RATE
- -------------------- ---------- ---------- -------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Earning assets (2)
Loans:
Commercial loans (3)... $ 874,875 $ 88,629 10.13% $ 865,672 $ 74,893 8.65%
Real estate-
construction.......... 49,160 6,168 12.55 17,947 1,853 10.32
Real estate-mortgage
(3)................... 423,462 42,297 9.99 545,724 45,474 8.33
Residential first
mortgage.............. 375,932 29,454 7.83 68,768 4,541 6.60
Installment loans...... 35,242 3,570 10.13 39,886 3,959 9.93
---------- -------- ----- ---------- -------- -----
Total loans (4)...... 1,758,671 170,118 9.67 1,537,997 130,720 8.50
---------- -------- ----- ---------- -------- -----
Due from banks-interest
bearing............... 7,151 424 5.93 655 17 2.60
State and municipal
investment securities. 23,793 1,717 7.22 17,799 1,320 7.42
Taxable investment
securities............ 516,495 27,709 5.36 697,421 34,070 4.89
Securities available
for sale.............. 164,834 10,519 6.38 139,603 8,301 5.95
Federal funds sold and
securities purchased
under resale
agreements............ 116,387 7,013 6.03 173,451 7,264 4.19
Trading account
securities............ 37,105 2,126 5.73 27,315 1,268 4.64
---------- -------- ----- ---------- -------- -----
Total earning assets. 2,624,436 219,626 8.37 2,594,241 182,960 7.05
---------- -------- ----- ---------- -------- -----
Allowance for credit
losses................ (110,570) (113,100)
Cash and due from
banks................. 239,032 249,768
Other nonearning
assets................ 96,909 100,562
---------- ----------
Total assets......... $2,849,807 $2,831,471
========== ==========
LIABILITIES AND
SHAREHOLDERS' EQUITY
Noninterest-bearing
deposits............... $ 898,600 -- -- $ 907,234 -- --
Interest-bearing
deposits:
Interest checking
accounts.............. 268,593 2,638 0.98 285,983 2,758 0.96
Money market accounts.. 595,467 16,892 2.84 719,203 16,212 2.25
Savings deposits....... 79,391 1,564 1.97 95,097 1,869 1.97
Time deposits--under
$100,000.............. 80,341 3,826 4.76 88,195 3,226 3.66
Time deposits--$100,000
and over.............. 140,020 7,119 5.08 145,463 4,958 3.41
---------- -------- ----- ---------- -------- -----
Total interest-
bearing deposits.... 1,163,812 32,039 2.75 1,333,941 29,023 2.18
---------- -------- ----- ---------- -------- -----
Total deposits....... 2,062,412 2,241,175
Federal funds purchased
and securities sold
under repurchase
agreements............ 313,150 17,855 5.70 215,130 8,552 3.98
Other borrowings....... 88,730 5,437 6.13 20,348 839 4.12
---------- -------- ----- ---------- -------- -----
Total interest-
bearing liabilities. 1,565,692 55,331 3.53 1,569,419 38,414 2.45
---------- -------- ----- ---------- -------- -----
Other liabilities....... 34,964 41,622
Shareholders' equity.... 350,551 313,196
---------- ----------
Total liabilities and
shareholders'
equity.............. $2,849,807 $2,831,471
========== ==========
Net interest spread..... 4.84 4.60
Fully taxable equivalent
net interest income and
margin................. $164,295 6.26% $144,546 5.57%
======== ===== ======== =====
</TABLE>
- --------
(1) Fully taxable equivalent basis.
(2) Includes average nonaccrual loans of $46,931, $69,164, $131,381, $247,792
and $152,866 for 1995, 1994, 1993, 1992 and 1991, respectively.
(3) Data for years prior to 1995 have been reclassified to reflect adoption of
Statements of Financial Accounting Standards 114 and 118.
(4) Loan income includes loan fees of $6,850, $6,835, $5,304, $5,427 and
$7,287 for 1995, 1994, 1993, 1992 and 1991, respectively.
A-7
<PAGE>
<TABLE>
<CAPTION>
1993 1992 1991
------------------------------- ------------------------------- -------------------------------
INTEREST AVERAGE INTEREST AVERAGE INTEREST AVERAGE
AVERAGE INCOME/ INTEREST AVERAGE INCOME/ INTEREST AVERAGE INCOME/ INTEREST
DOLLARS IN THOUSANDS BALANCE EXPENSE(1) RATE BALANCE EXPENSE(1) RATE BALANCE EXPENSE(1) RATE
- -------------------- ---------- ---------- -------- ---------- ---------- -------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Earning assets (2)
Loans:
Commercial loans (3)... $1,007,343 $ 75,155 7.46% $1,323,493 $ 96,437 7.29% $1,618,442 $152,848 9.44%
Real estate-
construction.......... 70,783 5,023 7.10 219,456 15,761 7.18 396,934 39,255 9.89
Real estate-mortgage
(3)................... 629,188 46,294 7.36 794,744 57,497 7.23 778,445 74,884 9.62
Residential first
mortgage.............. 3,089 186 6.02 -- -- -- -- -- --
Installment loans...... 52,260 5,234 10.02 65,964 6,836 10.36 75,260 8,675 11.53
---------- -------- ----- ---------- -------- ----- ---------- -------- -----
Total loans (4)...... 1,762,663 131,892 7.48 2,403,657 176,531 7.34 2,869,081 275,662 9.61
---------- -------- ----- ---------- -------- ----- ---------- -------- -----
Due from banks-interest
bearing............... 835 30 3.59 2,637 67 2.54 3,534 297 8.40
State and municipal
investment securities. 1,905 176 9.24 85,710 8,254 9.63 127,540 12,448 9.76
Taxable investment
securities............ 499,484 26,973 5.40 461,871 31,068 6.73 537,531 41,410 7.70
Securities available
for sale.............. 15,670 1,448 9.24 1,153 111 9.63 -- -- --
Federal funds sold and
securities purchased
under resale
agreements............ 307,078 9,357 3.05 553,540 19,592 3.54 578,622 33,450 5.78
Trading account
securities............ 35,529 1,258 3.54 42,352 1,660 3.92 64,552 3,776 5.85
---------- -------- ----- ---------- -------- ----- ---------- -------- -----
Total earning assets. 2,623,164 171,134 6.52 3,550,920 237,283 6.68 4,180,860 367,043 8.78
---------- -------- ----- ---------- -------- ----- ---------- -------- -----
Allowance for credit
losses................ (129,873) (141,537) (74,240)
Cash and due from
banks................. 272,610 368,297 374,353
Other nonearning
assets................ 178,560 141,269 124,102
---------- ---------- ----------
Total assets......... $2,944,461 $3,918,949 $4,605,075
========== ========== ==========
LIABILITIES AND
SHAREHOLDERS' EQUITY
Noninterest-bearing
deposits............... $ 914,642 -- -- $1,029,758 -- -- $ 961,072 -- --
Interest-bearing
deposits:
Interest checking
accounts.............. 283,871 3,379 1.19 328,555 6,175 1.88 301,338 11,018 3.66
Money market accounts.. 767,121 17,858 2.33 1,023,280 31,386 3.07 986,438 48,394 4.91
Savings deposits....... 103,161 2,255 2.19 106,608 3,135 2.94 86,606 3,810 4.40
Time deposits--under
$100,000.............. 108,135 4,063 3.76 129,105 6,106 4.73 150,544 8,981 5.97
Time deposits--$100,000
and over.............. 203,176 6,419 3.16 515,803 20,888 4.05 1,220,623 78,698 6.45
---------- -------- ----- ---------- -------- ----- ---------- -------- -----
Total interest-
bearing deposits.... 1,465,464 33,974 2.32 2,103,351 67,690 3.22 2,745,549 150,901 5.50
---------- -------- ----- ---------- -------- ----- ---------- -------- -----
Total deposits....... 2,380,106 3,133,109 3,706,621
Federal funds purchased
and securities sold
under repurchase
agreements............ 265,082 7,499 2.83 488,520 16,220 3.32 531,590 28,550 5.37
Other borrowings....... 16,147 523 3.24 14,279 523 3.66 14,561 868 5.96
---------- -------- ----- ---------- -------- ----- ---------- -------- -----
Total interest-
bearing liabilities. 1,746,693 41,996 2.40 2,606,150 84,433 3.24 3,291,700 180,319 5.48
---------- -------- ----- ---------- -------- ----- ---------- -------- -----
Other liabilities....... 22,477 23,412 33,527
Shareholders' equity.... 260,649 259,629 318,776
---------- ---------- ----------
Total liabilities and
shareholders'
equity.............. $2,944,461 $3,918,949 $4,605,075
========== ========== ==========
Net interest spread..... 4.12 3.44 3.30
Fully taxable equivalent
net interest income and
margin................. $129,138 4.92% $152,850 4.30% $186,724 4.47%
======== ===== ======== ===== ======== =====
</TABLE>
A-8
<PAGE>
PROVISION FOR CREDIT LOSSES
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 collectibility 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 Audit and Examining Committee of the Board of
Directors and continuously reviews loan quality. Such reviews also assist
management in establishing the level of the allowance for credit losses.
For 1995, the Company did not record a provision for credit losses compared
with provisions of $7.5 million for 1994 and $60.2 million in 1993. In 1995,
net recoveries totaled $7.1 million, compared with net charge offs of $12.7
million in 1994 and $84.3 million in 1993. The combination of the net
recoveries, a change in the risk profile of the loan portfolio, 25.3% of which
now consists of residential first mortgages, the continued reduction of
problem loans, and the stabilization of the Southern California economy
allowed the Company not to have to record any provision for credit losses in
1995. Based on its review of the loan portfolio, management anticipates that a
provision for credit losses for 1996 may not be required, but the Company may
record net loan charge offs in 1996, compared to net recoveries in 1995, due
in part to the weaker credit quality of the First LA loan portfolio. However,
credit quality will be influenced by underlying trends in the economic cycle,
particularly in Southern California among other factors, which management
cannot completely predict. Consequently, no assurances can be given that the
Company will not sustain loan losses, in any particular period, that are
sizable in relation to the allowance for credit losses. Additionally,
subsequent evaluation of the loan portfolio, in light of factors then
prevailing, by the Company and its regulators may indicate a requirement for
increases in the allowance for credit losses through charges to the provision
for credit losses.
NONINTEREST INCOME
Noninterest income from continuing operations totaled $34.6 million in 1995,
up $1.8 million from 1994 which was down $13.0 million from 1993. A breakdown
of noninterest income by category is reflected below.
ANALYSIS OF CHANGES IN NONINTEREST INCOME
<TABLE>
<CAPTION>
INCREASE INCREASE
(DECREASE) (DECREASE)
------------- --------------
DOLLARS IN MILLIONS 1995 AMOUNT % 1994 AMOUNT % 1993
- ------------------- ----- ------ ------ ----- ------ ------ -----
<S> <C> <C> <C> <C> <C> <C> <C>
Investment services income.. $ 8.8 $1.6 22.2 $ 7.2 $ 0.9 14.3 $ 6.3
Service charges on deposit
accounts................... 8.1 (1.2) (12.9) 9.3 (2.3) (19.8) 11.6
Trust fees.................. 6.5 (0.3) (4.4) 6.8 (0.6) (8.1) 7.4
Gain on sale of selected
Equity Lines of Credit
Loans...................... -- -- -- -- (4.5) (100.0) 4.5
Gain on sale of assets...... -- (1.5) (100.0) 1.5 (0.4) (21.1) 1.9
Gain (loss) on sale of
securities................. (0.6) 2.8 (82.4) (3.4) (3.4) NM --
All other income............ 11.8 0.4 3.5 11.4 (2.7) (19.1) 14.1
----- ---- ------ ----- ------ ------ -----
Total................... $34.6 $1.8 5.5 $32.8 $(13.0) (28.4) $45.8
===== ==== ====== ===== ====== ====== =====
</TABLE>
Investment services income, which includes fees, commissions and markups on
securities transactions with customers, and fees on money market mutual funds,
increased in 1995, compared to 1994, by $1.6 million primarily due to higher
fees and new investment products offered to customers. The increase in
investment services income between 1993 and 1994 was also attributable to the
same factors. At December 31, 1995 the Company had $6.3 billion of assets
under custody or management in its trust department, compared to $6.6 billion
at December 31, 1994.
A-9
<PAGE>
Service charges on deposit accounts decreased $1.2 million or 12.9%,
compared to a 19.8% decrease in 1994. The decreases in both 1995 and 1994 were
due to a combination of lower deposit balances as a result of
disintermediation as depositors were attracted to higher yields on alternative
investments and as a result of higher earnings being credited to depositor's
accounts, thereby allowing them to maintain lower balances to pay for bank
services.
Trust fees decreased $.3 million or 4.4% from 1994 to 1995 and $0.6 million
between 1993 and 1994. All other income categories, which include foreign
exchange, letter of credit fees, escrow and proof of deposit fees in addition
to other miscellaneous income, increased slightly in 1995, reversing a trend
of decreases in 1994 and 1993.
The Bank recorded gains of $1.3 million on the sale of two leveraged leases
in 1994. The Bank sold its merchant card business to NOVA Information Systems
as of January 1, 1993, for a pretax gain of $1.9 million. The Bank's sale of
$73.7 million in equity line of credit (ELC) loans in April 1993 generated a
pretax gain of $4.5 million.
Securities losses in 1995 totaled $0.6 million, compared with a loss of $3.4
million in 1994 and no gain or loss in 1993. The losses in both 1995 and 1994
were as the result of sales of securities from the investment securities
portfolio within ninety days of maturity as permitted under SFAS No. 115 and
the available-for-sale securities portfolio for the purpose of decreasing its
interest sensitivity and investing the proceeds in higher yielding assets,
including residential first mortgage loans.
NONINTEREST EXPENSE
Noninterest expense, before ORE expense and the 1993 consolidation charge
discussed below, totaled $118.7 million in 1995, down $2.6 million or 2.2%
from $121.3 million in 1994, which was down $7.9 million or 6.1% from 1993.
Total noninterest expense in 1993 included a charge of $12.0 million for
consolidation of certain Bank operations. A breakdown of noninterest expense
by category is reflected below.
ANALYSIS OF CHANGES IN NONINTEREST EXPENSE
<TABLE>
<CAPTION>
INCREASE INCREASE
(DECREASE) (DECREASE)
------------ --------------
1995 AMOUNT % 1994 AMOUNT % 1993
------ ------ ----- ------ ------ ------ ------
DOLLARS IN MILLIONS
<S> <C> <C> <C> <C> <C> <C> <C>
Salaries and employee
benefits................ $ 65.4 $1.0 1.6 $ 64.4 $ (5.4) (7.7) $ 69.8
------ ---- ----- ------ ------ ------ ------
All other:
Professional........... 8.8 0.5 6.0 8.3 1.0 13.7 7.3
Net occupancy of
premises.............. 7.9 (2.4) (23.3) 10.3 (1.5) (12.7) 11.8
Data processing........ 7.5 0.3 4.2 7.2 (0.6) (7.7) 7.8
Promotion.............. 4.4 1.4 46.7 3.0 1.1 57.9 1.9
Depreciation........... 4.1 0.0 0.0 4.1 (0.4) (8.9) 4.5
Office supplies........ 4.0 (0.6) (13.0) 4.6 (0.4) (8.0) 5.0
FDIC insurance......... 2.5 (3.3) (56.9) 5.8 (1.4) (19.4) 7.2
Equipment.............. 2.3 (0.3) (11.5) 2.6 0.6 30.0 2.0
Other operating........ 11.8 0.8 7.3 11.0 (0.9) (7.6) 11.9
------ ---- ----- ------ ------ ------ ------
53.3 (3.6) (6.3) 56.9 (2.5) (4.2) 59.4
------ ---- ----- ------ ------ ------ ------
Consolidation charge..... -- -- -- -- (12.0) (100.0) 12.0
ORE income............... (0.6) 4.7 (88.7) (5.3) (0.8) 17.8 (4.5)
------ ---- ----- ------ ------ ------ ------
Total................ $118.1 $2.1 1.8 $116.0 $(20.7) (15.1) $136.7
====== ==== ===== ====== ====== ====== ======
</TABLE>
A-10
<PAGE>
Staff expense increased 1.6% in 1995 compared to a 7.7% decrease in 1994.
The increase in 1995 is due to the higher costs associated with performance
incentives and accruals for contributions to the Profit Sharing Plan. These
increases more than offset the decreases in salary expense due to the branch
consolidation program completed in 1994. The 1994 decrease in staff expense
was related to the reduced staff levels resulting from the branch
consolidation program but was partially offset by profit sharing expense in
1994 of $3.3 million, compared with none in 1993. On a full-time equivalent
basis, staff levels have declined from approximately 1,225 at December 31,
1994 to 1,175 at year-end 1995. Staff levels are expected to increase in 1996
by approximately 100 as a result of the acquisition of First LA.
Excluding ORE and the consolidation charge, the remaining expense categories
decreased $3.6 million in 1995, compared with 1994. FDIC insurance expense was
$3.3 million or 56.9% lower in 1995 than 1994 as a result of the lowering of
the insurance assessment rate effective July of 1995. The FDIC has since
announced that the insurance assessment for well capitalized banks, which
includes the Bank, will be $2,000 for 1996. Net occupancy expenses were $2.4
million or 23.3% lower in 1995 than 1994 as a result of lease expirations and
the consolidation of certain functions into previously vacated quarters.
Offsetting these reductions was a $1.4 million increase in promotional
expenses in 1995 as the Company increased its marketing and promotional
expenditure and expanded its level of charitable contributions. The 1995
noninterest expense totals also include approximately $1.0 million of
acquisition related costs. Due to the acquisition of First LA, most categories
of noninterest expense are expected to increase in 1996 above the 1995
amounts.
ORE activities resulted in income of $.6 million, $5.3 million, and $4.5
million in 1995, 1994 and 1993, respectively. The lower income amount in 1995
reflects the reduced level of ORE balances during the year as a result of the
completion of the Accelerated Disposition Program in 1994.
In November 1993 the Company announced a consolidation plan to improve
efficiency and operational productivity in its branch network. To cover the
costs associated with this action the Company recorded a consolidation charge
of $12.0 million. Completion of the consolidation has resulted in a decrease
in noninterest expense of $8 million per year principally in staff expense and
net occupancy expense. At December 31, 1995 the balance remaining in the
consolidation allowance was $4.9 million related to the future cost of lease
obligations on excess space. The Bank is continuing to negotiate settlements
of its lease commitments and management believes this allowance is adequate to
cover these obligations.
In October 1995, the FASB issued Statement of Financial Accounting Standards
("SFAS") No. 123, "Accounting for Stock Based Compensation." The statement
requires that companies either adopt the preferred method of accounting for
stock plans and charge the fair value of the shares awarded under those plans
to operating income or continue to account for such plans under provisions of
APB Opinion No. 25 "Accounting for Stock Issued to Employees" ("APB No. 25").
If a company elects to continue to apply APB No. 25 it must still disclose the
proforma effect on net income and net income per share that would have
resulted if the fair value of the awards had been charged to income.
The Company adopted SFAS No. 123 on January 1, 1996 and elected to continue
to apply the accounting provisions of APB No. 25. The proforma effects on net
income and net income per share that must be disclosed in the Company's 1996
financial statements are not expected to be material to the Company's results
of operations or shareholders' equity.
INCOME TAXES
The 1995 effective tax rate was 38.0% compared to the 1994 effective tax
rate of 29.4% and a benefit rate of 39.8% in 1993. The effective rates
differed from the applicable statutory federal tax rate due to various factors
including state taxes, tax exempt income, tax credits and higher income tax
rates in carry-back years.
The higher 1995 tax rate resulted from the full utilization in 1994 of the
Company's California net operating loss carry forwards and the recognition in
1994 of $3.9 million of California deferred tax benefits. In 1995 the Company
recognized an additional $0.9 million of California deferred tax benefits. In
both years the recognition
A-11
<PAGE>
of the California deferred tax benefits resulted from the Company's continued
profitability and was based on the net deductible temporary differences that
are expected to be realized within a twelve month carry forward period which
is the period over which management believes it is prudent to make projections
for such purposes. At December 31, 1995 the Company had recorded $64.4 million
of deferred tax assets for which it is more likely than not to realize
benefits in future tax returns. Included in this total is $30.1 million of
deferred tax assets resulting from the acquisition of First LA.
The effective tax rate for 1996 is expected to remain below the combined
statutory federal and California tax rates due to the impact of municipal
securities and leases, dividends received deduction from preferred stock, tax
credits from investments in low income housing and additional reversals of the
remaining $10.8 million of valuation allowances not related to First LA.
BALANCE SHEET ANALYSIS
Capital
At December 31, 1995, the Company's and the Bank's Tier 1 capital, which is
comprised of common shareholders' equity and certain regulatory adjustments,
amounted to $344.2 million and $318.7 million, respectively. At December 31,
1994, the Company's and the Bank's Tier 1 capital for regulatory purposes
amounted to $334.3 million and $316.5 million, respectively. The increase from
December 31, 1994 resulted from the retention of 1995 earnings less dividends
paid, and deductions for certain intangible assets and deferred tax assets
disallowed under regulatory definitions.
The following table presents the regulatory standards for well capitalized
institutions and the capital ratios for the Company and the Bank at December
31, 1995, 1994 and 1993.
Capital ratios for the Company and for the Bank were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
WELL CAPITALIZED -------------------
STANDARDS 1995 1994 1993
---------------- ----- ----- -----
<S> <C> <C> <C> <C>
CITY NATIONAL CORPORATION
Tier 1 leverage ratio..................... 5.00% 11.17% 11.87% 9.95%
Tier 1 risk-based capital ratio........... 6.00 13.60 17.50 15.75
Total risk-based capital ratio............ 10.00 14.91 18.81 17.06
CITY NATIONAL BANK
Tier 1 leverage ratio..................... 5.00 10.40 11.31 9.38
Tier 1 risk-based capital ratio........... 6.00 12.64 16.69 14.78
Total risk-based capital ratio............ 10.00 13.95 17.99 16.09
</TABLE>
The Corporation paid a dividend of $.05 per share of common stock in the
fourth quarter of 1994 after suspending payment of dividends in August of
1991. During 1995 the Corporation paid four regular quarterly dividends
totaling $.26. On January 24, 1996 the Board of Directors authorized a regular
quarterly cash dividend on common stock at an increased rate of $.09 per share
under the Corporation's objective of paying annual dividends of approximately
one-third of prior year's earnings.
In May 1995 the Corporation announced that the Board of Directors had
authorized the purchase of up to 5% or approximately 2.28 million shares of
the Corporation's common stock from time to time in open market transactions.
As of December 31, 1995 a total of 762,500 shares had been repurchased at a
cost of $9.9 million. Management continues to review and evaluate other uses
of the Company's capital, including additional acquisitions.
Liquidity Management
The objective of liquidity management is the ability to maintain cash flow
adequate to fund the Company's operations and meet obligations and other
commitments on a timely and cost effective basis. The Company
A-12
<PAGE>
manages to this objective through the selection of asset and liability
maturity mixes that it believes best meet the needs of the Company. The
Company's liquidity position is enhanced by its ability to raise additional
funds as needed in the money markets.
The Company's core deposit base has in recent years provided the majority of
the Company's funding requirements. This relatively stable and low-cost source
of funds has, along with shareholder's equity, provided 80% and 85% of funding
for average total assets in 1995 and 1994, respectively.
A significant portion of remaining funding of average total assets is
provided by short term federal fund purchases and sales of securities under
repurchase agreements. This funding source increased in 1995 to an average of
$313.2 million from $215.1 million in 1994 to compensate for the decrease in
funding from core deposits. Additionally, in 1995 the Bank borrowed an average
of $72.0 million of other short term funds and $16.7 million of long term
debt.
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 to cash at minimal cost. The aggregate of these assets
averaged $153.5 million during 1995, down $47.3 million or 23.6% from the
prior year. This decrease resulted from the Company's decision to maintain a
lower level of liquidity due to the stabilization of deposits and the
Company's improved operating performance.
Liquidity is also provided by maturing investment securities and the
portfolio of available-for-sale securities. At December 31, 1995, investment
securities maturing within one year amounted to $2.3 million, or 2.1% of the
portfolio. See page A-16 for a table on maturity distribution of securities at
December 31, 1995. Because prepayments on amortizing mortgage backed
securities will fluctuate based on the prepayments of the underlying mortgage
loans, the maturities shown on the table reflect the final contractual payment
date of those securities. Consequently the timing of cash flows from those
securities are expected to be realized earlier than depicted. In addition the
unpledged portion of securities at December 31, 1995 totaled $339.4 million
and are available as collateral for borrowing. Available-for-sale securities
totaled $865.4 million at December 31, 1995, of which $339.3 million were from
the acquisition of First LA.
Maturing loans also provide liquidity, and $1,086.4 million of the Bank's
loans are scheduled to mature in 1996. The amount of loans with remaining
maturities of over one year have increased from $834.2 million at December 31,
1994 to $1,260.2 million at December 31, 1995 as a result of the increase in
residential first mortgage loans. See page A-18 for a table on maturity
distribution of loans at December 31, 1995.
ASSET/LIABILITY MANAGEMENT
The principle objective of asset/liability management is to maximize net
interest margin subject to margin volatility and liquidity constraints. Margin
volatility results when the rate reset (or repricing) characteristics of
assets are materially different from those of the Company's liabilities.
Liquidity risk results from the mismatching of asset and liability cash flows.
Management chooses asset/liability strategies that promote stable earnings and
reliable funding. Interest rate risk and funding positions are kept within
limits established by the Company's Board of Directors to ensure that the
risk-taking is not excessive and that liquidity is properly managed.
The Company has established three measurement processes to quantify and
manage exposure to interest rate risk: net interest income simulation
modeling, gap analysis and present value of equity analysis. Net interest
income simulations are used to identify the direction and severity of interest
rate risk exposure across a twelve month forecast horizon. Gap analysis
provides insight into structural mismatches of asset and liability repricing
characteristics. Present value of equity calculations are used to estimate the
theoretical sensitivity of shareholder equity to changes in interest rates.
A-13
<PAGE>
The table on page A-15 compares the Company's interest rate gap position as
of December 31, 1995 and 1994. Generally, an asset sensitive gap indicates
that net interest margin will improve during a period of rising interest rates
and decline during a period of falling interest rates.
The gap table shows that the Company's cumulative asset sensitive position
increased from $1,159.7 million at December 31, 1994 to $1,500.5 million at
December 31, 1995. This increase resulted from the increase in rate sensitive
assets, particularly short term investments resulting from the seasonal
deposit increase at year end. The Company's asset sensitive position during
this period of generally rising interest rates has had a significant positive
effect on net interest income. However, in recognition of the decreases in
general market interest rates in the second half of 1995, the Company
implemented strategies to decrease the asset sensitivity of the Company
balance sheet, including the purchase and origination of fixed rate
residential mortgage loans and purchase of a $25 million interest rate swap to
transform its long term fixed rate debt into a quarterly repricing obligation.
Since interest rate changes do not affect all categories of assets and
liabilities equally or simultaneously, a cumulative gap analysis alone cannot
be used to evaluate the Company's interest rate sensitivity position. To
supplement traditional gap analysis, the Company uses simulation modeling to
estimate the potential effects of changing interest rates. This process allows
the Company to more fully explore the complex relationships within the gap
over time and various interest rate scenarios.
A-14
<PAGE>
At December 31, 1995 and 1994, 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
-------- ------------- ------------ -------- --------
DOLLARS IN MILLIONS
<S> <C> <C> <C> <C> <C>
DECEMBER 31, 1995
Rate-sensitive assets:
Interest-bearing
deposits in other
banks................ $ 80.7 $ -- $ -- $ -- $ 80.7
Loans................. 1,524.3 286.2 141.1 345.8 2,297.4
Taxable investment
securities........... 43.4 20.4 21.1 8.8 93.7
Nontaxable securities. -- -- 9.1 7.2 16.3
Securities available
for sale............. 367.5 18.9 296.1 182.9 865.4
Trading account
securities........... 29.7 -- -- -- 29.7
Federal funds sold and
securities purchased
under resale
agreements........... 351.8 -- -- -- 351.8
-------- ------ ------ -------- --------
Total rate-sensitive
assets............. 2,397.4 325.5 467.4 544.7 3,735.0
-------- ------ ------ -------- --------
Rate-sensitive
liabilities:(1)
Interest checking
deposits............. 380.2 -- -- -- 380.2
Money market accounts. 801.4 -- -- -- 801.4
Savings deposits...... 89.0 -- -- -- 89.0
Time deposits......... 251.3 197.5 35.9 0.7 485.4
Federal funds
purchased and
securities sold under
repurchase
agreements........... 258.4 -- -- -- 258.4
Other borrowings...... 170.1 25.0 25.0 -- 220.1
Interest rate swaps... 25.0 -- (25.0) -- --
-------- ------ ------ -------- --------
Total rate-sensitive
liabilities........ 1,975.4 222.5 35.9 0.7 2,234.5
-------- ------ ------ -------- --------
Interest rate
sensitivity gap........ $ 422.0 $103.0 $431.5 $ 544.0 $1,500.5
======== ====== ====== ======== ========
Cumulative interest rate
sensitivity gap........ $ 422.0 $525.0 $956.5 $1,500.5
======== ====== ====== ========
Cumulative ratio of
rate-sensitive assets
to rate-sensitive
liabilities............ 121% 124% 143% 167% 167%
======== ====== ====== ======== ========
DECEMBER 31, 1994
Rate-sensitive assets:
Interest-bearing
deposits in other
banks................ $ 0.7 $ -- $ -- $ -- $ 0.7
Loans................. 1,216.2 166.1 152.7 50.1 1,585.1
Taxable investment
securities........... 95.2 122.9 185.4 229.9 633.4
Nontaxable securities. 1.1 8.5 14.7 1.3 25.6
Securities available
for sale............. -- -- 62.0 28.4 90.4
Trading account
securities........... 25.5 -- -- -- 25.5
Federal funds sold and
securities purchased
under resale
agreements........... 297.0 -- -- -- 297.0
-------- ------ ------ -------- --------
Total rate-sensitive
assets............. 1,635.7 297.5 414.8 309.7 2,657.7
-------- ------ ------ -------- --------
Rate-sensitive
liabilities:(1)
Interest checking
deposits............. 305.6 -- -- -- 305.6
Money market accounts. 669.9 -- -- -- 669.9
Savings deposits...... 88.0 -- -- -- 88.0
Time deposits......... 99.0 67.6 35.8 -- 202.4
Federal funds
purchased and
securities sold under
repurchase
agreements........... 182.1 -- -- -- 182.1
Other short-term
borrowings........... 50.0 -- -- -- 50.0
-------- ------ ------ -------- --------
Total rate-sensitive
liabilities........ 1,394.6 67.6 35.8 -- 1,498.0
-------- ------ ------ -------- --------
Interest rate
sensitivity gap........ $ 241.1 $229.9 $379.0 $ 309.7 $1,159.7
======== ====== ====== ======== ========
Cumulative interest rate
sensitivity gap........ $ 241.1 $471.0 $850.0 $1,159.7
======== ====== ====== ========
Cumulative ratio of
rate-sensitive assets
to rate-sensitive
liabilities............ 117% 132% 157% 177% 177%
======== ====== ====== ======== ========
</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.
A-15
<PAGE>
SECURITIES
The Company classifies its securities as investment, available for sale or
trading. Securities which the Company has the ability and intent to hold to
maturity are classified as investment securities. Securities held to
facilitate customer trading orders are classified as trading securities. All
other securities are classified as available for sale. In November, 1995, the
Financial Accounting Standards Board issued its Guide to Implementation of
SFAS No. 115 and allowed companies a single opportunity to reclassify
securities between the classifications of investment and available-for-sale
without tainting the classification of any securities. In December, 1995, the
Company reclassified securities with a book value of $402.3 million and fair
value of $401.2 million from the investment classification to the available-
for-sale category.
Investment Securities
Investment securities at December 31, 1995 were down $549.0 million or 83.3
% from 1994. This decrease resulted primarily from the $402.3 million
reclassification of investment securities to available-for-sale and from
maturities and pay downs of amortizing securities. All categories of
investment securities decreased due to the reclassification to available-for-
sale. The average expected maturity of total investment securities was 2.9
years at December 31, 1995, compared to 3.2 years at the end of 1994. Sales of
investment securities within ninety days of maturity as permitted under SFAS
No. 115 resulted in a loss of $.4 million in 1995, insignificant amounts in
1994 and none in 1993.
The carrying amounts of investment securities at the dates indicated are
summarized in the table below:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1995 1994
-------- --------
DOLLARS IN
THOUSANDS
<S> <C> <C>
U.S. Government and federal agency securities................ $ -- $334,373
Mortgage-backed securities................................... 80,935 263,161
State and municipal securities............................... 19,833 25,633
Other securities............................................. 9,238 35,846
-------- --------
Total.................................................... $110,006 $659,013
======== ========
</TABLE>
The following table shows the maturities of investment securities at
December 31, 1995.
<TABLE>
<CAPTION>
ONE YEAR OR OVER 1 YEAR OVER 5 YEARS
TOTAL LESS THRU 5 YEARS THRU 10 YEARS OVER 10 YEARS
----------------- --------------- ---------------- ---------------- ----------------
AMOUNT YIELD(1) AMOUNT YIELD(1) AMOUNT YIELD(1) AMOUNT YIELD(1) AMOUNT YIELD(1)
-------- -------- ------ -------- ------- -------- ------- -------- ------- --------
DOLLARS IN THOUSANDS
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Government and
federal agency
securities............. $ -- -- % $ -- -- % $ -- -- % $ -- -- % $ -- -- %
Mortgage-backed
securities............. 80,935 6.14 -- -- 28,499 5.13 10,491 5.39 41,945 7.02
State and municipal
securities............. 19,833 7.61 1,269 5.21 12,851 7.38 4,069 7.88 1,644 10.62
Other securities(2)..... 9,238 6.00 1,000 5.50 2,500 6.30 -- -- 5,738 5.99
-------- ---- ------ ---- ------- ---- ------- ---- ------- -----
Total................ $110,006 6.39 $2,269 5.33 $43,850 5.86 $14,560 6.09 $49,327 7.02
======== ====== ======= ======= =======
Fair value........... $110,524 $2,263 $43,818 $14,471 $49,972
======== ====== ======= ======= =======
</TABLE>
- --------
(1) Fully taxable equivalent.
(2) Equity securities are reported in the "over ten years" category
Available-for-Sale Securities
At December 31, 1995, securities available-for-sale totaled $865.4 million.
This included securities with a fair value of $401.2 transferred from the
investment security category during December and another $339.3 million
acquired upon the purchase of First LA.
A-16
<PAGE>
The carrying amounts of available-for-sale securities at the dates indicated
are summarized in the table below:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1995 1994
-------- -------
DOLLARS IN
THOUSANDS
<S> <C> <C>
U.S. Government and federal agency securities.................. $587,950 $33,649
Mortgage-backed securities..................................... 212,704 48,131
State and municipal securities................................. 17,386 --
Other securities............................................... 47,361 8,642
-------- -------
Total...................................................... $865,401 $90,422
======== =======
</TABLE>
The following table shows the maturities of available-for-sale securities at
December 31, 1995:
<TABLE>
<CAPTION>
OVER 1 YEAR OVER 5 YEARS
TOTAL ONE YEAR OR LESS THRU 5 YEARS THRU 10 YEARS OVER 10 YEARS
----------------- ----------------- ----------------- ---------------- -----------------
AMOUNT YIELD(1) AMOUNT YIELD(1) AMOUNT YIELD(1) AMOUNT YIELD(1) AMOUNT YIELD(1)
-------- -------- -------- -------- -------- -------- ------- -------- -------- --------
DOLLARS IN THOUSANDS
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Government and
federal agency
securities............. $587,950 5.31% $307,378 5.14 $257,444 5.49% $23,128 5.50% -- -- %
Mortgage-backed
securities............. 212,704 6.46 -- -- 16,351 5.74 319 7.96 196,034 6.52
State and municipal
securities............. 17,386 7.86 4,022 8.25 12,107 7.57 527 8.06 730 10.38
Other securities (2).... 47,361 8.58 5,109 7.47 9,133 12.60 2,120 11.88 30,999 7.36
-------- ---- -------- ---- -------- ----- ------- ----- -------- -----
Total.................. $865,401 5.82 $316,509 5.22 $295,035 5.81 $26,094 6.10 $227,763 6.64
======== ======== ======== ======= ========
Amortized Cost......... $862,276 $316,038 $292,932 $26,072 $227,234
======== ======== ======== ======= ========
</TABLE>
- --------
(1) Fully taxable equivalent.
(2) Equity securities are reported in the "over ten years" category.
Sales of available-for-sale securities resulted in losses of $.2 million in
1995, $3.4 million in 1994 and none in 1993. At December 31, 1995, 1994, and
1993 the Company did not have investments in securities issued by any one non-
federal issuer which exceeded 10% of shareholders' equity.
LOAN PORTFOLIO
Loans by Type
The amount of loans outstanding at the indicated year ends are shown in the
following table according to type of loans. The Company's lending activities
are predominantly in Southern California. The Bank has no agricultural or
foreign loans.
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------------
1995 1994 1993 1992 1991
---------- ---------- ---------- ---------- ----------
DOLLARS IN THOUSANDS
<S> <C> <C> <C> <C> <C>
Commercial(1)(2)........ $1,080,124 $ 906,417 $ 944,459 $1,185,310 $1,494,500
Real estate loans--
construction........... 81,318 31,201 11,699 105,467 322,121
Real estate loans--
mortgage(2)............ 553,095 457,030 620,574 816,662 773,748
Residential first
mortgage............... 593,547 212,595 6,586 -- --
Installment loans....... 38,527 36,675 45,485 60,553 71,708
---------- ---------- ---------- ---------- ----------
Total loans......... $2,346,611 $1,643,918 $1,628,803 $2,167,992 $2,662,077
========== ========== ========== ========== ==========
</TABLE>
- --------
(1) Commercial includes unsecured loans to real estate developers and
customers involved in real estate investments and commercial loans where
real estate partially secures the borrowing.
(2) Data for years prior to 1995 have been reclassified to reflect adoption of
Statements of Financial Accounting Standards 114 and 118.
A-17
<PAGE>
Gross loans at December 31, 1995 were $2,346.6 million, up 42.7% or $702.7
million from the previous year end. The increase in loans resulted from $337.5
million in loans from the acquisition of First LA and from an increase in loan
demand, especially for construction loans, as the Southern California economy
showed moderate signs of recovery during 1995. Additionally, the Company
purchased $178.1 million of residential first mortgage loans originated by
others, and also began purchasing participations in large corporate loans. As
a result, all categories of loans were higher than the previous year.
Excluding the increase resulting from the First LA acquisition, all categories
with the exception of commercial real estate loans would have shown increases.
Commercial loans increased $76.1 million excluding the effect of additions of
$97.6 million from First LA. Commercial loans, including First LA loans,
represented 46.0% of the Company's total loan portfolio at December 31, 1995.
Commercial real estate loans decreased by $66.8 million, excluding the
addition of $162.8 million from the First LA acquisition, as pay downs were
not offset by new originations. Residential first mortgage loans increased to
25.3% of total loans as the result of loan purchases and increased
originations by the Bank's residential mortgage division resulting from the
decrease in mortgage rates during 1995. At December 31, 1995 residential first
mortgage loans totaled $593.5 million, an increase of $381.0 million from the
end of 1994, $50.7 million of which are the result of the First LA
acquisition.
At December 31, 1995, 68.2% of commercial loans, 76.6% of commercial real
estate mortgage loans, 59.3% of residential first mortgage loans and 21.4% of
installment loans outstanding were floating interest rate loans. Floating rate
loans comprised 68.2 % of the total loan portfolio at December 31, 1995 and
78.1% at December 31, 1994. Total loans at December 31, 1995 were comprised of
46.3% due in one year or less, 27.1% due in 1-5 years and 26.6% due after 5
years.
The loan maturities shown in the table below are based on contractual
maturities. As is customary in the banking industry, loans that meet sound
underwriting criteria can be renewed by mutual agreement between the Bank and
the borrower. Because the Bank is unable to estimate the extent to which its
borrowers will renew their loans, the table below is based on contractual
maturities.
<TABLE>
<CAPTION>
DECEMBER 31, 1995
------------------------------------------------------------------------
REAL ESTATE- REAL ESTATE- REAL ESTATE-
COMMERCIAL CONSTRUCTION MORTGAGE RESIDENTIAL INSTALLMENT TOTAL
---------- ------------ ------------ ------------ ----------- ----------
DOLLARS IN THOUSANDS
<S> <C> <C> <C> <C> <C> <C>
Aggregate maturities of
loan balances due:
In one year or less
Interest rates--
floating............. $ 538,778 $65,606 $163,436 $ 8,951 $ 6,001 $ 782,772
Interest rates--fixed. 235,936 -- 54,521 -- 13,221 303,678
After one year but
within five years
Interest rates--
floating............. 177,070 15,712 244,493 36,685 2,259 476,219
Interest rates--fixed. 76,291 -- 70,214 -- 12,564 159,069
After five years
Interest rates--
floating............. 20,293 -- 15,607 306,056 -- 341,956
Interest rates--fixed. 31,756 -- 4,824 241,855 4,482 282,917
---------- ------- -------- -------- ------- ----------
Total loans......... $1,080,124 $81,318 $553,095 $593,547 $38,527 $2,346,611
========== ======= ======== ======== ======= ==========
</TABLE>
Credit Risk Management
The Company assesses and manages credit risk on an ongoing basis through
diversification guidelines, lending limits, credit review and approval
policies and internal monitoring. As part of the control process, an
independent credit review function regularly examines the Company's loan
portfolio and other credit related products, including unused commitments and
letters of credit. In addition to this internal credit process, the Company's
loan portfolio is subject to examination by external regulators in the normal
course of business.
A-18
<PAGE>
Credit quality will be influenced by underlying trends in the economic and
business cycle. The Company seeks to manage and control its risk through
diversification of the portfolio by type of loan, industry concentration and
type of borrower.
Real Estate Lending, Excluding Residential First Mortgages
The Company engages in commercial real estate lending in the form of
construction loans and permanent loans secured by deeds of trust.
REAL ESTATE CONSTRUCTION LOANS BY TYPE
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1995 1994
------- -------
DOLLARS IN
THOUSANDS
<S> <C> <C>
Condo/apartment................................................. $ 2,606 $ 2,110
Shopping centers................................................ 26,647 8,974
1-4 family (includes land)...................................... 43,635 9,062
Office building................................................. 5,159 5,262
Industrial...................................................... 2,279 1,421
Other........................................................... 992 4,372
------- -------
Total....................................................... $81,318 $31,201
======= =======
</TABLE>
COMMERCIAL REAL ESTATE MORTGAGE LOANS BY TYPE
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1995 1994(1)
-------- --------
DOLLARS IN
THOUSANDS
<S> <C> <C>
Industrial.................................................... $ 87,653 $ 96,329
Office building............................................... 132,921 87,113
Shopping centers.............................................. 50,081 63,971
Other 1-4 family.............................................. 21,683 10,603
Condo/apartment............................................... 62,063 31,840
Land, nonresidential.......................................... 8,799 8,149
Churches/religious............................................ 23,720 --
Equity lines of credit........................................ 24,502 22,475
Other......................................................... 141,673 136,550
-------- --------
Total..................................................... $553,095 $457,030
======== ========
</TABLE>
- --------
(1) 1994 data has been reclassified to reflect adoption of Statements of
Financial Accounting Standards 114 and 118.
At year-end 1995, commercial real estate mortgage loans totaled $553.1
million, or 23.6% of total loans, compared with 27.8% and 38.1% at year-end
1994 and 1993. Of the 1995 total, $162.8 million were from the acquisition of
First LA. Commercial real estate mortgage loans decreased 26.4% from 1993 to
1994 and, excluding the impact of First LA would have decreased an additional
14.6% from 1994 to 1995. The decrease in commercial real estate mortgage loans
was due to payoffs and amortization of existing loans without new originations
to offset the decreases. Included in the "Other" category is a loan of $27.5
million that resulted from the financing of the sale of assets in the 1993
Asset Disposition Program. Management does not believe that this loan, which
is performing as agreed, poses risks significantly different from other
commercial real estate mortgages. In addition to real estate outstandings, the
Company had open but unused commitments, excluding those under equity lines of
credit, to lend against real estate at December 31, 1995, of $64.4 million,
including $8.8 million from First LA up from $24.2 million at December 31,
1994.
A-19
<PAGE>
Construction loan balances increased to $81.3 million at December 31, 1995,
compared with $31.2 million at December 31, 1994, as the Bank resumed
construction lending. Excluding the effects of the First LA acquisition, the
1995 year end balance of construction loans would have been $59.1 million, an
increase of 89.4% over 1994.
Nonaccrual commercial real estate loans at December 31, 1995 totaled $39.5
million, including $9.5 million from First LA or 7.1% of related loans
outstanding, up from $35.5 million or 7.8% of related loans outstanding at
December 31, 1994, and down from $51.5 million or 8.3% at December 31, 1993.
The increase in nonaccrual commercial real estate loans at December 31, 1995,
compared to 1994, was due to the First LA nonaccrual balances.
Commercial real estate net credit losses in 1995 totaled $4.0 million or
1.0% of related average outstandings. Commercial real estate net credit losses
in 1994 totaled $25.6 million or 4.7% of related average outstandings, and
$41.8 million or 6.6% in 1993.
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>
DECEMBER 31,
---------------------------------------------
1995 1994 1993 1992 1991
------- ------- ------- -------- --------
DOLLARS IN THOUSANDS
<S> <C> <C> <C> <C> <C>
Nonaccrual loans:(1)
Real estate construction...... $ -- $ -- $ -- $ 21,219 $ 51,455
Real estate mortgage.......... 39,536 35,534 51,523 160,556 68,664
Commercial.................... 8,316 23,267 27,780 70,954 78,533
Installment................... 272 -- -- 360 779
------- ------- ------- -------- --------
Total....................... 48,124 58,801 79,303 253,089 199,431
ORE(1).......................... 7,439 4,726 2,052 8,637 26,368
------- ------- ------- -------- --------
Total nonaccrual loans and ORE.. $55,563 $63,527 $81,355 $261,726 $225,799
======= ======= ======= ======== ========
Total nonaccrual loans as a
percentage of total loans(1)... 2.05% 3.58% 4.87% 11.67% 7.49%
Total nonaccrual loans and ORE
as a percentage of total loans
and ORE(1)..................... 2.36 3.85 4.99 12.02 8.40
Allowance for credit losses to
nonaccrual loans(1)............ 273.28 179.15 139.34 53.77 63.06
Assets held for accelerated
disposition.................... $ -- $ -- $17,450 $ -- $ --
Loans past due 90 days or more
on accrual status:
Real estate................... 3,816 2,830 17,412 25,458 42,956
Commercial.................... 2,623 1,068 11,382 1,464 26,492
Installment................... 58 404 155 36 3,587
------- ------- ------- -------- --------
Total....................... $ 6,497 $ 4,302 $28,949 $ 26,958 $ 73,035
======= ======= ======= ======== ========
Restructured loans:
On accrual status............. $ 5,483 $ 2,061 $ 958 $ 1,144 $ --
On nonaccrual status.......... 1,707 7,043 -- -- --
------- ------- ------- -------- --------
Total....................... $ 7,190 $ 9,104 $ 958 $ 1,144 $ --
======= ======= ======= ======== ========
</TABLE>
- --------
(1) Data for years prior to 1995 have been reclassified to reflect adoption of
Statements of Financial Accounting Standards 114 and 118.
A-20
<PAGE>
The acquisition of First LA added $12.6 million of nonaccrual loans to the
Company at December 31, 1995. The Company expects to manage these loans
through aggressive collection efforts and charge offs, as necessary, and does
not expect that this addition will materially impact earnings in a negative
manner. The table below summarizes the changes in nonaccrual loans for the
years ended December 31, 1995 and 1994.
CHANGES IN NONACCRUAL LOANS
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------------
1995 1994
-------- --------
DOLLARS IN
THOUSANDS
<S> <C> <C>
Balance, beginning of the year(1)........................... $ 58,801 $ 79,303
Loans placed on nonaccrual.................................. 32,145 71,576
Loans acquired: First LA.................................... 12,636 --
Charge offs................................................. (12,488) (32,774)
Loans returned to accrual status............................ (5,432) (13,364)
Repayments (including interest applied to principal)........ (36,184) (44,352)
Transfers to ORE............................................ (1,354) (1,588)
-------- --------
Balance, end of year........................................ $ 48,124 $ 58,801
======== ========
</TABLE>
- --------
(1) 1994 data has been reclassified to reflect the adoption of Statements of
Financial Accounting Standards 114 and 118.
The additional interest income that would have been recorded from nonaccrual
loans, if the loans had not been on nonaccrual status, was $4.6 million, $4.8
million and $10.3 million for the years ended December 31, 1995, 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 $2.7 million, $3.5 million and $3.9 million
for the years ended December 31, 1995, 1994, and 1993, respectively, from
collection of interest related to nonaccrual loans. Interest income not
recognized on nonaccrual loans reduced the net interest margin by 17, 18, and
39 basis points for the years ended December 31, 1995, 1994, and 1993,
respectively.
It is the Bank's policy that a loan will be placed on nonaccrual status if
either principal or interest payments are past due in excess of ninety days
unless the loan is both well secured and in process of collection, or if full
collection of interest or principal becomes uncertain, regardless of the time
period involved.
At December 31, 1995, in addition to loans disclosed above as past due,
nonaccrual or restructured, management also identified $19.1 million of
potential problem loans about which the ability of the borrowers to comply
with the present loan payment terms in the future is questionable. However,
the inability of the borrowers to comply with repayment terms was not
sufficiently probable to place the loans on nonaccrual status. This amount was
determined based on analysis of information known to management about the
borrower's financial condition and current and expected economic conditions.
If economic conditions change, adversely or otherwise, or if additional facts
on borrowers' financial condition come to light, then the amount of such
potential problem loans may change, possibly significantly. Estimated
potential losses from these potential problem loans have been provided for in
determining the allowance for credit losses.
At December 31, 1995, the allowance for credit losses was $131.5 million or
5.60% of gross loans, compared to 6.41% at December 31, 1994. The allowance at
December 31, 1995 included $19.1 million added through the acquisition of
First LA. The allowance at December 31, 1995 was equal to 273.3% of total
nonaccrual loans as compared to 179.2% at December 31, 1994.
A-21
<PAGE>
The following table summarizes average loans outstanding during the year and
changes in the allowance for credit losses for the five-year period 1991 to
1995.
RISK ELEMENTS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------
1995 1994 1993 1992 1991
---------- ---------- ---------- ---------- ----------
DOLLARS IN THOUSANDS
<S> <C> <C> <C> <C> <C>
Average amount of loans
outstanding............ $1,758,671 $1,537,997 $1,762,663 $2,403,657 $2,869,081
---------- ---------- ---------- ---------- ----------
Balance of allowance for
credit losses,
beginning of year...... $ 105,343 $ 110,499 $ 136,095 $ 125,766 $ 60,083
---------- ---------- ---------- ---------- ----------
Loans charged off:
Commercial loans(2)... 11,124 22,038 56,012 100,092 47,600
Real estate loans--
construction(2)...... -- -- 13,949 17,597 6,819
Real estate loans--
mortgage(2).......... 5,869 26,354 42,546 14,970 3,212
Installment loans..... 48 128 621 1,460 779
---------- ---------- ---------- ---------- ----------
Total loans charged
off................ 17,041 48,520 113,128 134,119 58,410
---------- ---------- ---------- ---------- ----------
Recoveries of loans
previously charged off:
Commercial loans...... 22,045 34,163 27,842 15,243 5,242
Real estate loans--
construction......... -- 161 20 167 20
Real estate loans--
mortgage............. 1,862 758 767 6 98
Installment loans..... 228 747 215 154 133
---------- ---------- ---------- ---------- ----------
Total recoveries.... 24,135 35,829 28,844 15,570 5,493
Net loans charged off
(recovered)............ (7,094) 12,691 84,284 118,549 52,917
Additions to allowance
charged to operating
expense(2)............. -- 7,535 60,163 128,878 118,600
Acquisition of First LA. 19,077 -- -- -- --
Other(1)................ -- -- (1,475) -- --
---------- ---------- ---------- ---------- ----------
Balance, end of period.. $ 131,514 $ 105,343 $ 110,499 $ 136,095 $ 125,766
========== ========== ========== ========== ==========
Ratio of net charge offs
(recoveries) to average
loans.................. (0.40)% 0.83% 4.78% 4.93% 1.84%
========== ========== ========== ========== ==========
</TABLE>
- --------
(1) Allowance for credit losses allocated to $73.7 million of equity lines of
credit sold in April, 1993.
(2) Data for years prior to 1995 have been reclassified to reflect adoption of
Statements of Financial Accounting Standards 114 and 118.
The following table reflects management's allocation of the allowance for
credit losses by loan category and the ratio of loans in each category to
total loans at December 31 for each of the last five years.
ALLOCATION OF ALLOWANCE FOR CREDIT LOSSES
<TABLE>
<CAPTION>
PERCENT OF LOANS TO
ALLOWANCE AMOUNT TOTAL LOANS
-------------------------------------------- ----------------------------
1995 1994 1993 1992 1991 1995 1994 1993 1992 1991
-------- -------- -------- -------- -------- ---- ---- ---- ---- ----
DOLLARS IN THOUSANDS
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial.............. $ 37,778 $ 55,179 $ 53,110 $ 72,029 $ 77,780 46% 55% 58% 57% 57%
Real estate-
construction........... 4,550 2,341 1,410 10,500 24,926 3 2 1 5 12
Real estate-mortgage.... 77,730 43,745 55,020 52,323 21,560 24 28 38 35 28
Residential first
mortgage............... 10,705 3,200 100 -- -- 25 13 -- -- --
Installment............. 751 878 859 1,243 1,500 2 2 3 3 3
-------- -------- -------- -------- -------- --- --- --- --- ---
Total................ $131,514 $105,343 $110,499 $136,095 $125,766 100% 100% 100% 100% 100%
======== ======== ======== ======== ======== === === === === ===
</TABLE>
The allowance allocated to the loan categories shown above is based on
previous loan loss experience, management's loss experience, management's
evaluation of the current loan portfolio, and anticipated economic
A-22
<PAGE>
conditions. While the allowance is allocated to specific loans and to
portfolio segments, the allowance is general in nature and is available for
the portfolio in its entirety.
In January 1995 the Company adopted 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" which
amended certain provisions of SFAS No. 114. A loan is considered impaired when
it is probable that a creditor will be unable to collect all amounts due
according to the contractual terms of the loan agreement. Once a loan is
determined to be impaired, SFAS 114 requires that the impairment be measured
based on the present value of the expected future cash flows discounted at the
loan's effective interest rate, except that as a practical expedient, the
impairment may be measured by using the loan's observable market price or the
fair value of the collateral if the loan is collateral dependent.
If the measurement of the impaired loan is less than the recorded amount of
the loan, an impairment will be recognized by creating a valuation allowance
with a corresponding charge to the provision for credit losses or by adjusting
an existing valuation allowance for the impaired loan with a corresponding
charge or credit to the provision for credit losses. As amended by SFAS 118
the change in estimated value of an impaired loan may be reported in a manner
consistent with the existing methods currently used by the Company.
The impact of the adoption was immaterial to the results of operations and
financial condition of the Company. Certain loans previously recorded as in-
substance foreclosures have been reclassified as nonaccrual loans. At December
31, 1995 the Company had identified impaired loans with a recorded investment
of $28.2 million. An allowance of $1.4 million, representing the difference
between the value of collateral supporting the loans and their outstanding
balance is included in the allowance for credit losses. The Company's policy
is to record cash receipts received on impaired loans first as reductions to
principal and then to interest income.
OTHER REAL ESTATE
The Company's ORE totaled $7.4 million at year end 1995 ($4.9 million from
the acquisition of First LA), compared with $4.7 million a year ago and $2.1
million at December 31, 1993. The Company's policy is to record these
properties at estimated fair value, net of selling expenses, at the time they
are transferred into ORE, thereby tying future gains or losses from sale or
potential additional write downs to underlying changes in the market.
ASSETS HELD FOR ACCELERATED DISPOSITION
In March 1993, the Bank adopted the Disposition Program to aggressively
dispose of ORE and certain problem loans with an aggregate book value before
the Disposition Program of $119.5 million. In November, 1993, the Bank agreed
to sell all six asset pools in the Disposition Program to WHC-THREE Investors,
a limited partnership. The sale of the loans in the Disposition program closed
in 1993 and a gain of $12.8 million was recognized. The sale of the ORE
properties in the Disposition Program closed in the first half of 1994 and a
gain of $4.2 million was recorded.
The Bank provided 75% financing for the sale of properties in 1993 at terms
comparable to 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. The unpaid balance on the notes, all of which are
performing, was $27.5 million and $41.7 million at December 31, 1995 and 1994,
respectively.
A-23
<PAGE>
DEPOSITS
The maturity distribution of time deposits of $100,000 or more at December
31, 1995 is as follows:
<TABLE>
<CAPTION>
PUBLIC TIME CERTIFICATES
DOLLARS IN THOUSANDS DEPOSITS OF DEPOSIT TOTAL
- -------------------- ----------- ------------ --------
<S> <C> <C> <C>
Under 3 months................................ $32,899 $175,350 $208,249
3 to 6 months................................. 35,368 44,818 80,186
6 to 12 months................................ 22,803 18,820 41,623
Over 12 months................................ 4,315 9,356 13,671
------- -------- --------
Total..................................... $95,385 $248,344 $343,729
======= ======== ========
</TABLE>
Of the total deposits of $100,000 or more in the table above, $172.5 million
were acquired through the purchase of First LA.
At December 31, 1995 and 1994 the aggregate amount of deposits by foreign
depositors in domestic offices totaled $19.7 million and $21.6 million,
respectively, the majority of which was interest bearing. The Bank had
brokered deposits of $41.7 million, all from the First LA acquisition at
December 31, 1995, and none in 1994.
Total deposits of the Company increased to $3,248.0 million at December 31,
1995, an increase of $830.3 million from December 31, 1994. Of that increase,
$796.6 million was the result of the First LA acquisition. Management expects
not to renew approximately $93.9 million of public certificates of deposit
from the acquisition of First LA. In addition, due to the closure of two
branches of the former First LA in February 1996 and the potential loss of
title and escrow deposits associated with problem credit relationships,
management anticipates significant decreases in former First LA deposits in
the first half of 1996.
Due to normal seasonal increases, total deposits at December 31, 1995,
excluding First LA, increased approximately $300 million from November 30,
1995 levels but had decreased by approximately $200 million by the middle of
January 1996.
BORROWED FUNDS
The following table summarizes the short term borrowings of the Company and
their weighted average interest rates for the period indicated.
<TABLE>
<CAPTION>
1995 1994 1993
---------------------------- ---------------------------- ----------------------------
BALANCES AT AVERAGE AVERAGE BALANCES AT AVERAGE AVERAGE BALANCES AT AVERAGE AVERAGE
DOLLARS IN THOUSANDS YEAR-END BALANCE RATE YEAR-END BALANCE RATE YEAR-END BALANCE RATE
-------------------- ----------- -------- ------- ----------- -------- ------- ----------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Federal funds purchased
and securities sold
under repurchase
agreements............. $258,353 $313,150 5.70% $182,120 $215,130 3.98% $202,459 $265,082 2.83%
Other short-term
borrowings............. 195,100 72,062 6.08 50,000 20,348 4.12 15,000 14,000 3.17
</TABLE>
The Company significantly increased its use of short term borrowing to
compensate for the decrease in deposit balances throughout 1995. The maximum
amount of federal funds purchased and securities sold with agreements to
repurchase at any month end was $428.6 million, $269.4 million and $423.0
million in 1995, 1994 and 1993, respectively.
The maximum amount of other short-term borrowings at any month end was
$195.1 million during the year ended December 31, 1995, and $50.0 million and
$15.0 million during the years ended December 31, 1994 and 1993.
A-24
<PAGE>
At December 31, 1995 the Company also had outstanding long term debt of $25
million. The debt represented a fixed rate borrowing from the Federal Home
Loan Bank of San Francisco which matures in May of 1997. Subsequent to
borrowing the funds the Company entered into an interest rate swap agreement
with the same maturity date as the long term debt. The swap obligates the Bank
to pay the counterparty a floating rate of interest based on 3 month LIBOR and
receive a fixed rate of interest from the counterparty.
ACQUISITION OF FIRST LOS ANGELES BANK
At the close of business December 31, 1995 the Bank acquired for $85 million
cash all the outstanding stock of First LA, a ten branch bank headquartered in
Century City, California with total assets of $867 million. Immediately prior
to the close, First LA sold certain real estate secured loans to its parent
for $71.0 million. First LA had loans, securities and deposits of $338
million, $343 million, and $796 million, respectively at December 31, 1995.
Immediately following the acquisition First LA was merged into the Bank. The
acquisition was accounted for as a purchase. As a result of the acquisition
the Bank recorded intangible assets of $12.6 million. The annual amortization
of these intangibles assets will reduce pretax income by approximately $1.5
million in 1996. The acquisition is expected to augment the Bank's business
lending portfolio and add to its base of core deposits, both key to growth
plans of the Company. The acquisition is expected to be immediately accretive
to the Company's earnings during 1996 despite the amortization of intangibles
mentioned above.
A-25
<PAGE>
1995 QUARTERLY OPERATING RESULTS
<TABLE>
<CAPTION>
QUARTER ENDED
-----------------------------------------------
DOLLARS IN THOUSANDS MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, TOTAL
- -------------------- --------- -------- ------------- ------------ --------
<S> <C> <C> <C> <C> <C>
Interest income
From loans............ $ 37,702 $ 41,257 $ 43,254 $ 46,649 $168,862
From investments...... 11,668 11,761 11,959 13,344 48,732
-------- -------- -------- -------- --------
49,370 53,018 55,213 59,993 217,594
Interest expense........ (10,857) (12,566) (15,074) (16,834) (55,331)
-------- -------- -------- -------- --------
Net interest income..... 38,513 40,452 40,139 43,159 162,263
Provision for credit
losses................. -- -- -- -- --
-------- -------- -------- -------- --------
Net interest income
after provision for
credit losses.......... 38,513 40,452 40,139 43,159 162,263
Noninterest income...... 8,222 8,520 9,337 9,083 35,162
Gain (loss) on sale of
securities............. 344 291 (137) (1,094) (596)
Noninterest expense..... (29,625) (30,214) (28,058) (30,787) (118,684)
ORE (expense) income.... (152) (59) 195 624 608
-------- -------- -------- -------- --------
Income before taxes..... 17,302 18,990 21,476 20,985 78,753
Income taxes............ (6,685) (7,429) (8,193) (7,654) (29,961)
-------- -------- -------- -------- --------
Net income.............. $ 10,617 $ 11,561 $ 13,283 $ 13,331 $ 48,792
======== ======== ======== ======== ========
Net income per share.... $ 0.23 $ 0.25 $ 0.29 $ 0.29 $ 1.06
======== ======== ======== ======== ========
</TABLE>
1994 QUARTERLY OPERATING RESULTS
<TABLE>
<CAPTION>
QUARTER ENDED
-----------------------------------------------
DOLLARS IN THOUSANDS MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, TOTAL
- -------------------- --------- -------- ------------- ------------ ---------
<S> <C> <C> <C> <C> <C>
Interest income
From loans............ $ 29,499 $ 31,656 $ 32,988 $ 35,986 $ 130,129
From investments...... 11,239 13,212 14,053 13,192 51,696
-------- -------- -------- -------- ---------
40,738 44,868 47,041 49,178 181,825
Interest expense........ (8,749) (9,443) (9,893) (10,329) (38,414)
-------- -------- -------- -------- ---------
Net interest income..... 31,989 35,425 37,148 38,849 143,411
Provision for credit
losses................. (3,000) (3,000) -- (1,535) (7,535)
Net interest income
after provision for
credit losses.......... 28,989 32,425 37,148 37,314 135,876
Noninterest income...... 10,321 8,874 8,785 8,200 36,180
Loss on sale of
securities............. -- -- (647) (2,736) (3,383)
Noninterest expense..... (30,634) (29,401) (29,917) (31,344) (121,296)
ORE (expense) income.... 4,526 774 203 (206) 5,297
-------- -------- -------- -------- ---------
Income before taxes..... 13,202 12,672 15,572 11,228 52,674
Income taxes............ (4,542) (4,443) (5,160) (1,366) (15,511)
-------- -------- -------- -------- ---------
Net income.............. $ 8,660 $ 8,229 $ 10,412 $ 9,862 $ 37,163
======== ======== ======== ======== =========
Net income per share.... $ 0.19 $ 0.18 $ 0.23 $ 0.21 $ 0.81
======== ======== ======== ======== =========
</TABLE>
A-26
<PAGE>
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS
Management is responsible for the preparation of the Company's consolidated
financial statements and related information appearing in this annual report.
Management believes that the consolidated financial statements fairly reflect
the form and substance of transactions, and that the financial statements
reasonably present the Company's financial position and results of operations
in conformity with generally accepted accounting principles. Management also
has included in the Company's financial statements amounts that are based on
estimates and judgments that it believes are reasonable under the
circumstances.
The independent auditors audit the Company's consolidated financial
statements in accordance with generally accepted auditing standards and
provide an objective, independent review of the fairness of reported operating
results and financial position.
The Board of Directors of the Corporation has an Audit Committee composed
solely of three non-management Directors. The Committee meets periodically
with financial management, the internal auditors and the independent auditors
to review accounting control, auditing and financial matters.
/s/ Russell Goldsmith
-------------------------------------
Russell Goldsmith
Chief Executive Officer
/s/ Bram Goldsmith
-------------------------------------
Bram Goldsmith
Chairman of the Board
/s/ Frank P. Pekny
-------------------------------------
Frank P. Pekny
Executive Vice President and
Chief Financial Officer
A-27
<PAGE>
INDEPENDENT AUDITORS' REPORT
To Board of Directors and Shareholders of
City National Corporation:
We have audited the accompanying consolidated balance sheet of City National
Corporation and subsidiaries as of December 31, 1995 and 1994 and the related
consolidated statements of operations, changes in shareholders' equity, and
cash flows for each of the years in the three-year period ended December 31,
1995. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of City
National Corporation and subsidiaries at December 31, 1995 and 1994 and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1995 in conformity with generally
accepted accounting principles.
As discussed in Note 1, the Company changed its method of accounting for the
impairment of loans to adopt the provisions of the Financial Accounting
Standards Board's Statement of Financial Accounting Standard No. 114,
"Accounting by Creditors For Impairment of a Loan," as amended by Statement of
Financial Accounting Standard No. 118, "Accounting by Creditors For Impairment
of a Loan-Income Recognition and Disclosures," on January 1, 1995.
KPMG Peat Marwick LLP
Los Angeles, California
January 17, 1996
A-28
<PAGE>
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS 1995 1994
- ------------------------------------------ ---------- ----------
<S> <C> <C>
ASSETS
Cash and due from banks.................................. $ 339,737 $ 298,715
Interest-bearing deposits in other banks................. 80,696 674
Federal funds sold and securities purchased under resale
agreements.............................................. 351,803 296,966
Investment securities (market value $110,524 in 1995 and
$625,425 in 1994)....................................... 110,006 659,013
Securities available-for-sale (cost $862,276 in 1995 and
$96,124 in 1994) ....................................... 865,401 90,422
Trading account securities............................... 29,728 25,531
Loans.................................................... 2,346,611 1,643,918
Less allowance for credit losses......................... 131,514 105,343
---------- ----------
Net loans.............................................. 2,215,097 1,538,575
Leveraged leases......................................... 8,400 9,856
Premises and equipment, net.............................. 23,607 19,231
Customers' acceptance liability.......................... 2,656 5,104
Other real estate........................................ 7,439 4,726
Deferred tax asset....................................... 64,420 28,250
Other assets............................................. 58,561 35,712
---------- ----------
Total assets........................................... $4,157,551 $3,012,775
========== ==========
LIABILITIES
Demand deposits.......................................... $1,490,934 $1,151,709
Interest checking deposits............................... 380,230 305,659
Money market deposits.................................... 801,369 669,940
Savings deposits......................................... 89,042 88,027
Time deposits-under $100,000............................. 142,731 77,657
Time deposits-$100,000 and over.......................... 343,729 124,770
---------- ----------
Total deposits......................................... 3,248,035 2,417,762
Federal funds purchased and securities sold under
repurchase agreements................................... 258,353 182,120
Other short-term borrowings.............................. 195,100 50,000
Long-term debt........................................... 25,000 --
Other liabilities........................................ 61,450 27,068
Acceptances outstanding.................................. 2,656 5,104
---------- ----------
Total liabilities...................................... 3,790,594 2,682,054
---------- ----------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Preferred Stock authorized--5,000,000, none outstanding.. -- --
Common Stock-par value-$1.00; authorized--75,000,000
Issued--45,553,724 shares in 1995 and 45,192,678 shares
in 1994................................................. 45,554 45,193
Additional paid-in capital............................... 266,829 263,611
Unrealized gain (loss) on available-for-sale securities.. 1,955 (3,564)
Retained earnings........................................ 62,518 25,481
Treasury shares, at cost--762,500 at December 31, 1995... (9,899) --
---------- ----------
Total shareholders' equity............................. 366,957 330,721
---------- ----------
Total liabilities and shareholders' equity............. $4,157,551 $3,012,775
========== ==========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
A-29
<PAGE>
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
----------------------------
IN THOUSANDS, EXCEPT PER SHARE AMOUNTS 1995 1994 1993
- -------------------------------------- -------- -------- --------
<S> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans....................... $168,862 $130,129 $131,150
Interest on federal funds sold and securities
purchased under resale agreements............... 7,013 7,264 9,357
Interest on investments securities:
U. S. Treasury and federal agency securities.... 25,853 32,521 26,190
Municipal securities............................ 1,091 848 122
Other securities................................ 2,280 1,566 813
Interest on securities available-for-sale........ 10,480 8,301 1,001
Interest on trading account...................... 2,015 1,196 1,159
-------- -------- --------
Total......................................... 217,594 181,825 169,792
-------- -------- --------
INTEREST EXPENSE
Interest on deposits............................. 32,039 29,023 33,974
Interest on federal funds purchased and
securities sold under repurchase agreements..... 17,855 8,552 7,499
Interest on other short-term borrowings.......... 4,378 839 523
Interest on long-term debt....................... 1,059 -- --
-------- -------- --------
Total......................................... 55,331 38,414 41,996
-------- -------- --------
Net interest income.............................. 162,263 143,411 127,796
Provision for credit losses...................... -- 7,535 60,163
-------- -------- --------
Net interest income after provision for credit
losses.......................................... 162,263 135,876 67,633
-------- -------- --------
NONINTEREST INCOME
Service charges on deposit accounts.............. 8,073 9,294 11,570
Investment services income....................... 8,779 7,168 6,288
Trust fees....................................... 6,496 6,762 7,390
Gain on sale of selected ELC loans............... -- -- 4,460
Gain (loss) on sale of assets.................... (83) 1,494 1,941
Loss on sale of securities....................... (596) (3,383) --
All other income................................. 11,897 11,462 14,161
-------- -------- --------
Total......................................... 34,566 32,797 45,810
-------- -------- --------
NONINTEREST EXPENSE
Salaries and other employee benefits............. 65,375 64,396 69,783
Professional..................................... 8,836 8,264 7,348
Net occupancy of premises........................ 7,923 10,286 11,828
Data processing.................................. 7,476 7,202 7,757
Promotion........................................ 4,419 2,962 1,900
Depreciation..................................... 4,120 4,145 4,516
Office supplies.................................. 3,955 4,658 4,994
FDIC insurance................................... 2,486 5,774 7,202
Equipment........................................ 2,272 2,653 1,996
Other operating.................................. 11,822 10,956 11,902
Consolidation charge............................. -- -- 12,000
ORE income....................................... (608) (5,297) (4,489)
-------- -------- --------
Total......................................... 118,076 115,999 136,737
-------- -------- --------
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE
INCOME TAX EXPENSE (BENEFIT).................... 78,753 52,674 (23,294)
Income tax expense (benefit)..................... 29,961 15,511 (9,260)
-------- -------- --------
INCOME (LOSS) FROM CONTINUING OPERATIONS......... 48,792 37,163 (14,034)
Income from discontinued operations.............. -- -- 7,128
-------- -------- --------
NET INCOME (LOSS)................................ $ 48,792 $ 37,163 $ (6,906)
======== ======== ========
INCOME (LOSS) PER SHARE FROM CONTINUING
OPERATIONS...................................... $ 1.06 $ 0.81 $ (0.35)
======== ======== ========
NET INCOME (LOSS) PER SHARE...................... $ 1.06 $ 0.81 $ (0.17)
======== ======== ========
Shares used to compute income (loss) per share... 45,886 45,626 39,580
======== ======== ========
Dividends per share.............................. $ 0.26 $ 0.05 $ --
======== ======== ========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
A-30
<PAGE>
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER
31,
-------------------------------
DOLLARS IN THOUSANDS 1995 1994 1993
- -------------------- --------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)............................. $ 48,792 $ 37,163 $ (6,906)
Adjustment to net income (loss):
Provision for credit losses.................. -- 7,535 60,163
Writedowns on ORE............................ 96 -- 10,120
Gain on sales of ORE and Disposition
Program..................................... (1,055) (5,597) (15,568)
Depreciation................................. 4,120 4,145 4,516
Net (increase) decrease in trading
securities.................................. (4,197) 14,234 (29,507)
Net (increase) decrease in deferred tax
benefits.................................... (6,077) (10,200) 19,070
Net increase in other liabilities (assets)... (6,277) 165 11,879
Other, net................................... 6,047 35,745 (5,287)
--------- --------- ---------
Net cash provided by operating activites... 41,449 83,190 48,480
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Net (increase) decrease in short-term
investments.................................. (80,022) (25) 14,307
Purchase of securities available for sale..... (184,905) (249,087) --
Sales and maturities of securities available-
for-sale..................................... 160,413 151,961 18,928
Maturities of investment securities........... 181,615 532,297 230,357
Purchase of investment securities............. (32,951) (313,786) (711,798)
Purchase of residential mortgage loans........ (178,084) (187,623) --
(Loan originations) and principal collections,
net.......................................... (206,580) 118,765 354,191
Proceeds from sales of ORE and Disposition
Program assets............................... 6,489 20,543 41,639
Proceeds from sale of leveraged leases........ 329 5,141 --
Proceeds from sales of loans.................. -- -- 76,684
Net cash from acquisitions.................... 95,624 -- --
Other, net.................................... 17,688 33,661 9,450
--------- --------- ---------
Net cash provided (used) by investing
activities................................ (220,384) 111,847 33,758
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in federal funds
purchased and securities sold under
repurchase agreements........................ 83,633 (20,339) (136,690)
Net increase (decrease) in deposits........... 33,717 (109,005) (384,509)
Net increase in short term borrowings......... 145,000 35,000 --
Proceeds from issuance of long term debt...... 25,000 -- --
Proceeds from issuance of common stock........ 3,131 1,147 76,989
Cash dividends paid........................... (11,755) (2,258) --
Stock repurchase.............................. (9,899) -- --
Other, net.................................... 5,967 (3,405) 1,659
--------- --------- ---------
Net cash provided (used) by financing
activities................................ 274,794 (98,860) (442,551)
--------- --------- ---------
Net increase (decrease) in cash and cash
equivalents.................................. 95,859 96,177 (360,313)
Cash and cash equivalents at beginning of
year......................................... 595,681 499,504 859,817
--------- --------- ---------
Cash and cash equivalents at end of year...... $ 691,540 $ 595,681 $ 499,504
========= ========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid (received) during the year for:
Interest..................................... $ 53,198 $ 38,406 $ 42,771
Income taxes................................. 36,248 4,444 (30,018)
Non-cash investing activities:
Transfer from loans to foreclosed assets..... 2,465 4,023 28,590
Transfers from (to) investment securities to
(from) securities available for sale........ 402,304 -- (8,201)
Loan to facilitate sale of disposition
program assets.............................. -- -- 55,955
Non-cash financing activities:
Proceeds from mortgages payable.............. -- (26,319) 26,319
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
A-31
<PAGE>
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
UNREALIZED
GAIN (LOSS)
ADDITIONAL ON SECURITIES RETAINED TOTAL
SHARES COMMON PAID-IN AVAILABLE FOR EARNINGS TREASURY SHAREHOLDERS'
DOLLARS IN THOUSANDS ISSUED STOCK CAPITAL SALE (DEFICIT) STOCK EQUITY
- -------------------- ---------- ------- ---------- ------------- -------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances, December 31,
1992................... 32,239,714 $32,240 $198,222 $ -- $ (2,518) $ -- $227,944
Net loss................ -- -- -- -- (6,906) -- (6,906)
Stock options exercised. 70,892 71 417 -- -- -- 488
Proceeds from rights
offering............... 12,716,811 12,716 63,785 -- -- -- 76,501
Tax benefit from stock
options................ -- -- 47 -- -- -- 47
---------- ------- -------- ------ -------- ------- --------
Balances, December 31,
1993................... 45,027,417 45,027 262,471 -- (9,424) -- 298,074
Net income.............. -- -- -- -- 37,163 -- 37,163
Stock options exercised. 165,261 166 981 -- -- -- 1,147
Tax benefit from stock
options................ -- -- 159 -- -- -- 159
Cash dividends.......... -- -- -- -- (2,258) -- (2,258)
Change in unrealized
gain (loss) on
securities available-
for-sale............... -- -- -- (3,564) -- -- (3,564)
---------- ------- -------- ------ -------- ------- --------
Balances, December 31,
1994................... 45,192,678 45,193 263,611 (3,564) 25,481 -- 330,721
Net income.............. 48,792 48,792
Stock options exercised. 361,046 361 2,770 -- -- -- 3,131
Tax benefit from stock
options................ -- -- 448 -- -- -- 448
Cash dividends.......... -- -- -- -- (11,755) -- (11,755)
Change in unrealized
gain (loss) on
securities available-
for-sale............... -- -- -- 5,519 -- -- 5,519
Repurchased shares...... -- -- -- -- -- (9,899) (9,899)
---------- ------- -------- ------ -------- ------- --------
Balances, December 31,
1995................... 45,553,724 $45,554 $266,829 $1,955 $ 62,518 $(9,899) $366,957
========== ======= ======== ====== ======== ======= ========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
A-32
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of City National Corporation (the
Corporation) and of City National Bank (the Bank) and its subsidiaries conform
to generally accepted accounting practices and to prevailing practices within
the banking industry. The preparation of these financial statements requires
management to make estimates and assumptions that effect the reported amount
of assets and liabilities, and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenues
and expenses during the reported periods.
The Company, through its primary subsidiary the Bank, engages in commercial
banking serving primarily middle market companies, professional and business
borrowers, and associated individuals with commercial banking, fiduciary,
residential mortgage, and personal banking services.
Basis of Presentation
The consolidated financial statements of the Company include the accounts of
the Corporation, the Bank (100% owned), and its wholly owned subsidiaries
after elimination of all material intercompany transactions. The Company also
has, through its subsidiaries, a 32% interest in a real estate partnership.
The Company's equity in the net income and capital of this partnership are
included in the consolidated financial statements. Certain prior years' data
have been reclassified to conform to current year presentation.
Securities
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 available-
for-sale securities and are recorded at fair value. Unrealized gains or losses
on available-for-sale securities are excluded from earnings and reported at an
amount net of taxes as a separate component of shareholders' equity. Premiums
or discounts on investment and available-for-sale securities are amortized or
accreted into income using the interest method. Realized gains or losses on
sales of investment or available-for-sale securities are recorded using the
specific identification method. Investment services income consists of fees,
commissions and markups on securities transactions with customers and money
market mutual fund fees.
Loans
Loans are generally carried at principal amounts outstanding less unearned
income. Unearned income includes deferred unamortized fees net of direct
incremental loan origination costs as required by SFAS No. 91. Interest income
is accrued as earned. Net deferred fees are accreted into interest income
using the interest method or straight line method if not materially different.
Loans held for sale are recorded at the lower of cost or market.
Loans are placed on nonaccrual status when a loan becomes 90 days past due
as to interest or principal unless the loan is both well secured and in the
process of collection. Loans are also placed on nonaccrual status when the
full collection of interest or principal becomes uncertain. When a loan is
placed on nonaccrual status, the accrued and unpaid interest receivable is
reversed. Thereafter, interest collected on the loan is accounted for on the
cash collection or cost recovery method until qualifying for a return to
accrual status. Generally, a loan may be returned to accrual status when all
delinquent principal and interest are brought current in accordance with the
terms of the loan agreement and certain performance criteria have been met.
In January 1995 the Company adopted Statement of Financial Accounting
Standards No.114 (SFAS 114) "Accounting by Creditors for Impairment of a Loan"
and No. 118 (SFAS 118) "Accounting by Creditors for Impairment of a Loan--
Income Recognition and Disclosures" which amended certain provisions of SFAS
No.
A-33
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
114. The Company considers a loan to be impaired when it is probable that it
will be unable to collect all amounts due according to the contractual terms
of the loan agreement. Once a loan is determined to be impaired, the
impairment is measured based on the present value of the expected future cash
flows discounted at the loan's effective interest rate, except that as a
practical expedient, the impairment is measured by using the loan's observable
market price or the fair value of the collateral if the loan is collateral
dependent.
When the measurement of the impaired loan is less than the recorded amount
of the loan, an impairment is recognized by creating a valuation allowance
with a corresponding charge to the provision for credit losses or by adjusting
an existing valuation allowance for the impaired loan with a corresponding
charge or credit to the provision for credit losses.
The Company's policy is to record cash receipts received on impaired loans
first as reductions to principal and then to interest income.
Allowance for Credit Losses
The provision for credit losses charged to operations reflects management's
judgement of the adequacy of the allowance for credit losses and is determined
through periodic analytical reviews of the loan portfolio, problem loans and
consideration of such other factors as the Bank's loan loss experience, trends
in problem loans, concentrations of credit risk, and current and expected
future economic conditions, as well as the results of the Company's ongoing
examination process and that of its regulators.
Leveraged Leases
Income from leveraged leases is recognized over the terms of the lease based
upon the unrecovered equity investment.
Premises and Equipment
Premises and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation is computed generally on a straight line basis over
the estimated useful life of each type of asset. Gains or losses on
dispositions are reflected in current operations. Maintenance and repairs are
charged to operating expense.
Other Real Estate (ORE)
Other real estate is comprised of real estate acquired in satisfaction of
loans. Properties acquired by foreclosure or deed in lieu of foreclosure are
transferred to ORE and are recorded at fair value less estimated costs to
sell, at the date of transfer of the property. The fair value of the ORE
property is based upon a current appraisal. Losses that result from ongoing
periodic valuation of these properties are charged against ORE expense in the
period in which they are identified. Expenses for holding costs are charged to
operations as incurred.
Income Taxes
The Company files a consolidated federal income tax return and a combined
state income tax return. Deferred tax assets and liabilities are recognized
for the expected future tax consequences of existing differences between the
financial reporting and tax reporting basis of assets and liabilities, as well
as for operating losses and tax credit carry forwards, using enacted tax laws
and rates. Deferred tax assets will be reduced through a valuation allowance
whenever it becomes more likely than not that all, or some portion, will not
be realized. Deferred income taxes (benefits) represent the net change in the
deferred tax asset, or liability balance during the year. This amount,
together with income taxes currently payable or refundable in the current
year, represents the total income tax expense (benefit) for the year.
A-34
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Income (Loss) Per Share
Income (loss) per share is computed on the basis of the average number of
common shares outstanding during each period plus the additional dilutive
effect of common stock equivalents. The dilutive effect of outstanding stock
options is calculated using the treasury stock method.
Derivatives and Hedging Activities
Gains or losses on derivatives identified as hedges are deferred and
recognized in income or expense as adjustment to the income or expense of the
related hedged transaction.
Statement of Cash Flows
For the purposes of cash flows, cash and cash equivalents include cash on
hand, amounts due from banks and federal funds sold.
Goodwill and Other Intangibles
Goodwill represents the excess of the purchase price over the estimated fair
value of net assets associated with acquisition transactions of the Company
accounted for as purchases and is amortized over fifteen years. Core deposit
intangibles represent the intangible value of depositor relationships
resulting from deposit liabilities assumed in acquisitions and are amortized
over seven years. Goodwill and other intangibles are evaluated periodically
for other than temporary impairment. Should such an assessment indicate that
the undiscounted value of an intangible may be impaired, the net book value of
the intangible would be written down to net estimated recoverable value.
Discontinued Operations
All income and expenses related to the sale of City National Information
Services (CNIS) to Systematics, Inc., in 1993 have been removed from
continuing operations and are now included in the Consolidated Statement of
Operations under the caption "Income from discontinued operations".
Other
The Company and its subsidiaries are on the accrual basis of accounting for
income and expenses. In accordance with the usual practice of banks, assets
and liabilities of individual trust, agency and fiduciary funds have not been
included in the accounts.
NOTE 2. ACQUISITIONS
On December 31, 1995, at the close of business, the Bank acquired all the
outstanding stock of First LA for $85 million in cash in a transaction that
has been accounted for as a purchase. Immediately prior to the close, First LA
sold certain real estate secured loans to its parent for $71.0 million. First
LA had total assets, loans, securities, cash, and other assets of $867
million, $338 million, $343 million, $110 million, and $76 million,
respectively at December 31, 1995. Additionally, First LA had $796 million of
deposits at December 31, 1995. Immediately upon acquisition First LA was
merged into the Bank. Merger related expenses of $1.0 million were recorded in
1995 to cover certain integration, data processing, and lease termination
expenses related to the acquisition. As a result of the adjustment of First
LA's assets and liabilities to fair value at December 31, 1995, the Company
recorded intangible assets of $12.6 million.
A-35
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following table presents an unaudited pro forma combined summary of
operations of the Company and First LA for the years ended December 31, 1995
and 1994. The unaudited pro forma combined summary of operations is presented
as if the merger had been effective January 1, 1994. This information combines
the historical results of the Company and First LA after giving effect to
amortization of purchase accounting adjustments. The unaudited pro forma
combined summary of operations is based on the Company's historical results
and those of First LA. The unaudited pro forma combined summary of operations
is intended for informational purposes only and is not necessarily indicative
of the future results of the Company or of the results of the Company that
would have occurred had the acquisition been in effect for the full years
presented.
UNAUDITED PRO FORMA COMBINED SUMMARY OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-----------------
DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA 1995 1994
- ------------------------------------------- -------- --------
<S> <C> <C>
Interest income.................................................. $275,809 $240,064
Interest expense................................................. 78,472 56,344
-------- --------
Net interest income.......................................... 197,337 183,720
Provision for credit losses...................................... 14,225 28,735
Noninterest income............................................... 39,247 38,101
Noninterest expense.............................................. 155,769 163,743
-------- --------
Income before income taxes....................................... 66,590 29,343
Income taxes..................................................... 29,961 15,811
-------- --------
Net income (loss)............................................ $ 36,629 $ 13,532
======== ========
Net income (loss) per share.................................. $ .80 $ .30
======== ========
</TABLE>
The unaudited pro forma combined net income per share were calculated based
on the pro forma combined net income and the actual average common shares and
share equivalents outstanding during the years presented. Because the
acquisition was paid for entirely with cash, the average shares and share
equivalents outstanding are the same as those in the Company's Consolidated
Statement of Operations for the years presented.
NOTE 3. INVESTMENT SECURITIES
The following is a summary of the amortized cost and estimated fair value
for the major categories of investment securities:
<TABLE>
<CAPTION>
GROSS GROSS
CARRYING UNREALIZED UNREALIZED FAIR
DECEMBER 31 VALUE GAINS LOSSES VALUE
- ----------- -------- ---------- ---------- --------
DOLLARS IN THOUSANDS
<S> <C> <C> <C> <C>
1995
U.S. Government and federal agency
securities.......................... $ -- $ -- $ -- $ --
Mortgage-backed securities........... 80,935 644 268 81,311
State and municipal securities....... 19,833 161 5 19,989
Other securities..................... 9,238 -- 14 9,224
-------- ------ ------- --------
Total.............................. $110,006 $ 805 $ 287 $110,524
======== ====== ======= ========
1994
U.S. Government and federal agency
securities.......................... $334,373 $ -- $15,392 $318,981
Mortgage-backed securities........... 263,161 -- 17,554 245,607
State and municipal securities....... 25,633 15 500 25,148
Other securities..................... 35,846 -- 157 35,689
-------- ------ ------- --------
Total.............................. $659,013 $ 15 $33,603 $625,425
======== ====== ======= ========
</TABLE>
A-36
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
In November 1995 the Financial Accounting Standards Board issued its Guide
to Implementation of SFAS No. 115 and allowed companies a single opportunity
during the period from November 15, 1995 to December 31, 1995 to reclassify
securities between the categories of held-to-maturity and available-for-sale
without tainting the classification of any securities. In December 1995, the
Company reclassified securities with a book value of $402.3 million and fair
value of $401.2 million from the investment securities classification to
available-for-sale. As of December 31, 1995, $3.5 million of municipal
securities balances were the result of the acquisition of First LA.
Sales of investment securities within ninety days of maturity as permitted
under SFAS No. 115 resulted in losses of $.4 million in 1995, insignificant
amounts in 1994 and none in 1993.
The carrying values and estimated fair values of investment securities at
December 31, 1995, by contractual maturity, are shown below:
<TABLE>
<CAPTION>
ONE YEAR OVER 1 YEAR OVER 5 YEARS OVER
TOTAL OR LESS THRU 5 YEARS THRU 10 YEARS 10 YEARS
----------------- --------------- ---------------- ---------------- ----------------
AMOUNT YIELD(1) AMOUNT YIELD(1) AMOUNT YIELD(1) AMOUNT YIELD(1) AMOUNT YIELD(1)
-------- -------- ------ -------- ------- -------- ------- -------- ------- --------
DOLLARS IN THOUSANDS
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Government and
federal agency
securities............. $ -- -- % $ -- -- % $ -- -- % $ -- -- % $ -- -- %
Mortgage-backed
securities............. 80,935 6.14 -- -- 28,499 5.13 10,491 5.39 41,945 7.02
State and municipal
securities............. 19,833 7.61 1,269 5.21 12,851 7.38 4,069 7.88 1,644 10.62
Other securities(2)..... 9,238 6.00 1,000 5.50 2,500 6.30 -- -- 5,738 5.99
-------- ---- ------ ---- ------- ---- ------- ---- ------- -----
Total............... $110,006 6.39 $2,269 5.33 $43,850 5.86 $14,560 6.09 $49,327 7.02
======== ====== ======= ======= =======
Fair value.......... $110,524 $2,263 $43,818 $14,471 $49,972
======== ====== ======= ======= =======
</TABLE>
- --------
(1) Fully taxable equivalent.
(2) Equity securities are reported in the "over ten years" category.
NOTE 4. SECURITIES AVAILABLE-FOR-SALE
The following is a summary of amortized cost and estimated fair value for
the major categories of securities available-for-sale:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
DECEMBER 31 COST GAINS LOSSES VALUE
- ----------- --------- ---------- ---------- --------
DOLLARS IN THOUSANDS
<S> <C> <C> <C> <C>
1995
U.S. Government and federal agency
securities......................... $586,529 $2,265 $ 844 $587,950
Mortgage-backed securities.......... 212,266 959 521 212,704
State and municipal securities...... 17,353 73 40 17,386
Other securities.................... 46,128 1,357 124 47,361
-------- ------ ------ --------
Total............................. $862,276 $4,654 $1,529 $865,401
======== ====== ====== ========
1994
U.S. Government and federal agency
securities......................... $ 34,798 $ -- $1,149 $ 33,649
Mortgage-backed securities.......... 52,927 -- 4,796 48,131
Other securities.................... 8,399 829 586 8,642
-------- ------ ------ --------
Total............................. $ 96,124 $ 829 $6,531 $ 90,422
======== ====== ====== ========
</TABLE>
A-37
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
As described in Note 3, above the Company reclassified certain securities
with an amortized cost of $402.3 million and an estimated fair value of $401.2
million at the time of the reclassification from investment to available-for-
sale. In addition to that reclassification, the December 31, 1995 balance of
available-for-sale securities included $339.3 million of securities from the
acquisition of First LA.
Sales of available-for-sale securities resulted in losses of $.2 million in
1995, $3.4 million in 1994 and none in 1993.
The estimated fair value and amortized cost of securities available-for-sale
at December 31, 1995, by contractual maturity, are shown below.
<TABLE>
<CAPTION>
OVER 1 YEAR THRU OVER 5 YEARS
TOTAL ONE YEAR OR LESS 5 YEARS THRU 10 YEARS OVER 10 YEARS
----------------- ----------------- ----------------- ---------------- -----------------
AMOUNT YIELD(1) AMOUNT YIELD(1) AMOUNT YIELD(1) AMOUNT YIELD(1) AMOUNT YIELD(1)
------ -------- -------- -------- -------- -------- ------- -------- -------- --------
DOLLARS IN THOUSANDS
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Government and
federal agency
securities............. $587,950 5.31% $307,378 5.14 $257,444 5.49% $23,128 5.50% $ -- -- %
Mortgage-backed
securities............. 212,704 6.46 -- -- 16,351 5.74 319 7.96 196,034 6.52
State and municipal
securities............. 17,386 7.86 4,022 8.25 12,107 7.57 527 8.06 730 12.12
Other securities(2)..... 47,361 8.58 5,109 7.47 9,133 12.80 2,120 11.88 30,999 7.36
-------- ---- -------- ---- -------- ----- ------- ----- -------- -----
Total................ $865,401 5.82 $316,509 5.22 $295,035 5.81 $26,094 6.10 $227,763 6.64
======== ======== ======== ======= ========
Amortized Cost....... $862,276 $316,038 $292,932 $26,072 $227,234
======== ======== ======== ======= ========
</TABLE>
- --------
(1) Fully taxable equivalent.
(2) Equity securities are reported in the "over ten years" category.
Securities totaling $636.1 million were pledged to secure trust funds,
public deposits, or for other purposes required or permitted by law.
NOTE 5. LOANS AND ALLOWANCE FOR CREDIT LOSSES
The following is a summary of the major categories of loans:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
DOLLARS IN THOUSANDS 1995 1994
- -------------------- ---------- ----------
<S> <C> <C>
Commercial loans(1)....................................... $1,080,125 $ 906,417
Real estate construction loans............................ 81,318 31,201
Real estate mortgage loans(1)............................. 553,095 457,030
Residential first mortgage loans.......................... 593,546 212,595
Installment loans......................................... 38,527 36,675
---------- ----------
Total loans (net of unearned income and fees of $5,067
and $5,455) $2,346,611 $1,643,918
========== ==========
</TABLE>
- --------
(1) Data for 1994 have been reclassified to reflect adoption of Statements of
Financial Accounting Standards 114 and 118.
Of the total of loans shown in the table above, $337.5 million of the
balance at December 31, 1995, is the result of the acquisition of First LA.
A-38
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Certain loans previously recorded as in-substance foreclosures have been
reclassified as nonaccrual loans. At December 31, 1995 the Company had
identified impaired loans with a recorded investment of $28.2 million. An
allowance of $1.4 million on loans with an outstanding balance of $6.7
million, representing the difference between the value of collateral
supporting the loans and their outstanding balances, is included in the
allowance for credit losses. For the year 1995 the average balance of impaired
loans was $29.9 million. During 1995 no interest income was recognized on
impaired loans.
In the normal course of business, the Bank has loans to officers and
directors as well as loans to companies and individuals affiliated with or
guaranteed by officers and directors of the Company and the Bank. These loans
were made in the ordinary course of business at rates and terms no more
favorable than those offered to other customers with a similar credit
standing. The aggregate dollar amounts of these loans were $16.4 million and
$17.5 million at December 31, 1995 and 1994, respectively. During 1995,
repayments totaled $1.1 million and there were no additional advances.
Interest income recognized on these loans amounted to $1.5 million, $1.5
million and $2.3 million during 1995, 1994 and 1993, respectively. At December
31, 1995, none of these loans ]
were on nonaccrual status. Based on analysis of information presently known to
management about the loans to officers and directors and their affiliates,
management believes all such borrowers have the ability to comply with the
present loan repayment terms.
Loans past due 90 days or more and still accruing interest totaled $6.5
million, $4.3 million and $28.9 million at December 31, 1995, 1994 and 1993,
respectively. First LA did not have any loans past due 90 days or more and
still accruing interest at December 31, 1995. Restructured loans totaled $7.2
million, $9.1 million, and $1.0 million at December 31, 1995, 1994 and 1993,
respectively. At December 31, 1995 $1.7 million of the restructured loans were
on nonaccrual status all related to loans acquired in the purchase of First
LA.
The following is a summary of activity in the allowance for credit losses:
<TABLE>
<CAPTION>
DOLLARS IN THOUSANDS 1995 1994 1993
- -------------------- -------- -------- --------
<S> <C> <C> <C>
Balance, January 1................................ $105,343 $110,499 $136,095
Provision charged to expense (1).................. -- 7,535 60,163
Adjustments (2)................................... -- -- (1,475)
Acquisition of First LA........................... 19,077 -- --
Charge offs (1)................................... (17,041) (48,520) (113,128)
Recoveries........................................ 24,135 35,829 28,844
-------- -------- --------
Net (charge offs) recoveries...................... 7,094 (12,691) (84,284)
-------- -------- --------
Balance, December 31.............................. $131,514 $105,343 $110,499
======== ======== ========
</TABLE>
- --------
(1) Data for years prior to 1995 have been reclassified to reflect adoption of
Statements of Financial Accounting Standards 114 and 118.
(2) Allowance for credit losses allocated to $73.7 million of equity line of
credit loans sold in April 1993.
The following is a summary of nonaccrual loans and related interest
foregone:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
DOLLARS IN THOUSANDS 1995 1994 1993
- -------------------- ------- ------- -------
<S> <C> <C> <C>
Nonaccrual loans........................................ $48,124 $58,801 $79,303
======= ======= =======
Contractual interest due................................ $ 7,232 $ 8,286 $14,124
Interest recognized..................................... 2,663 3,489 3,871
------- ------- -------
Net interest foregone............................... $ 4,569 $ 4,797 $10,253
======= ======= =======
</TABLE>
A-39
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Of the totals at December 31, 1995 shown above, the acquisition of First LA
added $12.6 million of nonaccrual loans.
The following is a summary of foregone interest on nonaccrual loans at
December 31. The summary does not include interest foregone on loans on
nonaccrual status that were either charged off prior to year end or
transferred to ORE prior to year end.
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
DOLLARS IN THOUSANDS 1995 1994 1993
- -------------------- ------ ------ ------
<S> <C> <C> <C>
Contractual interest due................................... $5,821 $6,810 $8,597
Interest recognized........................................ 847 1,136 2,632
------ ------ ------
Net interest foregone.................................. $4,974 $5,674 $5,965
====== ====== ======
</TABLE>
NOTE 6. ASSETS HELD FOR ACCELERATED DISPOSITION
In March 1993, the Bank adopted an accelerated disposition program (the
Disposition Program) to aggressively dispose of ORE and certain problem loans
with an aggregate book value before the Disposition Program of $119.5 million.
On November 17, 1993, the Bank signed a definitive agreement to sell all six
asset pools in its Disposition Program to WHC-Three Investors, L.P., a limited
partnership. The sale of the loans closed concurrent with the signing of the
definitive agreement and a gain of $12.8 million was recognized at that time
net of disposition expenses and allowances. This gain is included in ORE
income in the Consolidated Statement of Operations. The sale of the
Disposition Program ORE closed in the first half of 1994 at which time a
pretax gain of $4.2 million was recognized.
The Bank provided $56.0 million in financing for this sale at terms
comparable to 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. At December 31, 1995 and 1994 the outstanding balance
of this loan was $27.5 million and $41.7 million, respectively, and the loan
was performing in accordance with its original terms.
NOTE 7. NET INVESTMENT IN LEVERAGED LEASES
The following is a summary of the net investment in leveraged leases:
<TABLE>
<CAPTION>
DOLLARS IN THOUSANDS 1995 1994
- -------------------- ------- -------
<S> <C> <C>
Net rental receivables....................................... $ 7,250 $ 8,300
Estimated residual values (ranging from 5% to 20% of original
asset cost)................................................. 3,257 3,500
Deferred expenses............................................ -- 17
Less: deferred income........................................ (2,107) (1,961)
------- -------
Investment in leveraged leases............................. 8,400 9,856
Less: deferred taxes arising from leveraged leases........... (6,476) (7,662)
------- -------
Net investment in leveraged leases....................... $ 1,924 $ 2,194
======= =======
</TABLE>
The Bank is the lessor of transportation and other equipment under leveraged
lease agreements expiring in various years extending to the year 2006. The
equity investment represents between 27% and 38% of the purchase price; the
remaining amount was furnished by third-party financing in the form of
nonrecourse long-term debt and is secured by the property. For federal income
tax purposes, the Bank, as an equity participant, is entitled to allowable
investment tax credits, deductions for depreciation of asset cost, and related
debt service costs, based on its share of the investment.
A-40
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 8. PREMISES AND EQUIPMENT
The following is a summary of data for the major categories of premises and
equipment:
<TABLE>
<CAPTION>
ACCUMULATED
DEPRECIATION
AND CARRYING
DOLLARS IN THOUSANDS COST AMORTIZATION VALUE
- -------------------- ------- ------------ --------
<S> <C> <C> <C>
December 31, 1995
Premises, including land of $2,548.............. $35,835 $19,998 $15,837
Furniture, fixtures and equipment............... 28,863 21,093 7,770
------- ------- -------
Total......................................... $64,698 $41,091 $23,607
======= ======= =======
December 31, 1994
Premises, including land of $2,490.............. $32,414 $19,895 $12,519
Furniture, fixtures and equipment............... 28,758 22,046 6,712
------- ------- -------
Total......................................... $61,172 $41,941 $19,231
======= ======= =======
</TABLE>
Depreciation and amortization expense was $4.1 million in 1995, $4.1 million
in 1994 and $4.5 million in 1993. Net rental payments on operating leases
included in net occupancy of premises in the Consolidated Statement of
Operations were $5.4 million in 1995, $7.6 million in 1994, and $8.9 million
in 1993.
The future net minimum rental commitments were as follows at December 31,
1995:
<TABLE>
<CAPTION>
NET MINIMUM
DOLLARS IN THOUSANDS RENTAL COMMITMENTS
-------------------- ------------------
<S> <C>
1996................................................... $10,599
1997................................................... 9,669
1998................................................... 9,096
1999................................................... 8,511
2000................................................... 5,985
2001-2005.............................................. 11,196
2006-2010.............................................. 706
After 2010............................................. 2,610
-------
Total.............................................. $58,372
=======
</TABLE>
A majority of the leases provide for the payment of taxes, maintenance,
insurance and certain other expenses applicable to the leased premises. Many
of the leases contain extension provisions and escalation clauses. The Bank
paid $.9 million in each of the last three years for rent and operating
expense pass throughs to a real estate partnership in which the Bank owns a
32% interest, and Mr. Bram Goldsmith, Chairman of the Corporation, indirectly
owns a 14% interest.
The rental commitment amounts in the table above reflect the contractual
obligations of the Company under all leases including those assumed in the
acquisition of First LA. Lease obligations assumed from First LA have been
adjusted to current market values through purchase accounting adjustments. The
allowance thus created will be accreted over the terms of the leases and
reduce the total expense recognized by the Company in its operating expenses.
A-41
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 9. CONSOLIDATION CHARGE
In November 1993, the Bank announced a consolidation plan to improve
efficiency and operational productivity in its branch network. By the second
quarter of 1994 six branches were closed and the number of lending locations
reduced. To cover the costs associated with this action, the Bank recorded a
consolidation charge of $12.0 million in the fourth quarter of 1993, comprised
of $7.5 million for disposition of lease commitments, $1.5 million for
disposition of fixed assets and $3.0 million for severance costs and other
expenses directly related to the consolidation. At December 31, 1995, the
balance in the allowance for branch consolidation totaled $4.9 million and is
included in Other Liabilities in the Consolidated Balance Sheet. The remaining
balance of the allowance consists primarily of the present value of amounts
estimated by management required to settle lease obligations through early
termination or payment of the remaining contractual lease obligations.
NOTE 10. INCOME TAXES
Income tax (benefit) on income from continuing operations in the
Consolidated Statement of Operations is composed of the following amounts:
<TABLE>
<CAPTION>
DOLLARS IN THOUSANDS CURRENT DEFERRED TOTAL
- -------------------- -------- -------- -------
<S> <C> <C> <C>
1995
Federal........................................... $ 31,829 $(9,020) $22,809
State............................................. 7,442 (290) 7,152
-------- ------- -------
Total........................................... $ 39,271 $(9,310) $29,961
======== ======= =======
1994
Federal........................................... $ 22,761 $(4,200) $18,561
State............................................. 800 (3,850) (3,050)
-------- ------- -------
Total........................................... $ 23,561 $(8,050) $15,511
======== ======= =======
1993
Federal........................................... $(25,250) $15,990 $(9,260)
State............................................. -- -- --
-------- ------- -------
Total........................................... $(25,250) $15,990 $(9,260)
======== ======= =======
</TABLE>
Additionally, the Company recorded tax expense of $3.7 million in 1993 on
income from discontinued operations. Deferred assets (liabilities) in the
amount of $(1.2) million in 1995, $2.0 million in 1994 and none in 1993
relating to unrealized gains or losses on available-for-sale securities are
included in shareholders' equity.
A-42
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The tax effects of temporary differences that give rise to significant
portions of deferred tax assets and deferred tax liabilities at December 31,
1995 and 1994 are presented below:
<TABLE>
<CAPTION>
DOLLARS IN THOUSANDS 1995 1994
- -------------------- -------- --------
<S> <C> <C>
Deferred tax assets:
Allowance for credit losses............................... $ 45,041 $ 32,439
Net operating loss carryforward........................... 18,444 --
Accrued expenses.......................................... 7,773 4,128
State income taxes........................................ 18,884 11,910
Unrealized losses on available for sale securities........ -- 1,995
Purchase accounting fair value adjustment................. 4,673 --
Other..................................................... 494 180
-------- --------
Total gross deferred tax assets......................... 95,309 50,652
Valuation allowance....................................... (19,787) (10,737)
-------- --------
75,522 39,915
Deferred tax liabilities:
Leveraged leases.......................................... 6,476 7,662
Installment sales......................................... 1,978 3,231
Unrealized gains on available for sale securities......... 1,170 --
Depreciation.............................................. 173 74
Loan fees................................................. 753 523
Other..................................................... 552 175
-------- --------
Total gross deferred tax liabilities.................... 11,102 11,665
-------- --------
Net deferred tax assets..................................... $ 64,420 $28,250
======== ========
</TABLE>
Income taxes (benefit) resulted in effective tax rates that differ from the
statutory federal income tax rate for the following reasons:
<TABLE>
<CAPTION>
% OF PRETAX
INCOME (LOSS)
-----------------
1995 1994 1993
---- ---- -----
<S> <C> <C> <C>
Statutory rate (benefit).................................... 35.0% 35.0% (35.0)%
Net state income tax (benefit).............................. 5.9 (4.1) --
Tax exempt income........................................... (1.5) (1.5) (3.5)
Realized net operating loss carry back...................... -- -- (1.1)
Tax credits................................................. (1.0) -- --
All other--net.............................................. (0.4) -- (0.2)
---- ---- -----
Effective tax provision (benefit)........................... 38.0% 29.4% (39.8)%
==== ==== =====
</TABLE>
SFAS No. 109 requires that the tax benefit of deductible temporary
differences and net operating loss carry forwards be recorded as an asset to
the extent that management assesses the utilization of such temporary
differences and carry forwards to be "more likely than not". In accordance
with SFAS No. 109, the realization of tax benefits of deductible temporary
differences and carry forwards depends on whether the Company has sufficient
taxable income within the carry back and carry forward periods permitted by
the tax law to allow for utilization of the deductible amounts. As of any
period end the amount of deferred tax asset that is considered realizable
could be reduced if estimates of future taxable income are reduced.
As of January 1, 1995, the Company had an $10.7 million valuation allowance
principally related to net California deductible temporary differences of
$76.0 million. California law does not permit carry backs and requires a 50%
reduction of tax losses that are carried forward. In 1995, the Company reduced
the valuation
A-43
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
allowance by $.9 million to reflect the net deductible temporary differences
that are expected to be realized in 1996. At December 31, 1995 the Company's
valuation allowance increased to $19.8 million, including $9.0 million due to
the acquisition of First LA. The valuation allowance for deferred tax assets
of First LA pertains to net operating loss carry forwards that presently
cannot be determined as more likely than not to be realized. Future reversal,
if any, of the $9.0 million valuation allowances resulting from the
acquisition of First LA will reduce goodwill and then core deposit
intangibles.
At December 31, 1995 and 1994 the Company had income tax refunds receivable
of $3.0 million and $5.7 million, respectively. These amounts are included in
other assets in the Consolidated Balance Sheet.
NOTE 11. RETIREMENT PLAN
The Company has a profit sharing retirement plan with an IRS Section 401(k)
feature covering all employees with at least one year of continuous service.
Contributions are made on an annual basis into a trust fund and are allocated
to the participants based on their salaries and length of service. The
contribution requirement is based on a percentage of annual net income
excluding non operating gains or losses. In 1995, the Company contribution was
$4.1 million, compared to $3.3 million in 1994. In 1993 due to the Company's
losses, no contributions were made.
Employees may contribute up to 10% of their pretax salary, but not more than
the maximum allowed under IRS regulations. The Bank matches 10% of the first
four percent of covered compensation contributed using participants
forfeitures and additional Bank contributions if necessary. For 1995, 1994 and
1993, the Bank's matching contributions were $63,000, $140,000 and $122,000,
respectively.
The Company does not provide for any post retirement employee benefits
beyond the profit sharing retirement plan.
NOTE 12. STOCK OPTION PLANS
Under the 1995 Omnibus Plan 3,000,000 shares of the Company's common stock
were reserved for the grant of stock options. The Corporation's 1983 Stock
Option Plan and 1985 Stock Option Plan have expired but options granted
thereunder remain outstanding. Grants to employees will be at prices at least
equal to the market price of the Company's stock on the effective date of the
grant. In each succeeding year following the date of grant, 25% of the options
become exercisable. After ten years from grant, all unexercised options will
expire.
The Corporation, on October 16, 1995 (in connection with an employment
agreement), granted to Mr. Russell Goldsmith, Chief Executive Officer, a
nonstatutory stock option for 350,000 shares of the Corporation's common stock
at the market price on the date of the grant, $13.38. The options are
exercisable one-third upon grant, one-third at the end of the first year of
such employment contract, and the final one-third at the end of the second
year of the employment contract.
The following is a summary of the transactions under the stock option plans
described above:
<TABLE>
<CAPTION>
1995 1994
---------------------- ---------------------
NUMBER(1) NUMBER(1) OPTION
OF SHARES OPTION PRICE OF SHARES PRICE
--------- ------------ --------- -----------
<S> <C> <C> <C> <C>
Options outstanding, January 1..... 4,251 $ 5.05-23.75 4,888 $5.05-23.75
Granted............................ 1,056 10.25-13.75 21 8.38-10.88
Exercised.......................... (361) 6.31-12.65 (165) 5.97- 8.72
Cancelled.......................... (826) 6.31-23.75 (493) 6.31-23.75
----- ------------ ----- -----------
Options outstanding, December 31... 4,120 $ 5.05-23.75 4,251 $5.05-23.75
===== ============ ===== ===========
</TABLE>
- --------
(1) In thousands
A-44
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
At December 31, 1995, nonstatutory and incentive stock options covering
844,922 and 1,850,877 shares, respectively, of the Company's common stock were
exercisable under the plans. At December 31, 1995, 2,996,500 shares were
available for future grants.
The Company also grants annually to each director stock options with a value
of $3,000 at an exercise price of $1 per share. Such options fully vest six
months after grant. During 1995 and 1994, options for 2,926 and 3,537 shares,
respectively, were granted to directors.
In October 1995, the FASB issued Statement of Financial Accounting Standards
(SFAS) No. 123, "Accounting for Stock Based Compensation." The statement
requires that companies either adopt the preferred method of accounting for
stock plans and charge the fair value of the options awarded under those plans
to operating income or continue to account for such plans under provisions of
APB Opinion No. 25 "Accounting for Stock Issued to Employees." If a company
elects to continue to apply APB No. 25 it must still disclose the proforma
effect on net income and net income per share that would have resulted if the
fair value of the awards had been charged to income.
The Company adopted SFAS No. 123 on January 1, 1996 and elected to continue
to apply the accounting provisions of APB No. 25. The proforma effects on net
income and net income per share that must be disclosed in the Company's 1996
financial statements are not expected to be material to the Company's results
of operations or shareholders' equity.
NOTE 13. BORROWED FUNDS
The following is a summary of borrowed funds of the Company excluding
federal funds purchased and securities sold under agreements to repurchase:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
DOLLARS IN THOUSANDS 1995 1994
- -------------------- -------- -------
<S> <C> <C>
Other short-term borrowings:
Term federal funds purchased................................ $100,000 $ --
Treasury, tax and loan note................................. 30,100 50,000
Federal Home Loan Bank advance.............................. 65,000 --
-------- -------
Total..................................................... $195,100 $50,000
======== =======
Long term debt:
Federal Home Loan Bank advance.............................. $ 25,000 $ --
======== =======
</TABLE>
Short-term borrowings consist of funds with original maturities of one year
or less, and long-term debt consists of borrowings with original maturities of
greater than one year. The maximum amount of other short-term borrowings at
any month end was $195.1 million, $50.0 million, and $15.0 million in 1995,
1994 and 1993, respectively.
At December 31, 1995 the Company's outstanding long-term debt of $25 million
had a fixed interest rate of 6.5% and a maturity date of May 8, 1997. The debt
represented a borrowing from the Federal Home Loan Bank of San Francisco. The
interest rate on the long-term debt has been synthetically altered through the
use of a three month LIBOR interest rate swap.
NOTE 14. AVAILABILITY OF FUNDS FROM SUBSIDIARIES; RESTRICTIONS ON CASH
BALANCES; CAPITAL
Historically, the majority of the funds for the payment of dividends by the
Company have been obtained from its subsidiary, City National Bank. Under
federal banking law, dividends declared by national banks in any calendar year
may not, without the approval of the OCC, exceed net profits (as defined), for
that year combined with its retained net income for the preceding two calendar
years. At December 31, 1995, the Bank could have declared dividends of $59.7
million without the approval of regulators.
A-45
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Federal banking law also prohibits the Corporation from borrowing from its
bank subsidiaries on less than a fully secured basis. At December 31, 1995 the
Corporation had borrowed from the Bank $19.7 million, all of which was
appropriately secured in compliance with regulatory requirements.
Federal Reserve Board regulations require that the Bank maintain certain
minimum reserve balances. Cash balances maintained to meet reserve
requirements are not available for use by the Bank or the Company. During 1995
and 1994, reserve balances averaged approximately $62.6 million and $58.2
million, respectively.
The minimum Tier 1 and total capital ratios are 4.00% and 8.00%,
respectively. The minimum leverage ratio capital requirement is from 3.00% to
5.00%, depending on an institution's composite rating by its primary
regulator. The capital ratios for the Company and the Bank were in excess of
these minimum capital requirements as of December 31, 1995.
NOTE 15. COMMITMENTS AND CONTINGENCIES
In the normal course of business, the Company is a party to financial
instruments with off-balance-sheet risk. These financial instruments include
commitments to extend credit, letters of credit and financial guarantees.
These instruments involve, to varying degrees, elements of credit and interest
rate risk in excess of the amount reflected in the consolidated balance sheet.
Exposure to credit loss in the event of non-performance by the other party
to the financial instrument for commitments to extend credit, letters of
credit and financial guarantees written is represented by the contractual
notional amount of those instruments. The Company uses the same credit
policies in making commitments and conditional obligations as it does for on-
balance sheet instruments.
The Company had outstanding loan commitments aggregating $821.3 million and
$650.0 million in December 31, 1995 and 1994, respectively. In addition, the
Company had $90.1 million and $78.6 million outstanding in bankers acceptances
and letters of credit, of which $65.3 million and $49.4 million relate to
standby letters of credit at December 31, 1995 and 1994, respectively.
Substantially all of the Company's loan commitments are on a variable rate
basis and are comprised of real estate and commercial loan commitments.
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since a portion of the commitments are
expected to expire without being drawn upon, the total commitment amounts do
not necessarily represent future cash requirements. The Company evaluates each
customer's creditworthiness on a case-by-case basis.
The Corporation or its subsidiaries are defendants in various pending
lawsuits claiming substantial amounts. Based upon present knowledge,
management and in-house counsel are of the opinion that the final outcome of
such lawsuits will not have a material adverse effect upon the Corporation.
A-46
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 16. DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
that value:
Cash and due from banks and Federal funds sold
For those short-term instruments, the carrying amount is a reasonable
estimate of fair value.
Securities and trading account assets
For securities held as investments or available for sale, fair value equals
quoted market price, if available. If a quoted market price is not available,
fair value is estimated using quoted market prices for similar securities. For
trading account securities, fair values are based on quoted market prices or
dealer quotes.
Loan receivables
For certain homogeneous categories of loans, such as some residential
mortgages, and other consumer loans, fair value is estimated using dealer
quotes, adjusted for differences in loan characteristics. The fair value of
other types of loans is estimated by discounting the future cash flows using
the current rates at which similar loans would be made to borrowers with
similar credit ratings and for the same remaining maturities. In establishing
the credit risk component of the fair value calculations for loans, the
Company concluded that the allowance for credit losses represented a
reasonable estimate of the credit risk component of the fair value of loans at
December 31, 1995 and 1994.
Deposit liabilities
The fair value of demand and interest checking deposits, savings deposits,
and certain money market accounts is the amount payable on demand at the
reporting date. The fair value of fixed-maturity certificates of deposit is
estimated using the rates currently offered for deposits of similar remaining
maturities.
Short-term borrowings
For short-term borrowings, the carrying amount is a reasonable estimate of
fair value.
Long-term debt
The fair value of long term debt was estimated by discounting the future
payments at current interest rates.
Commitments to extend credit, standby letters of credit, and financial
guarantees written
The fair value of commitments is estimated using the fees currently charged
to enter into similar agreements, taking into account the remaining terms of
the agreements and the present creditworthiness of the counterparties. The
fair value of guarantees and letters of credit is based on fees currently
charged for similar agreements or on the estimated cost to terminate them or
otherwise settle the obligations with the counterparties at the reporting
date.
A-47
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Derivatives
The fair value of exchange traded derivatives is based on quoted market
prices or dealer quotes. The fair value of non-exchange traded derivatives
consists of net unrealized gains or losses, accrued interest receivable or
payable and any premiums paid or received.
The estimated fair values of the financial instruments of the Company are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1995 DECEMBER 31, 1994
------------------------ ------------------------
CARRYING CARRYING
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
---------- ---------- ---------- ----------
DOLLARS IN THOUSANDS
<S> <C> <C> <C> <C>
Financial assets:
Cash and due from banks.. $ 420,433 $ 420,433 $ 299,389 $ 299,389
Federal funds sold and
securities purchased
under resale agreements. 351,803 351,803 296,966 296,966
Investment securities.... 110,006 110,524 659,013 625,425
Securities available for
sale.................... 865,401 865,401 90,422 90,422
Trading account assets... 29,728 29,728 25,531 25,531
Loans, net of allowance
for credit losses....... 2,215,097 2,220,583 1,538,575 1,523,142
Financial liabilities:
Deposits................. 3,248,035 3,248,918 2,417,762 2,416,253
Federal funds purchased
and securities sold
under repurchase
agreements.............. 258,353 258,353 182,120 182,120
Other short-term
borrowings.............. 195,100 195,100 50,000 50,000
Long-term debt........... 25,000 25,475 -- --
Commitments to extend
credit.................. (3,607) (3,607) (3,566) (3,566)
Derivative contracts..... 25,599(1) 215 50(1) 1
</TABLE>
- --------
(1) Notional amount
NOTE 17. DISCONTINUED OPERATIONS
On June 1, 1993 the Bank closed the sale of its data processing business,
City National Information Services (CNIS), to Systematics, Inc. for $12.0
million and recognized a pretax gain of $10.8 million, or $7.1 million after
taxes.
Billings to the Bank by Systematics Inc. amounted to $6.0 million, $6.2
million and $6.8 million for 1995, 1994 and 1993, respectively, and are
included in Data Processing expenses. Under the Bank's contract with
Systematics, the minimum annual purchases for data processing services was
$5.5 million in 1995. This obligation will continue until December 31, 2000
and will increase annually at 80% of the increase in the Consumer Price Index.
A-48
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 18. PARENT COMPANY ONLY CONDENSED FINANCIAL STATEMENTS
CONDENSED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1995 1994
-------- --------
DOLLARS IN
THOUSANDS
ASSETS:
- -------
<S> <C> <C>
Cash......................................................... $ 1,649 $ 204
Short-term investments....................................... 9,400 475
Investment securities........................................ -- 8,227
Securities available for sale................................ 34,514 8,729
Other assets................................................. 425 434
Investment in Bank........................................... 340,669 312,776
-------- --------
Total assets............................................... $386,657 $330,845
======== ========
<CAPTION>
LIABILITIES:
- ------------
<S> <C> <C>
Notes payable to Bank........................................ $ 19,700 $ --
Other liabilities............................................ -- 124
-------- --------
Total liabilities.......................................... 19,700 124
Total shareholders' equity............................... 366,957 330,721
-------- --------
Total liabilities and shareholders' equity............... $386,657 $330,845
======== ========
</TABLE>
CONDENSED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
DOLLARS IN THOUSANDS 1995 1994 1993
- -------------------- ------- ------- -------
<S> <C> <C> <C>
Income:
Dividends from Bank................................. $24,066 $ -- $ --
Interest and dividend income........................ 2,081 854 634
Gain on sale of securities.......................... 972 -- --
------- ------- -------
Total income...................................... 27,119 854 634
Interest on note payable to Bank...................... 803 -- --
Other expenses........................................ 341 361 269
------- ------- -------
Total expenses.................................... 1,144 361 269
Income before tax and equity in undistributed income
(loss) of Bank....................................... 25,975 493 365
Income taxes.......................................... 112 121 115
------- ------- -------
Income before equity in undistributed income (loss) of
Bank................................................. 25,863 372 250
Equity in undistributed income (loss) of Bank......... 22,929 36,791 (7,156)
------- ------- -------
Net income (loss)................................. $48,792 $37,163 $(6,906)
======= ======= =======
</TABLE>
A-49
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
CONDENSED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
DOLLARS IN THOUSANDS 1995 1994 1993
- -------------------- ------- ------- -------
<S> <C> <C> <C>
Operating Activities:
Net income (loss).................................. $48,792 $37,163 $(6,906)
Adjustments to net income (loss):
Equity in undistributed (income) loss of Bank.... (22,929) (36,791) 7,156
Other, net....................................... (115) 185 11
------- ------- -------
Net cash provided by operating activities....... 25,748 557 261
------- ------- -------
Investing Activities:
Capital contributed to Bank....................... -- -- (65,000)
Net decrease (increase) in short-term investments. (8,925) 5,025 (2,211)
Sale (purchase) of investment securities.......... -- -- (10,443)
Maturities of investment securities............... 500 2,000 --
Maturities of securities available for sale....... 1,500 -- --
Purchase of securities available for sale......... (21,188) (6,711) --
Sales of securities available for sale............ 2,380 310 --
Other, net........................................ (750) (112) 399
------- ------- -------
Net cash provided by (used in) investing
activities..................................... (26,483) 512 (77,255)
------- ------- -------
Financing Activities:
Cash dividends paid............................... (11,755) (2,258) --
Borrowings from Bank.............................. 19,700 -- --
Purchase of treasury shares....................... (9,899) -- --
Sale of common stock (net of expenses)............ -- -- 76,501
Stock options exercised........................... 3,131 1,147 488
Other, net........................................ 1,003 189 47
------- ------- -------
Net cash provided by (used in) financing
activities..................................... 2,180 (922) 77,036
------- ------- -------
Net increase (decrease) in cash and cash
equivalents........................................ 1,445 147 42
Cash and cash equivalents at beginning of year...... 204 57 15
------- ------- -------
Cash and cash equivalents at end of year............ $ 1,649 $ 204 $ 57
======= ======= =======
</TABLE>
NOTE 19. DERIVATIVE FINANCIAL INSTRUMENTS
The following is a summary of the derivative financial instruments
outstanding on December 31:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1995 1994
-------------- --------------
NOTIONAL FAIR NOTIONAL FAIR
DOLLARS IN THOUSANDS VALUE VALUE VALUE VALUE
- -------------------- -------- ----- -------- -----
<S> <C> <C> <C> <C>
Foreign exchange contracts........................ $ 599 $ 1 $50 $ 1
Interest rate swaps............................... 25,000 214 -- --
------- ---- --- ---
Total......................................... $25,599 $215 $50 $ 1
======= ==== === ===
</TABLE>
The foreign exchange contracts are entered into solely for the purpose of
hedging either current or anticipated foreign denominated transactions on
behalf of customers. All foreign exchange contracts are exchange traded. The
swap synthetically alters the contractual interest rate of the Company's $25
million of long term debt. It obligates the Bank to pay the counter party a
floating rate of interest based on 3 month LIBOR quotation and receive a 6.50%
fixed rate of interest from the counter party.
Gains or losses on the foreign exchange contracts are recognized in earnings
in the period that the current or anticipated transaction occurs.
A-50
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
A-51
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Exhibit
- ----------- -------
<S> <C>
10.3.1 Fifth Amendment to Split Dollar Life Insurance Agreement
Collateral Assignment Plan dated as of May 5, 1995
10.22 Employment Agreement dated as of October 16, 1995, between
Russell Goldsmith and City National Bank
10.22.1 Stock Option Agreement Under the City National Corporation 1985
Stock Option Plan dated as of October 16, 1995, between City
National Corporation and Russell Goldsmith
10.23 Agreement for Separation From Employment and Release dated
November 3, 1995, between City National Bank and Steven D.
Broidy
10.24 City National Corporation 1995 Omnibus Plan
21 Subsidiaries of the registrant
23.1 Consent of KPMG Peat Marwick LLP
27 Financial Data Schedule (EDGAR only)
</TABLE>
<PAGE>
EXHIBIT 10.3.1
FIFTH AMENDMENT TO SPLIT DOLLAR LIFE INSURANCE AGREEMENT
COLLATERAL ASSIGNMENT PLAN
This Amendment relates to that certain Split Dollar Life Insurance
Agreement made as of the 13th day of June, 1980 between CITY NATIONAL BANK and
THE GOLDSMITH 1980 INSURANCE TRUST (the "Agreement") and shall hereby amend
paragraph 7 thereof to provide that the Agreement shall terminate on May 15,
1998.
Except as amended by the foregoing, the Agreement shall remain in full
force and effect and without any other change.
This Agreement is made and agreed to as of this 15th day of May, 1995.
THE GOLDSMITH 1980 INSURANCE TRUST CITY NATIONAL BANK
By /s/ Bruce Leigh Goldsmith By /s/ Richard H. Sheehan, Jr.
-------------------------------------- -------------------------------
BRUCE LEIGH GOLDSMITH Its Senior Vice President
Trustee ------------------------------
By /s/ Russell David Goldsmith
--------------------------------------
RUSSELL DAVID GOLDSMITH
Trustee
CITY NATIONAL BANK
By /s/ Greg Custer
--------------------------------------
GREG CUSTER Assistant Trust Officer
Trustee
<PAGE>
EXHIBIT 10.22
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT is made as of the 16th day of October, 1995
by and between RUSSELL GOLDSMITH ("Goldsmith"), on the one hand, and CITY
NATIONAL BANK, a National Bank ("CNB") and CITY NATIONAL CORPORATION ("Parent
Corporation"), on the other hand.
1. Employment. CNB and Parent Corporation (collectively the
----------
"Employer") hereby employs Goldsmith, and Goldsmith hereby accepts employment,
under the terms and conditions hereafter set forth.
2. Duties. Goldsmith shall be employed as the Chairman of the Board
------
of Directors and Chief Executive Officer of CNB and Vice-Chairman of the Board
of Directors and Chief Executive Officer of the Parent Corporation and his
powers and duties shall be consistent with such offices and positions. As Chief
Executive officer of Employer, Goldsmith shall supervise, control and be
responsible for all aspects of the business and affairs of Employer and their
subsidiaries.
3. Place of Service. Substantially all of Goldsmith's duties shall
----------------
be performed in Los Angeles and Beverly Hills, California and unless mutually
agreed upon by Goldsmith and Employer, Goldsmith shall be headquartered in
Beverly Hills, California.
4. Term. Subject to the provisions for termination as hereinafter
----
provided, the term of this Agreement shall commence on October 16, 1995 (the
"Start Date") and shall terminate three (3) years thereafter.
5. Annual Base Compensation. Employer shall pay Goldsmith as annual
------------------------
base compensation, payable in equal semimonthly payments, the sum of Four
Hundred Twenty Thousand Dollars ($420,000) during the first year of the term
hereof, the sum of Four Hundred Fifty Thousand Dollars ($450,000) during the
second year of the term hereof and the sum of Four Hundred Eighty Thousand
Dollars ($480,000) during the third year of the term hereof.
6. Bonus Compensation. Goldsmith shall participate in CNB's
------------------
Executive Management Bonus Plan and any other cash bonus or incentive
compensation plan of Employer established for executive officers and the amount
of bonus or incentive compensation paid to Goldsmith pursuant to said plans for
any year (including the fiscal year ending December 31, 1995 and the fiscal year
during which his employment is terminated) in terms of a percentage of his then
annual salary shall be no less than the percentage of annual salary paid as a
bonus or incentive compensation to any other member of executive management of
Employer.
-1-
<PAGE>
7. Stock Options. Goldsmith shall be granted on the Start Date, non-
-------------
qualified stock options to purchase an aggregate of three hundred fifty thousand
(350,000) shares of Common Stock of Parent Corporation at a purchase price equal
to the fair market value of the Common Stock on that date. Said options shall
be granted pursuant to the provisions of the 1985 Stock Option Plan of Parent
Corporation and shall be represented by an agreement substantially in the form
of the agreement annexed hereto as Exhibit A. Such options shall have a term of
ten years and subject to subparagraphs 10(b), (c), (d) and (e) hereof shall be
exercisable as to one hundred sixteen thousand six hundred sixty seven (116,667)
shares of Common Stock from and after the Start Date, as to an additional one
hundred sixteen thousand six hundred sixty seven (116,667) shares of Common
Stock from and after one year from the Start Date and in full from and after two
years from the Start Date.
8. Fringe Benefits and Reimbursement of Expenses. Employer shall
---------------------------------------------
provide Goldsmith with such medical and other health, dental, accidental life
and disability insurance, and he shall be entitled to all employee and fringe
benefits and reimbursement of expenses and to participate in all benefit plans
(including stock option plans) as are consistent with his position and duties
and those previously provided to the Chief Executive Officer of Employer;
provided, however, that during the first two years of the term hereof Employer
shall not be required to grant any employee stock options to Goldsmith.
9. Extent of Service. Goldsmith shall devote his time, attention and
-----------------
energies to the business of Employer and shall not, during the term of this
Agreement, be engaged in any other activity which will materially interfere with
the performance of his duties hereunder. Time expended by Goldsmith on
philanthropic activities, as a general partner of Sunbar Properties, as a
passive investor in real estate ventures and other investments, or in managing
the existing properties of Goldsmith Entertainment Corporation shall be deemed
not to interfere with the performance of his duties hereunder.
10. Termination of Employment.
-------------------------
(a) Termination by Employer for Good Cause. Employer may terminate
--------------------------------------
the employment of Goldsmith for "good cause" by written notice to Goldsmith.
For purposes of this Agreement, "good cause" shall mean only (i) conviction of a
crime directly related to his employment hereunder, (ii) conviction of a felony
involving moral turpitude, (iii) willful and gross mismanagement of the
business and affairs of Employer, or (iv) breach of any material provision of
this Agreement. In the event the employment of Goldsmith is terminated pursuant
to this subparagraph 10(a), Employer shall have no further liability to
Goldsmith other than for compensation accrued through the date of termination
but not yet paid.
-2-
<PAGE>
In the event Employer contends that it has good cause to terminate
Goldsmith pursuant to clause (iii) or (iv) of the second sentence of this
subparagraph 10(a), Employer shall provide Goldsmith with written notice
specifying in reasonable detail the services or matters which it contends
Goldsmith has not been adequately performing, or the material provisions of this
Agreement of which Goldsmith is in violation and the acts constituting such
violation, why Employer has good cause to terminate this Agreement, and what
Goldsmith should do to adequately perform his obligations hereunder. If within
thirty (30) days of receipt of the notice Goldsmith performs the required
services or modifies his performance to correct the matters complained of,
Goldsmith's breach will be deemed cured, and Goldsmith's employment shall not be
terminated. However, if the nature of the service not performed by Goldsmith or
the matters complained of are such that more than thirty (30) days are
reasonably required to perform the required service or to correct the matters
complained of, then his breach will be deemed cured if he commences to perform
such service or to correct such matters within the thirty (30) day period and
thereafter diligently prosecutes such performance or correction to completion.
If Goldsmith does not perform the required services or modify his performance to
correct the matter complained of within the thirty (30) day period or the
extension thereof, Employer shall have the right to terminate this Agreement at
the end of the thirty (30) day period or extension thereof. It is understood
that Goldsmith's performance hereunder shall not be deemed unsatisfactory solely
on the basis of any economic performance of Employer because this performance
will depend in part on a variety of factors over which Goldsmith has little
control.
(b) Termination by Employer Without Good Cause. Employer may
------------------------------------------
terminate the employment of Goldsmith without "good cause" (as defined in
subparagraph 10(a) above) at any time during the term hereof by giving written
notice to Goldsmith specifying therein the effective date of termination. Upon
such notice being given, if not then exercisable in full, the options described
in Paragraph 7 hereof shall become exercisable in full. In the event the
employment of Goldsmith is terminated pursuant to this subparagraph 10(b)
without good cause, Employer shall be obligated to pay to Goldsmith his base
compensation as then in effect under paragraph 5 of this Agreement for a period
of eighteen months from the effective date of termination (which shall be in
lieu of any other amounts which would be payable to Goldsmith on account of such
termination pursuant to any separation pay plan or policy of Employer) and shall
reimburse Goldsmith for all expenses and costs incurred by him during such
eighteen month period in obtaining and maintaining medical and health insurance
(through COBRA or otherwise) for him, his spouse and dependents for such
eighteen month period which is equivalent to that provided to him by Employer at
the time of termination of his employment. Goldsmith shall have no duty to
mitigate and Employer shall have no right to offset any other compensation paid
to Goldsmith during the applicable time period.
-3-
<PAGE>
(c) Termination by Disability. Employer may terminate the employment
-------------------------
of Goldsmith during the term hereof by written notice to Goldsmith if Goldsmith
shall become incapable of fulfilling his obligations hereunder because of injury
or physical or mental illness which shall exist or may reasonably be anticipated
to exist for a period of twelve (12) consecutive months or for an aggregate of
twelve (12) months during any twenty-four (24) month period. In the event the
employment of Goldsmith is terminated by Employer pursuant to this subparagraph
10(c) because of injury, physical or mental illness, Employer shall be obligated
(i) to pay Goldsmith his base compensation as then in effect under Paragraph 5
for a period of eighteen months from the effective date of termination of his
employment less any amount Goldsmith receives in lieu of salary while he is
alive during such period from private or government insurance programs,
exclusive of reimbursement of medical costs and (ii) reimburse Goldsmith for all
expenses and costs incurred by him during such eighteen month period in
obtaining and maintaining medical and health insurance (through COBRA or
otherwise) for him, his spouse and dependents for such eighteen month period
equivalent to that provided him by Employer at the time of termination of his
employment. If the employment of Goldsmith is terminated pursuant to this
subparagraph 10(c), the options described in Paragraph 7 shall, if not then
fully exercisable, upon such termination become exercisable in full.
(d) Termination by Death. Except for compensation accrued but not
--------------------
paid at the date of death and as provided in this subparagraph 10(d), the death
of Goldsmith during the term of this Agreement shall terminate this Agreement.
In the event of the death of Goldsmith during the term hereof, Employer shall be
obligated to pay to Goldsmith's wife, if she is then living, or if she is not
then living, to whomever he shall have designated in writing to Employer, or if
no designation has been made by him, to his estate, Goldsmith's base
compensation as then in effect at the time of his death under Paragraph 5 for a
period of eighteen months from the date of Goldsmith's death. If not then fully
exercisable, the options described in Paragraph 7 shall upon Goldsmith's death
become exercisable in full.
(e) Optional Termination by Goldsmith. Except for compensation
---------------------------------
accrued but not paid at the effective date of termination and as provided in
this subparagraph 10(e), Goldsmith may terminate this Agreement and his
employment with Employer by written notice to Employer for "good reason" at any
time during the term hereof and after the occurrence of a change in control of
CNB, specifying therein the effective date of termination. For purposes of this
Agreement "good reason" shall exist if (i) Goldsmith is no longer chief
executive officer of CNB and chief executive officer of a holding company which
owns all of the capital stock of CNB or (ii) more than fifty percent (50%) of
the combined voting power of the outstanding securities of such holding company
which owns all of the capital stock of CNB and of which Goldsmith is the chief
executive officer are beneficially owned (as hereinafter defined), directly or
indirectly, by any
-4-
<PAGE>
bank or corporation which beneficially owns, directly or indirectly, more than
fifty percent (50%) of the combined voting power of the outstanding securities
of a bank other than CNB. A change of control of CNB shall be deemed to have
occurred if any "person" (as that term is used in Sections 13(d) and 14(d) of
the Securities and Exchange Act of 1934 as amended), other than Goldsmith,
members of his family or City National Bank, Trustee of the Profit Sharing
Retirement Plan of City National Bank Employees, is or becomes the "beneficial
owner" (as that term is defined by the Securities and Exchange Commission for
purposes of Section 13(d) of the Securities and Exchange Act of 1934 as
amended), directly or indirectly, of securities of Parent Corporation or its
successors representing more than twenty percent (20%) of the combined voting
power of the outstanding securities of Parent Corporation. In the event the
employment of Goldsmith is terminated pursuant to the provisions of this
subparagraph 10(e), Employer shall thereafter compensate and reimburse Goldsmith
in the same manner and in the same amounts and for the same period and items as
provided in subparagraph 10(b) as if his employment had been terminated by
Employer without good cause effective upon the date he has specified, pursuant
to this subparagraph 10(e), as the effective date of the termination of his
employment. Goldsmith shall have no duty to mitigate and Employer shall have no
right to offset other compensation paid to Goldsmith during the applicable time
period. Notwithstanding anything in this subparagraph 10(e) to the contrary, in
no event shall Goldsmith be paid in any year any amount pursuant to this
Agreement that constitutes an "excess parachute payment" and is not deductible
by Employer under Section 280G of the Internal Revenue Code of 1986, as amended
(the "Code"), or any amendment thereto or any subsequently enacted legislation
of similar effect, and any amounts payable to Goldsmith pursuant to this
subparagraph 10(e) shall not exceed a sum equal to the product of 299% times an
amount equal to Goldsmith's "base amount" for the period consisting of the most
recent five taxable years ending before the date on which the change of control
occurs as defined in and determined in accordance with Section 280G of the Code.
(f) Termination Upon Expiration. At least six (6) months prior to the
---------------------------
end of the term hereof, a person designated by the Board of Directors of Parent
Corporation shall meet with Goldsmith for purposes of negotiating an extension
of the term of this Agreement. If by the ninetieth (90th) day prior to the end
of the term hereof, Employer and Goldsmith have not agreed in writing to an
extension of the term hereof or renewal of this Agreement, Employer shall be
obligated to pay Goldsmith from and after the expiration of the term hereof his
base compensation as in effect under Paragraph 5 of this Agreement immediately
prior to the expiration of the term hereof for a period of twelve (12) months
from the end of the term of this Agreement and shall reimburse Goldsmith for all
expenses and costs incurred by him during such twelve (12) month period in
obtaining and maintaining medical and health insurance (through COBRA or
otherwise) for him, his spouse and dependents for such twelve (12) month period
-5-
<PAGE>
which is equivalent to that provided to him by Employer at the time of
termination of his employment.
11. Entire Agreement; Modification; Waiver. This Agreement and the
--------------------------------------
agreement referred to in the Exhibit attached hereto constitute the entire
agreement between the parties pertaining to the subject matter contained therein
and supersedes all prior and contemporaneous agreements, representations and
understandings of the parties. No supplement, modification or amendment of this
Agreement shall be binding unless executed in writing by both parties. No
waiver of any of the provisions of this Agreement shall be deemed, or shall
constitute, a waiver of any other provisions, whether or not similar, nor shall
any waiver constitute a continuing waiver. No waiver shall be binding unless
executed in writing by the party making the waiver.
12. Separability Clause. The invalidity or unenforceability of any
-------------------
provision hereof shall in no way affect the validity or enforceability of any
other provision hereof.
13. Benefit. Except as herein and otherwise specifically provided, this
-------
Agreement shall be binding upon and inure to the benefit of the parties, their
personal representatives, heirs, administrators, executors, successors, and
permitted assigns.
14. Notices. Any notice, request, or other communication required to be
-------
given pursuant to the provisions of this Agreement shall be in writing and shall
be deemed to be duly given if delivered in person or mailed by registered or
certified United States mail, postage prepaid, and mailed to the parties at the
following addresses:
EMPLOYER RUSSELL GOLDSMITH
-------- -----------------
City National Bank Mr. Russell Goldsmith
400 No. Roxbury Drive 400 N. Roxbury Drive
Beverly Hills, CA 90210 Beverly Hills, CA
Attn: Richard H. Sheehan, Jr.
General Counsel with copy to:
Irwin G. Barnet
Sanders, Barnet, Goldman,
Simons & Mosk
Suite 850
1901 Avenue of the Stars
Los Angeles, CA 90067
The parties hereto may change the above addresses from time to time by
giving notice thereof to each other in conformity with this Paragraph 14.
15. Confidentiality. Goldsmith covenants and agrees with Employer that
---------------
Goldsmith shall not, during or after the term of this Agreement, disclose to
anyone any confidential information concerning the business or operations of
Employer which Goldsmith may acquire in the course of or incident to the
performance of
-6-
<PAGE>
his duties hereunder, including, without limitation, processes, customer lists,
business or trade secrets, or methods or techniques used by Employer in its
business or operations.
16. Construction. This Agreement shall be governed by, and construed in
------------
accordance with, the laws of the State of California.
17. Captions. The paragraph headings and captions contained herein are
--------
for reference purposes and convenience only and shall not in any way affect the
meaning or interpretation of this Agreement.
18. Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
19. Amendments. This Agreement shall not be modified, amended, or in any
----------
way altered except by an instrument in writing and signed by both of the parties
hereto.
20. Mandatory Arbitration. At the request of Goldsmith or Employer, any
---------------------
dispute, claim, controversy of any kind (whether in contract or tort, statutory
or common law, legal or equitable) now existing or hereafter arising out of,
pertaining to or in connection with this Agreement and/or any renewals,
extensions, or amendments thereto, shall be resolved through final and binding
arbitration conducted at a location determined by the arbitrator in Los Angeles
or Beverly Hills, California, and administered by the American Arbitration
Association ("AAA") in accordance with the Federal Arbitration Act, 9 U.S.C.
(S)1, et seq., and the then existing Commercial Arbitration Rules of the AAA.
Judgment upon any award rendered by the arbitrator(s) may be entered in any
State or Federal courts having jurisdiction thereof.
IN WITNESS WHEREOF, the parties hereto have executed this Employment
Agreement as of the date first above written at Beverly Hills, California.
CITY NATIONAL BANK
/s/ Russell Goldsmith By: /s/ Richard H. Sheehan, Jr.
- --------------------------------- ------------------------------------
RUSSELL GOLDSMITH Senior Vice President & Secretary
CITY NATIONAL CORPORATION
By: /s/ Richard H. Sheehan, Jr.
------------------------------------
Senior Vice President & Secretary
-7-
<PAGE>
EXHIBIT 10.22.1
STOCK OPTION AGREEMENT
UNDER THE
CITY NATIONAL CORPORATION
1985 STOCK OPTION PLAN
This STOCK OPTION AGREEMENT is made and entered into as of OCTOBER 16,
1995, by and between CITY NATIONAL CORPORATION, a Delaware corporation (the
"Company"), and RUSSELL GOLDSMITH, an employee of the Company or a subsidiary of
the Company (the "Optionee"), with reference to the following:
A. On April 16, 1986, the shareholders of the Company adopted the
City National Corporation 1985 Stock Option Plan (as amended from time to time
thereafter, the "Plan"), pursuant to which the Compensation Committee of the
Board of Directors (the "Committee") may grant selected officers and other
Company or Company subsidiary employees options to purchase shares of the
Company's common stock, $1.00 par value (the "Stock").
B. Optionee has entered into, and the Compensation Committee has
approved, an Employment Agreement (the "Employment Agreement") of even date
herewith, with City National Bank, a subsidiary of the Company, providing for
the grant to Optionee of an option, which is not an Incentive Stock Option, as
defined in Section 422 of the Internal Revenue Code and Treasury regulations
thereunder, to purchase shares of Stock pursuant to the terms and conditions of
this Agreement.
NOW, THEREFORE, in consideration of the foregoing recitals and the
performance of the mutual covenants contained herein, it is hereby agreed as
follows:
1. GRANT OF OPTION. The Company hereby grants to Optionee the right
and option (the "Option") to purchase, upon the terms and conditions set forth
in this Agreement, all or any part of the following number of shares of Stock at
the following price per share:
Number of Shares Price Per Share
350,000 $13.375
The number of shares subject to the Option and the Option price are subject
to adjustment in certain events, as provided in the Plan.
2. TIME OF EXERCISE. The Option will vest in Optionee and may be
exercised at any time and from time to time after the dates set forth in the
following schedule and before the Termination Date (as defined below) as to all
or any number of full shares not exceeding in the aggregate that number of
shares set forth opposite each such date:
1
<PAGE>
<TABLE>
<CAPTION>
Maximum Cumulative Number
Date After Which Option of Shares as to Which Option
May Be Exercised May Be Exercised
<S> <C>
Date hereof 116,667
1 year after date hereof 233,334
2 years after date hereof 350,000
10 years after date hereof Any unexercised options
(the "Termination Date") will expire at this time
</TABLE>
In the event of Optionee's death while employed by the Company or
termination of employment for reasons other than for good cause, as defined in
Paragraph 10(a) of the Employment Agreement ("Good Cause"), all unvested options
will vest on the date of death or termination of employment.
3. METHOD OF EXERCISE. The Option or any part thereof may be exercised
by giving written notice of exercise to the Secretary of the Company, which
notice must state the number of full shares to be purchased, and must be
accompanied by payment in full for the number of shares to be purchased; such
payment may be in cash or in shares of Stock, or a combination thereof. If any
part of such payment consists of Stock, such Stock must have been owned for at
least one year then last past and will be valued at the last sale price of such
Stock as reported by the New York Stock Exchange on the date of exercise. The
date such notice is received by the office of the Secretary will be the date of
exercise of the Option as to such number of shares. Not less than 100 shares
may be purchased at any one time unless the shares purchased are all of the
shares then purchasable under the Option.
The Company will issue and deliver to Optionee a certificate for the number
of shares purchased; provided, however, that if any federal or state law or
regulation of any securities exchange listing the Company's shares requires the
Company to take any action with respect to the exercised shares before issuance
thereof, then the date for issuance and delivery of such shares will be extended
for the period of time necessary to take such action.
4. TERMINATION OF OPTION. The Option and all rights granted under this
Agreement, to the extent such rights have not been exercised, will terminate on
the earlier of the Termination Date or the earliest to occur of the following:
4.1 Immediately upon termination of Optionee's employment for Good Cause.
4.2 If the employment of the Optionee terminates for any reason other than
for Good Cause, death, retirement or disability, three (3) months after the
date of such termination.
4.3 If Optionee's employment terminates by reason of retirement or
disability, three (3) years after the date of such termination.
4.4 If Optionee dies while employed by the Company or within three (3)
months after Optionee's employment is terminated under the conditions
specified in subparagraph 4.2 or 4.3 above, one (1) year after death.
After the Optionee's death, the Option and all rights granted under this
Agreement, to the extent such rights will not theretofore have been
exercised, may be exercised by Optionee's personal representative or by the
person or persons
2
<PAGE>
to whom the Option will pass by will or by the applicable laws of descent
and distribution.
Termination of Optionee's employment with the Company to accept employment
with a subsidiary of the Company, or vice versa, or to go on leave of absence at
the request, or with the approval, of the Company will not be deemed a
termination of employment for the purpose of this paragraph. In the event of
termination of employment under subparagraph 4.2 above, Optionee may exercise
the Option only to the extent vested under paragraph 2 above on the date of
termination.
5. LIMITATION ON TRANSFER. Except as provided in subparagraph 4.4 above,
the Option and all rights granted under this Agreement are personal to Optionee
and cannot be transferred, assigned, pledged or hypothecated in any way (whether
by operation of law or otherwise) and will not be subject to execution,
attachment or similar processes.
6. RECEIPT OF PLAN. Optionee acknowledges that Optionee has received a
copy of the Plan. In the event of any conflict between the Plan and this
Agreement, the provisions of the Plan will prevail. Optionee's rights hereunder
are subject to modification or termination in certain events, as provided in the
Plan, including without limitation such rules and regulations as may from time
to time be adopted or promulgated in accordance with paragraph 1.3 of the Plan.
7. COMMITTEE DECISIONS. All decisions of the Compensation Committee (as
established pursuant to the Plan) with respect to any questions concerning the
application, administration or interpretation of the Plan will be conclusive and
binding on the Company and Optionee.
8. NO RIGHTS AS SHAREHOLDER. Optionee will have no rights as a
shareholder with respect to shares of the Company's Stock covered by this Option
until the date of the issuance of a stock certificate or stock certificates. No
adjustment will be made for cash dividends for which the record date is prior to
the date such stock certificate or certificates are issued.
9. COMPLIANCE WITH SECURITIES LAWS. No shares may be purchased or issued
upon the exercise of this Option unless and until any then applicable
requirements of the Securities and Exchange Commission, the California
Commissioner of Corporations, any national securities exchange upon which the
Stock of the Company may be listed and any other regulatory agency having
jurisdiction have been fully complied with.
10. BINDING EFFECT. This Agreement will bind and inure to the benefit of
the Company and its successors and assigns, and Optionee and any heir, executor
or administrator of Optionee as permitted by subparagraph 4.4.
11. ADJUSTMENTS; ACCELERATION. Notwithstanding any provisions of the Plan
to the contrary, the following will apply to this Agreement and the Option.
11.1 Adjustments. If the outstanding shares of Stock are changed into or
exchanged for cash, other property or a different number or kind of shares
or securities of the Company, or if additional shares or new or different
securities are distributed with respect to the outstanding shares of Stock,
through a reorganization or merger in which the Company is the surviving
entity, or through a combination, consolidation, recapitalization,
reclassification, stock split, stock dividend, reverse stock split, stock
consolidation, dividend or distribution of cash or property to the
shareholders of the Company or if there occurs any other extraordinary
corporate transaction or event in respect of the Stock or a sale of
3
<PAGE>
substantially all the assets of the Company as an entirety which in the
judgment of the Compensation Committee materially affects the Stock, then
the Compensation Committee will, in such manner and to such extent (if any)
as it deems appropriate and equitable (1) proportionately adjust any or all
terms of the Option (if and to the extent that a portion thereof remains
unexercised) including, but not limited to (A) the number and kind of
shares of Stock that are subject to or may be delivered under the
outstanding Option, or (B) the consideration payable with respect to the
Option; or (2) in the case of an extraordinary dividend or other
distribution, merger, reorganization, consolidation, combination, sale of
assets, split up, exchange, or spin off, make provision for a cash payment
or for the substitution or exchange of the outstanding Option or the cash,
securities or property deliverable to Optionee based upon the distribution
or consideration payable to holders of Stock upon or in respect of such
event; provided, however, in each case, that if there are then outstanding
options to purchase Stock granted to employees of the Company pursuant to
the Company's 1995 Omnibus Plan ("1995 Omnibus Plan Options"), such
adjustment or provision will be made if, and only if, the same
proportionate adjustment or a similar provision is made to or with respect
to the 1995 Omnibus Plan Options. In any of such events, the Compensation
Committee may take such action sufficiently prior to such event if
necessary to permit Optionee to realize the benefits intended to be
conveyed with respect to the underlying shares in the same manner as is
available to shareholders generally.
11.2 Acceleration of Option Upon Change in Control. Upon the occurrence
of a Change in Control Event, as defined below, the Option will become
immediately exercisable, provided, however, that in no event will the
Option be accelerated to a date less than six months after the date of this
Agreement. Notwithstanding the foregoing, prior to a Change in Control
Event, the Compensation Committee may determine that, upon its occurrence,
there will be no acceleration of benefits under the Option pursuant to this
subparagraph 11.2 or determine that only certain or limited benefits under
the Option will be accelerated pursuant to this subparagraph 11.2 and the
extent to which they are to be accelerated, and/or establish a different
time in respect of such event for such acceleration; provided, however, in
each case, that if 1995 Omnibus Plan Options are then outstanding, such
determination will be made if, and only if, the same determination is made
with respect to the 1995 Omnibus Plan Options. In that event, the
Compensation Committee will make provision in connection with such
transaction for continuance of the Option and the assumption thereof, or
the substitution for such with one or more new Options covering the stock
of a successor employer corporation, or a parent or subsidiary thereof,
with appropriate adjustments as to number and kind of shares and prices.
In addition, the Compensation Committee may accord Optionee a right to
refuse any acceleration in such circumstances as the Compensation Committee
may approve. Any acceleration of the Option will comply with applicable
regulatory requirements.
11.3 Definition of Change in Control Event. For purposes of subparagraph
11.2, above, "Change in Control Event" means:
11.3.1 The acquisition by any individual (other than Bram
Goldsmith), entity or group (within the meaning of Section
13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934 (the
"Exchange Act")) (a "Person") of beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) of 20%
or more of either (A) the then outstanding shares of Stock (the
"Outstanding Stock") or (B) the combined voting power of the then
outstanding voting securities of the Company entitled to vote
generally
4
<PAGE>
in the election of directors (the "Outstanding Voting
Securities"); provided, however, that the following acquisitions
do not constitute a Change in Control Event: (i) any acquisition
directly from the Company (except that an acquisition by virtue
of the exercise of a conversion privilege is not considered
within this clause (i) unless the converted security was itself
acquired directly from the Company), (ii) any acquisition by the
Company, (iii) any acquisition by any employee benefit plan (or
related trust) sponsored or maintained by the Company or any
corporation controlled by the Company or (iv) any acquisition by
any corporation pursuant to a reorganization, merger or
consolidation, if, following such reorganization, merger or
consolidation, the conditions described in clauses (A) and (B) of
paragraph (3) below are satisfied;
11.3.2 Individuals who, as of the date hereof, constitute the
Board (the "Incumbent Board") cease for any reason to constitute
at least a majority of the Board; provided, however, that any
individual who becomes a director subsequent to the date hereof
whose election, or nomination for election by the Company's
shareholders, was approved by a vote of at least a majority of
the directors then comprising the Incumbent Board will be
considered as though such individual were a member of the
Incumbent Board; but excluding, for this purpose, any such
individual whose initial assumption of office occurs as a result
of either an actual or threatened election contest (as such terms
are used in Rule 14a-11 of Regulation 14A promulgated under the
Exchange Act) or other actual or threatened solicitation of
proxies or consents by or on behalf of a person other than the
Board; provided, however, that any transaction which does not
constitute a Change in Control Event by reason of an exception
contained in subparagraphs 11.3.1, 11.3.3 or 11.3.4, will not
constitute a Change in Control Event by reason of this
subparagraph 11.3.2; or
11.3.3 Approval by the shareholders of the Company of a
reorganization, merger or consolidation (a "Transaction"),
unless, following such Transaction in each case, (A) more than
80% of, respectively, the then outstanding shares of common stock
of the corporation resulting from such Transaction and the
combined voting power of the then outstanding voting securities
of such corporation entitled to vote generally in the election of
directors is then beneficially owned, directly or indirectly, by
all or substantially all of the individuals and entities who were
the beneficial owners, respectively, of the Outstanding Stock and
Outstanding Voting Securities immediately prior to such
Transaction and (B) no person (excluding the Company, Bram
Goldsmith, any employee benefit plan (or related trust) of the
Company or such corporation resulting from such transaction and
any person beneficially owning, immediately prior to such
Transaction, directly or indirectly, 20% or more of the
Outstanding Stock or Outstanding Voting Securities, as the case
may be) beneficially owns, directly or indirectly, 20% or more
of, respectively, the then outstanding shares of common stock of
the corporation resulting from such Transaction or the combined
voting power of the then outstanding voting securities of such
corporation entitled to vote generally in the election of
directors; or
5
<PAGE>
11.3.4 Approval by the shareholders of the Company of (A) a
complete liquidation or dissolution of the Company or (B) the
sale or other disposition of all or substantially all of the
assets of the Company, unless such assets are sold to a
corporation and following such sale or other disposition, the
conditions described in clauses (A) and (B) of subparagraph
11.3.3, above, are satisfied with respect to the acquiring
corporation.
11.4 Possible Early Termination of Accelerated Awards. If the Option has
not been exercised prior to (i) a dissolution of the Company, (ii) a
reorganization event described in subparagraph 11.1 that the Company does
not survive, or (iii) the consummation of a reorganization event described
in subparagraph 11.1 that results in a Change in Control Event approved by
the Board and no provision has been made for the survival, substitution,
exchange or other settlement of the Option, the Option will thereupon
terminate.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
and year written above.
CITY NATIONAL CORPORATION,
a Delaware corporation
By: /s/ Richard H. Sheehan, Jr.
----------------------------
RICHARD H. SHEEHAN, JR., Senior Vice
President, Secretary & General Counsel
/s/ Russell Goldsmith
----------------------
RUSSELL GOLDSMITH
Optionee
6
<PAGE>
EXHIBIT 10.23
AGREEMENT FOR SEPARATION FROM EMPLOYMENT AND RELEASE
This Agreement for Separation of Employment and Release ("Agreement") is
made and entered into between STEVEN D. BROIDY ("Broidy") and CITY NATIONAL
BANK, a national banking association ("CNB"), with reference to the following:
A. Broidy was hired by CNB on May 1, 1992;
B. Broidy has voluntarily elected to resign Broidy's CNB
employment effective November 14, 1995;
C. CNB is willing to accept Broidy's resignation;
D. Both Broidy and CNB now wish, by the terms of this Agreement, to
forever and finally resolve all of their respective rights and
obligations relating to Broidy's employment relationship with CNB and
resignation therefrom, except respecting the parties' rights and
obligations under and arising out of this Agreement.
Based on the foregoing, Broidy and CNB knowingly and voluntarily agree as
follows:
1. Broidy's resignation of employment will be effective as of the
close of business on November 14, 1995, and will include Broidy's resignation
from all positions as officer and director of CNB, City National Corporation and
all direct and indirect subsidiaries of either of them.
2. From November 15, 1995, through November 14, 1996, CNB will pay
Broidy an amount equal to the amount which Broidy would have been entitled to
receive as salary from CNB had he remained employed by CNB (the gross amount of
which is $300,000 per year) on CNB's regular semi-monthly pay period dates (and
after deducting any required taxes and other required governmental withholdings)
by deposit to Broidy's present CNB checking account and with advice thereof
mailed to Broidy's residence address as reflected in Broidy's CNB personnel
file. In addition, CNB will pay Broidy an amount equal to the following, less
any required deductions set forth above:
<TABLE>
<CAPTION>
Percentage of CNB's Financial Percentage of
Goal Achieved in 1995 Base Salary
<S> <C>
95% 25%
100 50
110 55
120 60
</TABLE>
<PAGE>
For purposes of the foregoing, the Financial Goal will be measured as set forth
in CNB's Executive Management Bonus Plan in effect for 1995. Such payment will
be made by CNB check on the date on which bonus checks are delivered to other
members of CNB senior management.
3. In addition to the payments described above, CNB agrees to pay
Broidy, by CNB check, the sum of $12,000, less any required deductions set forth
in Paragraph 2 above, in 12 equal installments, the first of which will be paid
10 days after this Agreement becomes final and the remainder of which will be
paid on the first business day of each succeeding calendar month.
4. Pursuant to the policies of insurance CNB maintains, Broidy's CNB
employee insurance benefits will terminate effective November 14, 1995. Because
Broidy is under age 65, Broidy may be eligible for continued group health
insurance coverage under the Consolidated Omnibus Budget Reconciliation Act of
1985 ("COBRA") after November 14, 1995, at Broidy's own expense. CNB will
reimburse Broidy for COBRA or comparable privately purchased health insurance
premiums up to $486 per month for the period from November 15, 1995, to November
14, 1996. CNB will have no further obligation to reimburse such expenses in the
event Broidy becomes eligible for coverage as a full-time employee under any
subsequent employer's group medical insurance plan.
5. Broidy will not accrue or be entitled to any personal days,
salary continuation, vacation, or other compensated time off from CNB after
November 14, 1995, other than as set forth in Paragraph 2 above. Broidy will
be paid for all unused vacation (less required taxes and other governmental
withholdings) in the final salary payment due Broidy on November 14, 1995.
6. Any costs or expenses of Broidy which otherwise may have been
reimbursed by CNB (including, but not limited to, country or luncheon club
membership dues, business development expenses, automobile allowances, mileage,
car telephone, meals, etc.) will only be paid by CNB if incurred on or before
November 14, 1995, and to the extent they satisfy CNB reimbursement
requirements. Any such costs or expenses incurred after that date are the sole
responsibility of and are fully assumed by Broidy.
7. Broidy's rights and status as a participant under the CNB Profit
Sharing Plan will continue through November 14, 1995. Broidy acknowledges that
Broidy's rights, status and entitlement, if any, to benefits under that Plan
will be determined in accordance with its terms except as otherwise specifically
provided in this Agreement, including those respecting exercise rights upon
resignation of employment, which date, for purposes thereof and consistent with
the intent of this Agreement, is November 14, 1995. Broidy acknowledges that
under the terms of the Plan, CNB will allocate no portion of its contribution to
the Plan for 1995 to Broidy's account by reason of the termination of Broidy's
employment. However, CNB will pay Broidy an amount equal to Broidy's vested
percentage, being 75%, of the amount that would have been allocated to Broidy's
account from CNB's contribution to the Plan for 1995 had he remained employed by
CNB through December 31, 1995, under CNB's Profit Sharing Plan in effect for
1995, less any required deductions set forth in Paragraph 2 above. Such
payment will be made by CNB check to Broidy no later than March 31, 1996.
8. All CNC incentive and non-statutory stock options awarded to
Broidy through November 14, 1995, that are scheduled to vest on or before May
14, 1996, will vest on their
2
<PAGE>
respective scheduled vesting dates, and the period within which Broidy may
exercise vested options is extended to the earlier of the date each option
expires by its own terms, or November 14, 1996, all as more particularly set
forth in the First Amendment to Stock Option Agreements attached hereto as
Exhibit "1" and by this reference incorporated herein. Broidy understands that
as a result of the exercise periods of these options being extended beyond their
original terms, the options will, effective three months after November 14,
1995, no longer be treated as incentive stock options for federal income tax
purposes. This may result in significant differences in the tax treatment of
these options, as more fully discussed in Broidy's Participant's Guide to City
National Corporation 1983 and 1985 Stock Option Plans. Except as otherwise
specifically provided in this Agreement, all Broidy's rights and benefits
respecting stock options are determined in accordance with the terms of the
Plans, including those respecting exercise rights upon resignation of
employment, which date, for purposes thereof and consistent with the intent of
this Agreement, is November 14, 1995.
9. Broidy understands that all the payments and benefits set forth
in Paragraphs 2, 3, 4, 7 and 8, above, except payment for accrued unused
vacation, are not required by any of CNB's policies or procedures.
10. Broidy, as stated below, will do or not do the following:
10.1 Broidy has had access to, learned of or obtained customer
lists, customer names, financial information, pricing information, trade
secrets, trade knowledge, know-how, unprinted or printed data, confidential
information or other related tangible or intangible property ("Trade Secrets")
belonging to, used or developed by or for the benefit of, within the possession
or control of, or concerning CNB and/or any current or former customers or
shareholders. All such Trade Secrets will be kept strictly confidential by
Broidy and Broidy will never use, divulge, disclose, or communicate them, either
directly or indirectly, in any way to any other person or entity except as
compelled by law or with the prior written permission of CNB's Chief Executive
Officer or President. Without limiting the foregoing, until November 14, 1996,
Broidy will not directly or indirectly solicit or encourage any person or
organization that was a customer of CNB on November 14, 1995, to become a
customer of any other financial institution;
10.2 After November 14, 1995, Broidy will not be required to
perform any further services for CNB except as necessary to cooperate and assist
in an orderly transition and the investigation and handling (including, but not
limited to, providing information or testifying) of any actual or threatened
court action, arbitration or administrative proceeding relating to any matter
involving Broidy or any of Broidy's duties or responsibilities during employment
with CNB;
10.3 Broidy will immediately return to CNB all files, records,
documents, plans, drawings, specifications, equipment, personal computers,
pictures, videotapes, keys and similar items which are the property of or relate
to CNB and/or any current or former customers or shareholders in Broidy's
possession or control;
10.4 Broidy will not assist in any litigation against CNB
relating to any act or omission occurring prior to the date Broidy executes this
Agreement, except as compelled by law, or in Broidy's own defense if Broidy is
named as a defendant in such litigation; and
3
<PAGE>
10.5 Until November 14, 1996, Broidy will not directly or
indirectly solicit or encourage CNB's officers or employees to seek employment
elsewhere unless given prior permission in writing by CNB's Chief Executive
Officer or President.
11. This Agreement, its contents, and the parties' discussions
pertaining to it are confidential. Broidy will not communicate or allow
communication in any manner (written, oral, or otherwise) with respect thereto,
except (1) by Broidy to Broidy's spouse, prospective employers, attorneys, and
tax advisors, if any, who will be informed of and bound by this confidentiality
provision; (2) as compelled by law; or (3) with the prior written approval of
CNB's Chief Executive Officer or President. Also, neither party will ever make
any disparaging statements or remarks about the other. CNB has informed Broidy
that it will suffer serious damages in the event of violation of this paragraph
by Broidy. In the event of a breach of this paragraph by Broidy, CNB will be
entitled to recover from Broidy an amount totalling all payments made by CNB
under Paragraphs 2, 3, 4 and 7 of this Agreement, and all other provisions
of this Agreement will remain in full force and effect.
12. The parties acknowledge and agree that in the event of any breach
by either party of the promises or obligations set forth in Paragraphs 10 or
11 above, the non-breaching party would suffer great and irreparable harm,
injury, and damage, would encounter extreme difficulty in attempting to prove
the actual amount of damages suffered as a result of such breach, and would
therefore not be reasonably or adequately compensated in damages in any action
at law. The parties therefore agree that in addition to any other remedy the
non-breaching party may have at law, in equity, by statute, or otherwise, in the
event of any breach of any of the promises or obligations set forth in either of
such Paragraphs, the non-breaching party will be entitled to seek and receive
temporary, preliminary and permanent injunctive and other equitable relief from
an arbitrator(s) selected under Paragraph 18, below, to enforce those promises
or obligations, or otherwise to prevent the violation of any of the terms or
provisions of such Paragraph, without the necessity of proving the amount of any
actual damage resulting therefrom. However, nothing in this paragraph is
intended as a waiver by either party of any other rights such party may have
against the other at law, in equity, by statute, or otherwise, arising out of,
in connection with or resulting from any breach of this Agreement.
13. By signing this Agreement, Broidy and Broidy's heirs, executors,
administrators, successors and assigns, if any, hereby absolutely and forever
release and discharge CNB and its parent, subsidiaries, affiliates, related and
correspondent entities and any of its or their current or former directors,
officers, employees, representatives, administrators, agents and attorneys, and
any successors-in-interest and assigns (collectively "CNB Parties") from any and
all claims, demands, losses, actions, causes of action, suits, liabilities,
obligations, controversies, damages, compensation, costs, expenses, attorneys'
fees, or the like, of every kind, nature or character, whether known or unknown,
suspected or unsuspected, direct or indirect, derivative or otherwise, which
Broidy now holds or owns or at any time heretofore held or owned, or may at any
time in the future hold or own, based on, arising out of or in connection with
any matter relating to Broidy's employment with CNB, the resignation of that
employment, or any basis therefor, or any other matter occurring or arising on
or before the date Broidy executes this Agreement, except as provided in this
Agreement (collectively "Claims"). Claims released under this Agreement
include, but are not limited to, the following:
4
<PAGE>
13.1 Claims for injuries to Broidy arising out of or relating to
the course and scope of employment with CNB;
13.2 Claims for alleged violations of any contracts, express or
implied, or any covenants of good faith and fair dealing, express
or implied;
13.3 Claims of any legal restrictions on CNB's right to
discipline or terminate employees, any "constructive discharge"
or "wrongful discharge," or any tort;
13.4 Claims for defamation, invasion of privacy, emotional
and/or personal injury or distress or the like;
13.5 Claims for sick leave, vacation, compensated time off,
workers' compensation, separation pay or severance; and
13.6 Claims for violation of any local, state, federal or other
governmental statute, regulation or ordinance, as amended,
including, without limitation: Title VII of the Civil Rights Act
of 1964 (race, color, religion, sex (including pregnancy), and
national origin discrimination); 42 U.S.C. (S)1981
(discrimination in the making and enforcement of contracts); Age
Discrimination in Employment Act (42 U.S.C. (S)(S)621-634);
Federal and California Equal Pay Acts (29 U.S.C. (S)206(d)(1) and
California Labor Code (S)(S)3200, et seq.); California Fair
Employment and Housing Act (California Govt. Code (S)12940 et
seq.) (discrimination, including race, color, national origin,
ancestry, physical handicap, medical condition, marital status,
sex (including pregnancy), or age); Executive Order 11246 (race,
color, religion, sex (including pregnancy), and national origin
discrimination); Executive Order 11141 (age discrimination);
Rehabilitation Act of 1973 (29 U.S.C. (S)(S)503 and 504); Older
Workers Benefit Protection Act amendments to the Age
Discrimination in Employment Act (29 U.S.C. (S)(S)621 et seq.);
Civil Rights Act of 1991; Workers' Compensation Act (California
Labor Code (S)1197.5, et seq.); Americans with Disabilities Act;
and Employee Retirement Income Security Act of 1974 ("ERISA").
This Agreement, however, does not include a release of Broidy's right, if
any, to pension, retiree health, or similar benefits under any standard
retirement program of CNB, or rights or claims Broidy may have under the Age
Discrimination in Employment Act which arise after the date Broidy executes this
Agreement.
14. Broidy intends and agrees that this Agreement will be effective
as a full, final and general release of and from all matters covered herein. In
furtherance thereof, Broidy acknowledges that Broidy is familiar with, and that
Broidy's attorney of record, if any, has advised Broidy of, California Civil
Code (S)1542, which provides as follows:
A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT
KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTION OF THE
RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS
SETTLEMENT WITH THE DEBTOR.
5
<PAGE>
Broidy expressly waives and releases any right or benefit which Broidy
has or may in the future have under California Civil Code (S)1542 to the fullest
extent that such rights or benefits may be lawfully waived and released.
Further, Broidy acknowledges that Broidy may hereafter discover facts different
from or in addition to those facts now known or believed by Broidy to be true
with respect to any or all of the matters covered by this Agreement, and agrees
that this Agreement will nevertheless be binding and remain in full and complete
force and effect.
15. Broidy represents that Broidy has not filed any complaint(s),
charge(s), claim(s), or application(s) against any CNB Party with any local,
state or federal agency or court. Broidy represents and agrees that Broidy will
never file any such complaint, charge, claim or application against CNB at any
time hereafter based upon any matter relating to employment with CNB or Broidy's
resignation therefrom, or based upon any matter arising on or before the date
Broidy executes this Agreement, except respecting Broidy's rights set forth in
this Agreement. Broidy further represents and agrees that if any agency or
court assumes jurisdiction of any such complaint, charge, claim or application
against CNB on behalf of Broidy, Broidy will request such agency or court to
withdraw from and/or to dismiss the matter with prejudice; and if withdrawal or
dismissal cannot be or is not effected, Broidy agrees that CNB will be entitled
to a credit from Broidy in an amount equivalent to all payments and benefits to
Broidy by CNB under Paragraphs 2, 3, 4 and 7 of this Agreement, for any
amount Broidy receives as a result of any such complaint, charge, claim or
application.
16. Nothing contained in this Agreement will be construed as an
admission of liability or wrongdoing of any kind by any party hereto, and all
such liability or wrongdoing is expressly denied.
17. Broidy acknowledges that if this Agreement becomes effective,
Broidy's employment with CNB will end irrevocably on November 14, 1995, by
voluntary resignation, and CNB will have no obligation to resume such employment
or to re-employ Broidy in any position or capacity whatsoever in the future.
The foregoing will not preclude CNB from re-employing Broidy at any time in the
future in CNB's sole discretion, provided, however, that Broidy will have no
greater rights with respect to re-employment or any application or request for
re-employment than applicants who have not previously been employed by CNB.
18. If any dispute, controversy or claim arises out of or relates to
this Agreement, or the breach thereof, and if such dispute cannot be settled
through direct discussions, the parties agree that such dispute will be resolved
exclusively by arbitration in accordance with the California Employment Dispute
Resolution Rules of the American Arbitration Association, and judgment upon the
award rendered by the arbitrator(s) may be entered in any court having
jurisdiction thereof. Each party will bear its own costs and attorneys' fees
incurred in connection with any such arbitration.
BY SIGNING THIS AGREEMENT, CNB AND BROIDY EACH AGREE TO WAIVE THE RIGHT
TO A JURY TRIAL SECURED BY ARTICLE I, SECTION 16 OF THE CALIFORNIA
CONSTITUTION.
19. Broidy acknowledges that before signing this Agreement, Broidy
has been encouraged by CNB to consult with an attorney about this Agreement's
terms, and Broidy understands that whether or not to do so is Broidy's sole
decision. If Broidy does, Broidy agrees
6
<PAGE>
to pay Broidy's own attorneys' fees and costs, if any, arising out of or in
connection with this Agreement or its subject matter.
20. This Agreement contains and expresses the entire and final
agreement of the parties with respect to the matters covered herein, and
supersedes all negotiations, prior discussions and preliminary agreements. No
promises or representations, express or implied, concerning the Agreement have
been made by CNB to Broidy other than those contained in this Agreement. Any
alteration or modification to this Agreement must be in writing and signed by
each party to it or its duly authorized representative. In the event the
arbitrator(s) selected under Paragraph 18, above, a court of competent
jurisdiction or a governmental agency determines, upon the request or petition
of Broidy, that any provision of this Agreement, or application of it, is void,
invalid, unenforceable, or contrary to law for any reason, its remaining
provisions shall, at CNB's option, continue to be binding and fully enforceable;
in such a case, if CNB elects not to enforce the remainder of this Agreement,
Broidy agrees to return, in full or in part, as determined by CNB, any and all
payments received in exchange for agreeing to this Agreement.
21. Each party to this Agreement represents and warrants that he or
it has not assigned, transferred and/or granted to any other person any claim or
portion thereof against any other party to this Agreement.
22. This Agreement will be binding upon the heirs, executors,
administrators, successors and assigns of the parties hereto, provided, however,
that Broidy will not be entitled to encumber, create a lien upon, assign or
transfer any payments due under this Agreement.
23. This Agreement will be construed and enforced in accordance with
the laws of California to the extent such laws are not preempted by applicable
federal law.
24. This Agreement will not impair or alter Broidy's rights, if any,
to indemnification or payment of defense costs or expenses from CNB as provided
by CNB's Articles of Association, applicable law or pursuant to that certain
written agreement between it and Broidy, dated June 11, 1992, or from CNC
pursuant to that certain written agreement between it and Broidy, dated February
26, 1993, true and correct copies of which are attached hereto and incorporated
herein by this reference as Exhibit "2".
25. Broidy understands that Broidy has been given a period of at
least 21 consecutive calendar days to review and consider this Agreement before
signing it. Broidy further understands Broidy may revoke this Agreement within
7 days after signing it. Revocation is effective upon written notice thereof
being received by Marjorie Luttenbacher, Executive Vice President and Manager of
CNB's Human Resources Division, 1730 West Olympic Boulevard, Los Angeles,
California 90015, no later than the close of business on the 7th day after
Broidy signs this Agreement. If Broidy revokes this Agreement, it will not be
effective or enforceable, and Broidy will not receive, or will be required to
immediately and fully reimburse CNB for, any payments or benefits pursuant to
this Agreement. If Broidy does not revoke the Agreement, it will become
effective on the 8th day after Broidy signs it.
7
<PAGE>
THE UNDERSIGNED PARTIES, AND EACH OF THEM, ACKNOWLEDGE THAT THEY HAVE
CAREFULLY READ THIS AGREEMENT FOR SEPARATION OF EMPLOYMENT AND RELEASE IN ITS
HAVE HAD THE OPPORTUNITY TO DISCUSS THE CONTENTS OF THE AGREEMENT WITH
RESPECTIVE ATTORNEYS, IF ANY, AND, AS A RESULT, FULLY UNDERSTAND THE TERMS AND
CONSEQUENCES OF THE AGREEMENT. BASED ON THEIR KNOWLEDGE AND UNDERSTANDING OF THE
AGREEMENT, THE PARTIES REPRESENT AND WARRANT THAT THEY FREELY AND VOLUNTARILY
ENTER INTO IT ON THE DATE SET FORTH BELOW.
Dated: November 3 , 1995 /s/ Steven D. Broidy
---------- ---------------------
STEVEN D. BROIDY
CITY NATIONAL CORPORATION, a Delaware CITY NATIONAL BANK, a national
corporation, as to Paragraph 24 only banking association
By: /s/ Russell Goldsmith By: /s/ Russell Goldsmith
---------------------- ----------------------
Its: Vice Chairman and CEO Its: Chairman and CEO
---------------------- -----------------
APPROVED AS TO FORM
AND CONTENT:
OFFICE OF THE GENERAL COUNSEL
By: /s/ Stuart P. Herman By: /s/ Richard H. Sheehan, Jr.
--------------------- ----------------------------
STUART P. HERMAN, ESQ. RICHARD H. SHEEHAN, JR.
Attorney for STEVEN D. BROIDY General Counsel
Attorney for CITY NATIONAL BANK and
CITY NATIONAL CORPORATION
8
<PAGE>
FIRST AMENDMENT TO STOCK OPTION AGREEMENTS
This First Amendment to Stock Option Agreements (the "Amendment") is made
and entered into as of the 3d day of November, 1995, by and between CITY
------
NATIONAL CORPORATION, a Delaware corporation ("Company"), and STEVEN D. BROIDY
("Optionee"), with reference to the following:
A. Optionee is Vice Chairman of the Company and Vice Chairman and
Chief Administrative Officer of CITY NATIONAL BANK ("Bank"), a wholly owned
subsidiary of the Company, and holds incentive and non-statutory stock options
("Options"), as defined in Section 422 of the Internal Revenue Code of 1954, as
amended, issued by the Company pursuant to the City National Corporation 1983
Stock Option Plan or the City National Corporation 1985 Stock Option Plan
(collectively the "Plans"), as set forth in certain Stock Option Agreements (the
"Agreements"), as follows:
<TABLE>
<CAPTION>
Number of Shares Vested and
Date of Grant Outstanding on November 14, 1995
<S> <C>
5/1/92 27,255
12/16/92 27,255
12/15/93 18,750
2/22/95 0
</TABLE>
B. Under the terms of the Agreements, Options to purchase the following
additional shares are scheduled to vest on or before May 14, 1996:
<TABLE>
<CAPTION>
Date of Grant Number of Shares Vesting Date
<S> <C> <C>
5/1/92 0
12/16/92 13,627 12/16/95
12/15/93 18,750 12/15/95
2/22/95 12,500 2/22/96
</TABLE>
C. Pursuant to the terms of an Agreement for Separation From
Employment and Release, Optionee will resign employment with the Company and the
Bank effective November 14, 1995 (the "Separation Date").
D. The Company and Optionee desire to amend the terms of the
Agreements and the Options in order to extend the vesting and exercise period
thereof.
NOW, THEREFORE, in consideration of the foregoing and the performance of
the mutual covenants contained herein, it is hereby agreed as follows:
EXHIBIT "1"
<PAGE>
1. Unless otherwise defined herein, all terms used in this Amendment are
defined as set forth in the Agreements amended hereby.
2. All Agreements between the Company and Optionee are hereby
amended as set forth herein:
2.1 Notwithstanding any provision to the contrary in Paragraph 2 of each
of the Agreements, all unvested Options that would, absent the
termination of Optionee's employment, vest on or before May 14, 1996,
will vest as scheduled, and no unvested Option not vested on May 14,
1996, will vest or otherwise become exercisable. The "Termination Date"
will be the earlier of (a) ten (10) years after the date on which the
Option was granted to Optionee, or (b) November 14, 1996.
2.2 Paragraph 4 of each Agreement is hereby amended in its entirety to
read as follows:
"The Option and all rights granted under this Agreement will terminate on
the Termination Date. In the event of Optionee's death or incapacity,
the Option and all rights granted under this Agreement, to the extent
such rights have not theretofore been exercised, may be exercised by
Optionee's personal representative or, in the event of Optionee's death,
by the person or persons to whom the Option passes by will or by the
applicable laws of descent and distribution."
3. Effective February 14, 1996, all unexercised Options will no
longer be deemed to be incentive stock options, as defined in Section 422 of the
Internal Revenue Code of 1954, as amended, and Treasury regulations thereunder.
4. Except as set forth above, the Options and Agreements remain in
full force and effect according to their terms.
IN WITNESS WHEREOF, the parties have executed this Amendment as of the
day and year first set forth above.
CITY NATIONAL CORPORATION, a Delaware
corporation
/s/ Steven D. Broidy By: /s/ Richard H. Sheehan, Jr.
- -------------------------- -------------------------------------
STEVEN D. BROIDY, Optionee RICHARD H. SHEEHAN, JR., Senior Vice
President, Secretary and General Counsel
2
<PAGE>
INDEMNIFICATION AGREEMENT
This Indemnification Agreement is made and entered into this 11th day of
----
June , 1992, between City National Bank, a national banking association ("CNB")
- ----- --
and STEVEN D. BROIDY (the "Indemnitee").
--------------------
RECITALS
--------
A. The Indemnitee is a member of the Board of Directors of CNB.
B. The Board of Directors of CNB has determined that highly competent
persons will be difficult to retain as directors of CNB unless such persons are
adequately protected against liabilities incurred in performance of their
services as directors of CNB.
C. It is, therefore, in the best interests of CNB to attract and retain
such directors by providing adequate protection against such liabilities by
means of Indemnification Agreements with individual directors, such as the
Indemnitee.
AGREEMENT
---------
NOW, THEREFORE, in consideration of the promises and covenants contained
herein and as an inducement to the Indemnitee to continue to serve as a director
of CNB, CNB and the Indemnitee do hereby agree as follows:
1 Indemnity of Director. CNB agrees to indemnify and hold harmless the
Indemnitee to the fullest extent permissible under its Articles of Association,
Bylaws and applicable law, as the same exists or may be amended from time to
time. Provided, however, that no amendments to the Articles of Association or
Bylaws subsequent to the date hereof shall eliminate or lessen the availability
or scope of indemnification herein. In addition, the Indemnitee's
indemnification rights shall include but not be limited to the rights contained
in the following Paragraphs except to the extent expressly prohibited by
applicable law.
2 Indemnification in Third-Party Actions. CNB shall indemnify and hold
harmless the Indemnitee from and against all expenses (including attorneys'
fees), liability, judgments, fines and amounts paid in settlement actually and
reasonably incurred by Indemnitee in connection with any present or future
threatened, pending or completed action, suit or proceeding, or appeal thereof,
whether civil, criminal, administrative or investigative (other than an action
by or in the right of CNB) if the Indemnitee is a party or threatened to be made
a party to such action, suit or proceeding by reason of the fact that Indemnitee
is or was a director of CNB, or of any subsidiary of CNB, or is or was serving
at the request of CNB as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise; provided,
however, that the Indemnitee shall be entitled to such indemnification only if
Indemnitee acted in good faith and in a manner he or she reasonably believed to
be in or not opposed to the best interests of CNB, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his or her
conduct was unlawful.
3 Indemnification in Proceedings by or in the Name of CNB. CNB shall indemnify
and hold harmless the Indemnitee from and against expenses (including attorney'
fees), judgments and amounts paid in settlement actually and reasonably incurred
by Indemnitee in connection with the defense or settlement of any present or
future threatened, pending or completed action or suit,
EXHIBIT "2"
Page 1
<PAGE>
or appeal thereof, by or in the right of CNB to procure a judgment in its favor
if the Indemnitee is a party or threatened to be a party to such action or suit
by reason of the fact that Indemnitee is or was a director of CNB, or of any
subsidiary of CNB, or is or was serving at the request of CNB as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise; provided, however, that the Indemnitee shall be
entitled to such indemnification only if Indemnitee acted in good faith and in a
manner he or she reasonably believed to be in or not opposed to the best
interests of CNB and except that no indemnification shall be made in respect of
any claim, issue or matter as to which such person shall have been adjudged to
be liable in the performance of his or her duty to CNB if and to the extent that
the court in which such action or suit was brought shall determine that the
Indemnitee is not entitled to such indemnification.
4 Liability Insurance. Except as precluded by the last sentence of this
Paragraph 4, CNB will undertake reasonable efforts to maintain policies of
Directors and Officers Liability Insurance in reasonable amounts from
established and reputable insurers. CNB shall not be liable under this
Indemnification Agreement for any amount of any claim for which the Indemnitee
has been paid, or is legally entitled to payment, under such insurance policies
or under any other valid insurance policies maintained in the future by CNB for
Indemnitee's benefit. Any such Directors or Officers Liability Insurance
purchased by CNB shall explicitly exclude such insurance coverage for a formal
order of an appropriate bank regulatory agency assessing civil money penalties
against a bank director or officer.
Any such policies maintained by CNB will expire under expiration terms as
therein set forth. CNB is uncertain whether such policies will be renewed or if
not renewed can be replaced with policies of similar coverage at reasonable
cost. CNB shall not be required to maintain the policies presently in effect or
to replace such policies if, in the judgment of the Board of Directors of CNB,
the cost of such policies is not reasonable in relation to the coverage
provided. If CNB so decides not to maintain the current policies or replace
them with policies of similar coverage, CNB agrees to indemnify and hold
harmless the Indemnitee to the extent of coverage which would have been provided
by such policies to the fullest extent permissible under applicable law, in
addition to any other indemnification provided by this Agreement.
5 Advances of Expenses. Expenses incurred by the Indemnitee in connection with
any action, suit, proceeding or appeal thereof, described in Paragraphs 2 and 3
above, shall be paid by CNB in advance of the final disposition of such action,
suit or proceeding within twenty (20) days of receipt of an undertaking by the
Indemnitee to repay such amount if it is ultimately determined by the Board of
Directors, independent counsel, the shareholders or a court, as provided in
Paragraph 8 of this Indemnification Agreement, that Indemnitee is not entitled
to be indemnified by CNB or not entitled to full indemnification by CNB.
6 Indemnification Hereunder Not Exclusive. Indemnification and advancement of
expenses set forth in this Indemnification Agreement shall not be exclusive of
other rights the Indemnitee may have under applicable law, other agreements
between CNB and the Indemnitee, the Articles of Association or Bylaws of CNB, by
vote of disinterested directors of CNB or by vote of the shareholders of CNB.
7 Continuation of Indemnity. The indemnification and advancement of expenses
provided by, or granted pursuant to this Indemnification Agreement shall
continue after the Indemnitee has ceased to be a director of CNB and shall inure
to the benefit of the heirs, executors and administrators of the Indemnitee.
Page 2
<PAGE>
8 Indemnification Procedure; Determination of Right to Indemnification. Upon
written request by the Indemnitee for indemnification under Paragraphs 2 and 3
above, the Indemnitee's entitlement to such indemnification shall be made by (1)
the Board of Directors of CNB by a majority vote of a quorum consisting of
directors who were not parties to the action, suit, settlement or proceeding, or
(2) if such quorum is not obtainable, by independent counsel, in a written
opinion, or (3) by the shareholders of CNB. Determination of entitlement to
indemnification shall be made within sixty (60) days of receipt by CNB of a
written request for indemnification by the Indemnitee. The Indemnitee's request
shall be accompanied by documentation reasonably available to the Indemnitee
relating to the Indemnitee's entitlement to be indemnified. All reasonable
expenses (including attorney's fees) relating to the Indemnitee's request for
indemnification under the Indemnification Agreement shall be paid by CNB
regardless of the outcome of the determination as to the Indemnitee's
entitlement to indemnification. If such determination is unfavorable to the
Indemnitee or if the Indemnitee has made no request for indemnification
hereunder or no determination is otherwise made, the Indemnitee may, within two
(2) years after such determination, or, if no determination has been made,
within two (2) years after the Indemnitee has incurred the expense or otherwise
made a payment for which the Indemnitee seeks indemnification, petition any
appropriate court of competent jurisdiction to determine whether the Indemnitee
is entitled to indemnification hereunder the terms of this Indemnification
Agreement. The Indemnitee shall not be prejudiced in such judicial proceeding
by a prior determination that the Indemnitee is not entitled to indemnification.
CNB shall be precluded from asserting in such court that it is not bound by the
provisions of the Indemnification Agreement. CNB shall pay all expenses
(including attorneys' fees) actually and reasonably incurred by the Indemnitee
in connection with such judicial determination.
9 No Presumption. If any action, suit or proceeding described in Paragraphs 2
and 3 above shall be terminated by judgment, order, settlement or conviction or
upon a plea of nolo contendere or its equivalent, no presumption shall be
---------------
created that the Indemnitee did not act in good faith and in a manner which such
Indemnitee reasonably believed to be in or not opposed to the best interests of
CNB, and, with respect to any criminal action or proceeding, that the Indemnitee
had reasonable cause to believe that his or her conduct was unlawful.
10 Limitations on Indemnification. Notwithstanding any other provision of the
Indemnification Agreement, CNB shall not be liable to indemnify the Indemnitee
in connection with any claim against Indemnitee:
10.1 For which the Indemnitee is indemnified by CNB other than under
this Indemnification Agreement;
10.2 If a court of competent jurisdiction has rendered a final decision
that indemnification relating to the claim would be unlawful;
10.3 If, pursuant to Section 16(b) of the Securities Exchange Act of
1934, as amended, or similar provisions of any state or federal statutory
law, the claim is for an accounting of profits made from the purchase and
sale by the Indemnitee of securities of CNB;
10.4 If a final decision by a court of competent jurisdiction shall
adjudge the Indemnitee's conduct to have been knowingly fraudulent or
deliberately dishonest and to be material to the claim adjudicated by the
court;
Page 3
<PAGE>
10.5 If the claim was based upon the Indemnitee's deriving an unlawful
personal benefit and a court of competent jurisdiction adjudges that such
benefit was unlawful in a final decision;
10.6 Arising out of an administrative proceeding or action instituted by
an appropriate bank regulatory agency which proceeding or action results
in a final order assessing civil money penalties or requiring appropriate
action by an individual or individuals in the form of payments to CNB.
11 Savings Clause. if any provision of this Indemnification Agreement shall be
held to be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions (including portions of any paragraph
of this Indemnification Agreement containing an invalid, illegal or
unenforceable provision) shall not be impaired thereby. To the extent
practicable, any invalid, illegal or unenforceable provision of this
Indemnification Agreement shall be deemed modified as necessary to comply with
all applicable laws.
12 Counterparts. This Indemnification Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
13 Interpretation. Headings are for convenience only and shall not be used in
construing meaning. This Indemnification Agreement shall be governed by, and
construed in accordance with the laws of the State of Delaware.
14 Notices. All notices or other communication hereunder shall be in writing
and shall be deemed to be effective and to have been duly given if delivered by
certified mail, postage prepaid, return receipt requested to the respective
parties, as follows:
"CNB" City National Bank
9701 Wilshire Boulevard, Ninth Floor
Beverly Hills, CA 90212
Attn: General Counsel
"Indemnitee" STEVEN D. BROIDY
---------------------------
AT CITY NATIONAL BANK
---------------------------
400 N. ROXBURY DR.
---------------------------
BEVERLY HILLS, CAL. 90210
---------------------------
or to such other address as a party may have furnished to the other in writing
in accordance with this paragraph, except that notice of change of address shall
only be effective upon receipt.
15 Successors and Assigns. This Indemnification Agreement shall be binding
upon CNB and its successors and assigns and shall inure to the benefit of the
Indemnitee and his or her heirs, executors and administrators.
16 Amendment, Waiver. No amendment of this Indemnification Agreement shall be
binding unless executed in writing by both parties hereto. No waiver of any
provision of this Indemnification Agreement shall constitute a waiver of any
other provision hereof.
Page 4
<PAGE>
17 Notification of Claims. The Indemnitee shall promptly notify CNB in writing
upon being served with any summons, citation, subpoena, indictment, complaint,
information or other document relating to any matter concerning which the
Indemnitee may be entitled to indemnification hereunder.
IN WITNESS WHEREOF, the parties hereto have caused this Indemnification
Agreement to be duly executed and signed as of the date first above written.
"CNB" City National Bank, a national
banking association
By: /s/ Bram Goldsmith
-------------------
Its: CHAIRMAN/CEO
-------------
"Indemnitee" /s/ Steven D. Broidy
---------------------
Page 5
<PAGE>
INDEMNIFICATION AGREEMENT
This Indemnification Agreement is made and entered into this 26th day of
----
February, 1993, between City National Corporation, a Delaware corporation (the
- -------- ----
"Company") and Steven D. Broidy (the "Indemnitee"), an officer and/or member of
----------------
the Board of Directors of the Company.
RECITALS
--------
A. The Indemnitee is an officer and/or member of the Board of
Directors of the Company.
B. The Board of Directors of the Company has determined that highly
competent persons will be difficult to retain as officers and/or directors of
the Company unless such persons are adequately protected against liabilities
incurred in performance of their services as officers and/or directors of the
Company.
C. It is, therefore, in the best interests of the Company to attract
and retain such officers and/or directors by providing adequate protection
against such liabilities by means of Indemnification Agreements with individual
officers and/or directors, such as the Indemnitee.
AGREEMENT
---------
NOW, THEREFORE, in consideration of the promises and covenants contained
herein and as an inducement to the Indemnitee to continue to serve as an officer
and/or director of the Company, the Company and the Indemnitee do hereby agree
as follows:
1. Indemnity of Director/Officer. The Company agrees to indemnify and hold
harmless the Indemnitee to the fullest extent permissible under its Certificate
of Incorporation, Bylaws and applicable law, as the same exists or may be
amended from time to time. Provided, however, that no amendments to the
Certificate of Incorporation or Bylaws subsequent to the date hereof shall
eliminate or lessen the availability or scope of indemnification herein. In
addition, the Indemnitee's indemnification rights shall include but not be
limited to the rights contained in the following Paragraphs except to the extent
expressly prohibited by applicable law.
2. Indemnification in Third-Party Actions. The Company shall indemnify and
hold harmless the Indemnitee from and against all expenses (including attorneys'
fees), liability, judgments, fines and amounts paid in settlement actually and
reasonably incurred by Indemnitee in connection with any present or future
threatened, pending or completed action, suit or proceeding, or appeal thereof,
whether civil, criminal, administrative or investigative (other than
EXHIBIT "2"
Page 1
<PAGE>
an action by or in the right of the Company) if the indemnitee is a party or
threatened to be made a party to such action, suit or proceeding by reason of
the fact that Indemnitee is or was a director, member of any committee of the
board, officer, employee or agent of the Company, or of any subsidiary of the
Company, or is or was serving at the request of the Company as a director,
member of any committee of the board, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise; provided,
however, that the Indemnitee shall be entitled to such indemnification only if
Indemnitee acted in good faith and in a manner he or she reasonably believed to
be in or not opposed to the best interests of the Company, and, with respect to
any criminal action or proceeding, had no reasonable cause to believe his or her
conduct was unlawful.
3. Indemnification in Proceedings by or in the Name of the Company. The
Company shall indemnify and hold harmless the Indemnitee from and against
expenses (including attorney' fees), judgments and amounts paid in settlement
actually and reasonably incurred by Indemnitee in connection with the defense or
settlement of any present or future threatened, pending or completed action or
suit, or appeal thereof, by or in the right of the Company to procure a judgment
in its favor if the Indemnitee is a party or threatened to be a party to such
action or suit by reason of the fact that Indemnitee is or was a director,
member of any committee of the board, officer, employee or agent of the Company,
or of any subsidiary of the Company, or is or was serving at the request of the
Company as a director, member of any committee of the board, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise; provided, however, that the Indemnitee shall be entitled to such
indemnification only if Indemnitee acted in good faith and in a manner he or she
reasonably believed to be in or not opposed to the best interests of the Company
and except that no indemnification shall be made in respect of any claim, issue
or matter as to which such person shall have been adjudged to be liable in the
performance of his or her duty to the Company if and to the extent that the
court in which such action or suit was brought shall determine that the
Indemnitee is not entitled to such indemnification.
4. Liability Insurance. The Company will undertake reasonable efforts to
maintain policies of Directors and Officers Liability Insurance in reasonable
amounts from established and reputable insurers. The Company shall not be
liable under this Indemnification Agreement for any amount of any claim for
which the Indemnitee has been paid, or is legally entitled to payment, under
such insurance policies or under any other valid insurance policies maintained
in the future by the Company for Indemnitee's benefit.
Any such policies maintained by the Company will expire under expiration
terms as therein set forth. The Company is uncertain whether such policies will
be renewed or if not renewed can be replaced with policies of similar coverage
at reasonable cost. The Company shall not be required to maintain the policies
presently in effect or to replace such policies if, in the judgment of the Board
of Directors of the Company, the cost of such policies is not reasonable in
relation to the coverage provided. If the Company so decides not to maintain
the current policies or replace them with policies of similar coverage, the
Company agrees to indemnify and hold harmless the Indemnitee to the extent of
coverage which would have been provided by such policies to the fullest extent
permissible under applicable law, in addition to any other indemnification
provided by this Agreement.
Page 2
<PAGE>
5. Advances of Expenses. Expenses incurred by the Indemnitee in connection
with any action, suit, proceeding or appeal thereof, described in Paragraphs 2
and 3 above, shall be paid by the Company in advance of the final disposition of
such action, suit or proceeding within twenty (20) days of receipt of an
undertaking by the Indemnitee to repay such amount if it is ultimately
determined by the Board of Directors, independent counsel, the shareholders or a
court, as provided in Paragraph 8 of this Indemnification Agreement, that
Indemnitee is not entitled to be indemnified by the Company or not entitled to
full indemnification by the Company.
6. Indemnification Hereunder Not Exclusive. Indemnification and advancement
of expenses set forth in this Indemnification Agreement shall not be exclusive
of other rights the Indemnitee may have under applicable law, other agreements
between the Company and the Indemnitee, the Certificate of Incorporation or
Bylaws of the Company, by vote of disinterested directors of the Company or by
vote of the shareholders of the Company.
7. Continuation of Indemnity. The indemnification and advancement of
expenses provided by, or granted pursuant to this Indemnification Agreement
shall continue after the Indemnitee has ceased to be an officer and/or director
of the Company and shall inure to the benefit of the heirs, executors and
administrators of the Indemnitee.
8. Indemnification Procedure; Determination of Right to Indemnification.
Upon written request by the Indemnitee for indemnification under Paragraphs 2
and 3 above, the Indemnitee's entitlement to such indemnification shall be made
by (1) the Board of Directors of the Company by a majority vote of a quorum
consisting of directors who were not parties to the action, suit, settlement or
proceeding, or (2) if such quorum is not obtainable, by independent counsel, in
a written opinion, or (3) by the shareholders of the Company. Determination of
entitlement to indemnification shall be made within sixty (60) days of receipt
by the Company of a written request for indemnification by the Indemnitee. The
Indemnitee's request shall be accompanied by documentation reasonably available
to the Indemnitee relating to the Indemnitee's entitlement to be indemnified.
All reasonable expenses (including attorney's fees) relating to the
Indemnitee's request for indemnification under the Indemnification Agreement
shall be paid by the Company regardless of the outcome of the determination as
to the Indemnitee's entitlement to indemnification. If such determination is
unfavorable to the Indemnitee or if the Indemnitee has made no request for
indemnification hereunder or no determination is otherwise made, the Indemnitee
may, within two (2) years after such determination, or, if no determination has
been made, within two (2) years after the Indemnitee has incurred the expense or
otherwise made a payment for which the Indemnitee seeks indemnification,
petition the Court of Chancery of the State of Delaware or any other of
competent jurisdiction to determine whether the Indemnitee is entitled to
indemnification hereunder the terms of this Indemnification Agreement. The
Indemnitee shall not be prejudiced in such judicial proceeding by a prior
determination that the Indemnitee is not entitled to indemnification. The
Company shall be precluded from asserting in such court that it is not bound by
the provisions of the Indemnification Agreement. The Company shall pay all
expenses (including attorneys' fees) actually and reasonably incurred by the
Indemnitee in connection with such judicial determination.
Page 3
<PAGE>
9. No Presumption. If any action, suit or proceeding described in
Paragraphs 2 and 3 above shall be terminated by judgment, order, settlement or
conviction or upon a plea of nolo contendere or its equivalent, no presumption
---------------
shall be created that the Indemnitee did not act in good faith and in a manner
which such Indemnitee reasonably believed to be in or not opposed to the best
interests of the Company, and, with respect to any criminal action or
proceeding, that the Indemnitee had reasonable cause to believe that his or her
conduct was unlawful.
10. Limitations on Indemnification. Notwithstanding any other provision of
the Indemnification Agreement, the Company shall not be liable to indemnify the
Indemnitee in connection with any claim against Indemnitee:
10.1 For which the Indemnitee is indemnified by the Company other than
under this Indemnification Agreement;
10.2 If a court of competent jurisdiction has rendered a final
decision that indemnification relating to the claim would be unlawful;
10.3 If, pursuant to Section 16(b) of the Securities Exchange Act of
1934, as amended, or similar provisions of any state or federal statutory law,
the claim is for an accounting of profits made from the purchase and sale by the
Indemnitee of securities of the Company;
10.4 If a final decision by a court of competent jurisdiction shall
adjudge the Indemnitee's conduct to have been knowingly fraudulent or
deliberately dishonest and to be material to the claim adjudicated by the court;
or
10.5 If the claim was based upon the Indemnitee's deriving an unlawful
personal benefit and a court of competent jurisdiction adjudges that such
benefit was unlawful in a final decision.
11. Savings Clause. If any provision of this Indemnification Agreement shall
be held to be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions (including portions of any paragraph
of this Indemnification Agreement containing an invalid, illegal or
unenforceable provision) shall not be impaired thereby. To the extent
practicable, any invalid, illegal or unenforceable provision of this
Indemnification Agreement shall be deemed modified as necessary to comply with
all applicable laws.
12. Counterparts. This Indemnification Agreement may be executed in one or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
13. Interpretation; Governing Law. Headings are for convenience only and
shall not be used in construing meaning. This Indemnification Agreement shall
be governed by, and construed in accordance with, the laws of the State of
Delaware.
14. Notices. All notices or other communication hereunder shall be in
writing and shall be deemed to be effective and to have been duly given if
delivered by certified mail, postage
Page 4
<PAGE>
prepaid, return receipt requested to the respective parties, as follows:
"Company" City National Corporation
400 North Roxbury Drive
Beverly Hills, CA 90210
Attn: General Counsel
"Indemnitee" Steven D. Broidy
----------------------------------
c/o City National Bank
--------------------------------
400 North Roxbury Drive
------------------------------
Beverly Hills, CA 90210
--------------------------------
or to such other address as a party may have furnished to the other in writing
in accordance with this paragraph, except that notice of change of address shall
only be effective upon receipt.
15. Successors and Assigns. This Indemnification Agreement shall be binding
upon the Company and its successors and assigns and shall inure to the benefit
of the Indemnitee and his or her heirs, executors and administrators.
16. Amendment, Waiver. No amendment of this Indemnification Agreement shall
be binding unless executed in writing by both parties hereto. No waiver of any
provision of this Indemnification Agreement shall constitute a waiver of any
other provision hereof.
17. Notification of Claims. The Indemnitee shall promptly notify the Company
in writing upon being served with any summons, citation, subpoena, indictment,
complaint, information or other document relating to any matter concerning which
the Indemnitee may be entitled to indemnification hereunder.
IN WITNESS WHEREOF, the parties hereto have caused this Indemnification
Agreement to be duly executed and signed as of the date first above written.
"Company" City National Corporation, a
Delaware corporation
By: /s/ Bram Goldsmith
-------------------
Bram Goldsmith
Chairman of the Board
Its:
------------------------------------
"Indemnitee" /s/ Steven D. Broidy
---------------------
Steven D. Broidy
Page 5
<PAGE>
EXHIBIT 10.24
CITY NATIONAL CORPORATION
1995 OMNIBUS PLAN
(As adopted on February 22, 1995, and approved on April 18, 1995)
<PAGE>
CITY NATIONAL CORPORATION
1995 OMNIBUS PLAN
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
I. THE PLAN.................................................................... 1
1.1. Purpose.............................................................. 1
1.2. Definitions.......................................................... 1
1.3. Administration and Authorization; Power and Procedure................ 5
1.4. Participation........................................................ 7
1.5. Shares Available for Awards.......................................... 7
1.6. Grant of Awards...................................................... 8
1.7. Award Period......................................................... 8
1.8. Limitations on Exercise and Vesting of Awards........................ 9
1.9. Acceptance of Notes to Finance Exercise.............................. 9
1.10. No Transferability................................................... 10
II. EMPLOYEE OPTIONS............................................................ 10
2.1. Grants............................................................... 10
2.2. Option Price......................................................... 11
2.3. Limitations on Grant and Terms of Incentive Stock Options............ 11
2.4. Limits on 10% Holders................................................ 12
2.5. Option Repricing; Cancellation and Regrant; Waiver of Restrictions... 12
2.6. Dividend Equivalents................................................. 12
2.7. Surrender of Stock Options........................................... 12
2.8. Special Requirements for Director Stock Options...................... 13
III. STOCK APPRECIATION RIGHTS................................................... 14
3.1. Grants............................................................... 14
3.2. Exercise of Stock Appreciation Rights................................ 14
3.3. Payment.............................................................. 15
IV. RESTRICTED STOCK AWARDS..................................................... 15
4.1. Grants............................................................... 15
4.2. Restrictions......................................................... 16
4.3. Return to the Company................................................ 16
V. PERFORMANCE SHARE AWARDS AND STOCK BONUSES.................................. 16
5.1. Grants of Performance Share Awards................................... 16
5.2. Grants of Stock Bonuses.............................................. 17
5.3. Deferred Payments.................................................... 17
VI. TAX OFFSET BONUS RIGHTS..................................................... 17
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
Page
<S> <C> <C>
6.1. Grants............................................................... 17
6.2. Tax Offset Bonus Rights Period....................................... 17
6.3. Exercise of Rights................................................... 17
6.4. Payments............................................................. 18
6.5. Termination of Employment............................................ 18
VII. OTHER PROVISIONS............................................................ 18
7.1. Rights of Eligible Employees, Participants and Beneficiaries......... 18
7.2. Adjustments; Acceleration............................................ 19
7.3. Effect of Termination of Employment.................................. 20
7.4. Compliance with Laws................................................. 21
7.5. Tax Withholding...................................................... 21
7.6. Plan Amendment, Termination and Suspension........................... 21
7.7. Privileges of Stock Ownership........................................ 22
7.8. Effective Date of the Plan........................................... 22
7.9. Term of the Plan..................................................... 22
7.10. Governing Law; Construction; Severability............................ 23
7.11. Captions............................................................. 23
7.12. Non-Exclusivity of Plan.............................................. 23
</TABLE>
ii
<PAGE>
CITY NATIONAL CORPORATION
1995 OMNIBUS PLAN
I. THE PLAN
1.1. Purpose
The purpose of this Plan is to promote the success of the Company by
providing an additional means through the grant of Awards to attract, motivate,
retain and reward key employees, including officers, whether or not directors,
of the Company with awards and incentives for high levels of individual
performance and improved financial performance of the Company.
1.2. Definitions
(a) "Award" shall mean an award of any Option, Stock Appreciation Right,
Restricted Stock Award, Performance Share Award, Stock Bonus, Dividend
Equivalent, Tax Offset Bonus or other right or security that would
constitute a "derivative security" under Rule 16a-l(c) of the Exchange
Act, or any combination thereof, whether alternative or cumulative,
authorized by and granted under this Plan.
(b) "Award Agreement" shall mean any writing setting forth the terms of an
Award that has been authorized by the Committee.
(c) "Award Date" shall mean the date upon which the Committee took the
action granting an Award or such later date as the Committee
designates as the Award Date at the time of the Award.
(d) "Award Period" shall mean the period beginning on an Award Date and
ending on the expiration date of such Award.
(e) "Beneficiary" shall mean the person, persons, trust or trusts entitled
by will or the laws of descent and distribution to receive the
benefits specified in the Award Agreement and under this Plan in the
event of a Participant's death, and shall mean the Participant's
executor or administrator if no other Beneficiary is identified and
able to act under the circumstances.
(f) "Board" shall mean the Board of Directors of the Company.
(g) "Change in Control Event" shall mean:
(1) The acquisition by any individual (other than Bram Goldsmith),
entity or group (within the meaning of Section 13(d)(3) or
14(d)(2) of the Exchange Act) (a "Person") of beneficial
ownership (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) of 20% or more of either (A) the then outstanding
shares of Common Stock (the "Outstanding Common Stock") or (B)
the combined voting power of the then outstanding voting
securities of the Company entitled to vote generally in the
election of directors (the
1
<PAGE>
"Outstanding Voting Securities"); provided, however, that the
following acquisitions shall not constitute a Change in Control
Event: (i) any acquisition directly from the Company (except that
an acquisition by virtue of the exercise of a conversion
privilege shall not be considered within this clause (i) unless
the converted security was itself acquired directly from the
Company), (ii) any acquisition by the Company, (iii) any
acquisition by any employee benefit plan (or related trust)
sponsored or maintained by the Company or any corporation
controlled by the Company or (iv) any acquisition by any
corporation pursuant to a reorganization, merger or
consolidation, if, following such reorganization, merger or
consolidation, the conditions described in clauses (A) and (B) of
paragraph (3) below are satisfied;
(2) Individuals who, as of the date hereof, constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least a
majority of the Board; provided, however, that any individual who
becomes a director subsequent to the date hereof whose election,
or nomination for election by the Company's shareholders, was
approved by a vote of at least a majority of the directors then
comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board; but excluding,
for this purpose, any such individual whose initial assumption of
office occurs as a result of either an actual or threatened
election contest (as such terms are used in Rule 14a-11 of
Regulation 14A promulgated under the Exchange Act) or other
actual or threatened solicitation of proxies or consents by or on
behalf of a Person other than the Board; provided, however, that
any transaction which does not constitute a Change in Control
Event by reason of an exception contained in Section 1.2(g)(1),
(3) or (4), shall not constitute a Change in Control Event by
reason of this Section 1.2(g)(2); or
(3) Approval by the shareholders of the Company of a reorganization,
merger or consolidation (a "transaction"), unless, following such
transaction in each case, (A) more than 80% of, respectively, the
then outstanding shares of common stock of the corporation
resulting from such transaction and the combined voting power of
the then outstanding voting securities of such corporation
entitled to vote generally in the election of directors is then
beneficially owned, directly or indirectly, by all or
substantially all of the individuals and entities who were the
beneficial owners, respectively, of the Outstanding Common Stock
and Outstanding Voting Securities immediately prior to such
transaction and (B) no Person (excluding the Company, Bram
Goldsmith, any employee benefit plan (or related trust) of the
Company or such corporation resulting from such transaction and
any Person beneficially owning, immediately prior to such
transaction, directly or indirectly, 20% or more of the
Outstanding Common Stock or Outstanding Voting Securities, as the
case may be) beneficially owns, directly or indirectly, 20% or
more of, respectively, the then outstanding shares of common
stock of the corporation resulting from such transaction or the
combined voting power of the then outstanding voting securities
of such corporation entitled to vote generally in the election of
directors; or
2
<PAGE>
(4) Approval by the shareholders of the Company of (A) a complete
liquidation or dissolution of the Company or (B) the sale or other
disposition of all or substantially all of the assets of the
Company, unless such assets are sold to a corporation and
following such sale or other disposition, the conditions described
in clauses (A) and (B) of paragraph (3) above are satisfied with
respect to the acquiring corporation.
(h) "Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time.
(i) "Commission" shall mean the Securities and Exchange Commission.
(j) "Committee" shall mean the Compensation and Directors Nominating
Committee of the Board, or other Committee, regardless of name, that
acts on matters of compensation for eligible employees, which
Committee shall be comprised only of two or more directors or such
greater number of directors as may be required under applicable law,
each of whom, during such time as one or more Participants may be
subject to Section 16 of the Exchange Act, shall be a Disinterested
and Outside director.
(k) "Common Stock" shall mean the common stock of the Company, $1.00 par
value per share, and such other securities or property as may become
the subject of Awards, or become subject to Awards, pursuant to an
adjustment made under Section 6.2 of this Plan.
(l) "Company" shall mean City National Corporation and its Subsidiaries.
(m) "Disinterested and Outside" shall mean "disinterested" within the
meaning of any applicable regulatory requirements, including Rule 16b-
3, and "outside" within the meaning of Section 162(m) of the Code.
(n) "Dividend Equivalent" shall mean an amount equal to the amount of cash
dividends or other cash distributions paid (or such portion of such
dividend or other distribution as may be designated by the Committee)
with respect to each Share after the date of an Award of a Dividend
Equivalent.
(o) "Eligible Employee" shall mean an officer at a level of Vice President
or the equivalent (whether or not a director) of the Company, or any
Other Eligible Person, as determined by the Committee in its
discretion. In no event may any member of the Committee or a
committee administering any other stock option, stock appreciation,
stock bonus or other stock plan of the Company be an Eligible
Employee.
(p) "ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended.
3
<PAGE>
(q) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended from time to time.
(r) "Fair Market Value" shall mean, with respect to Common Stock, the
price at which the Stock sold on the last normal transaction of the
trading day on a specified date, or if no trading occurs on such
specified date, on the most recent preceding business day on which
trading occurred, as quoted on the National Market System of the
National Association of Securities Dealers or on any exchange upon
which the stock may be traded.
(s) "Incentive Stock Option" shall mean an Option which is designated as
an incentive stock option within the meaning of Section 422 of the
Code and which contains such provisions as are necessary to comply
with that section.
(t) "Nonqualified Stock Option" shall mean an Option that is designated as
a Nonqualified Stock Option and shall include any Option intended as
an Incentive Stock Option that fails to meet the applicable legal
requirements thereof. Any Option granted hereunder that is not
designated as an incentive stock option shall be deemed to be
designated a nonqualified stock option under this Plan and not an
incentive stock option under the Code.
(u) "Non-Employee Director" shall mean a member of the Board who is not an
officer or employee of the Company.
(v) "Option" shall mean an option to purchase Shares under this Plan. The
Committee shall designate any Option granted to an Eligible Employee
as a Nonqualified Stock Option or an Incentive Stock Option.
(w) "Other Eligible Person" shall mean any other person (including
significant agents and consultants) who performs substantial services
for the Company of a nature similar to those performed by key
employees, selected to participate in this Plan by the Committee from
time to time; provided that in no event shall a Non-Employee Director
be selected as an Other Eligible Person.
(x) "Participant" shall mean an Eligible Employee who has been granted an
Award under this Plan.
(y) "Performance Share Award" shall mean an Award made pursuant to the
provisions, and subject to the terms and conditions, of Article V of
the Plan.
(z) "Personal Representative" shall mean the person or persons who, upon
the Total Disability or incompetence of a Participant, shall have
acquired on behalf of the Participant, by legal proceeding or
otherwise, the power to exercise the rights or receive benefits under
this Plan and who shall have become the legal representative of the
Participant.
(aa) "Plan" shall mean this 1995 Omnibus Plan.
4
<PAGE>
(bb) "QDRO" shall mean a qualified domestic relations order as defined in
Section 414 (p) of the Code or Title I, Section 206(d) (3) of ERISA (to the same
extent as if this Plan were subject thereto), or the applicable rules
thereunder.
(cc) "Restricted Stock" shall mean Shares awarded to a Participant subject
to payment of such consideration, if any, and such conditions on
vesting and such transfer and other restrictions as are established in
or pursuant to this Plan, for so long as such shares remain unvested
under the terms of the applicable Award Agreement.
(dd) "Retirement" shall mean retirement from active service as an employee
or officer of the Company on or after attaining age 65.
(ee) "Rule 16b-3" shall mean Rule 16b-3, as amended from time to time, as
promulgated by the Commission pursuant to the Exchange Act.
(ff) "Section 16 Person" shall mean a person subject to Section 16(a) of
the Exchange Act.
(gg) "Securities Act" shall mean the Securities Act of 1933, as amended
from time to time.
(hh) "Shares" shall mean shares of Common Stock of the Company.
(ii) "Stock Appreciation Right" shall mean a right to receive a number of
Shares or an amount of cash, or a combination of shares and cash, the
aggregate amount or value of which is determined by reference to a
change in the Fair Market Value of the Shares that is authorized under
this Plan.
(jj) "Subsidiary" shall mean any corporation or other entity a majority of
whose outstanding voting stock or voting power is beneficially owned
directly or indirectly by the Company.
(kk) "Total Disability" shall mean a "permanent and total disability"
within the meaning of Section 22(e) (3) of the Code and such other
disabilities, infirmities, afflictions or conditions as the Committee
by rule may include.
1.3. Administration and Authorization; Power and Procedure
(a) Committee. This Plan shall be administered by, and all Awards to
Eligible Employees shall be authorized by, the Committee. Action of
the Committee with respect to the administration of this Plan shall be
taken pursuant to a majority vote or by unanimous written consent of
its members.
(b) Plan Awards; Interpretation; Powers of Committee. Subject to the
express provisions of this Plan, the Committee shall have the
authority:
5
<PAGE>
(i) To determine, from among those persons eligible, the particular
Eligible Employees who will receive any Awards;
(ii) To grant Awards to Eligible Employees, determine the price at
which securities will be offered or awarded and the amount of
securities to be offered or awarded to any of such persons, and
determine the other specific terms and conditions of such Awards
consistent with the express limits of this Plan, and establish
the installments (if any) in which such Awards shall become
exercisable or shall vest, or determine that no delayed
exercisability or vesting is required, and establish the events
of termination or reversion (if any) of such Awards;
(iii) To approve the forms of Award Agreements (which need not be
identical either as to type of Award or among Participants);
(iv) To construe and interpret this Plan and any agreements defining
the rights and obligations of the Company and Participants under
this Plan, further define the terms used in this Plan, and
prescribe, amend and rescind rules and regulations relating to
the administration of this Plan;
(v) To cancel, modify, or waive the Company's rights with respect to,
or modify, discontinue, suspend, or terminate, any or all
outstanding Awards held by Participants, subject to any required
consent under Section 7.6;
(vi) To accelerate or extend the exercisability or vesting extend the
term of any or all such outstanding Awards within the maximum
ten-year term of Awards under Section 1.7; and
(vii) To make all other determinations and take such other action as
contemplated by this Plan or as may be necessary or advisable for
the administration of this Plan and the effectuation of its
purposes.
(c) Binding Determinations. Any action taken by, or inaction of, the
Company, the Board or the Committee relating or pursuant to this Plan
shall be within the absolute discretion of that entity or body and
shall be conclusive and binding upon all persons. No member of the
Board or Committee, or officer of the Company, shall be liable for any
such action or inaction of the entity or body, of another person or,
except in circumstances involving bad faith, of himself or herself.
Subject only to compliance with the express provisions hereof, the
Board and Committee may act in their absolute discretion in matters
within their authority related to this Plan.
(d) Reliance on Experts. In making any determination or in taking or not
taking any action under this Plan, the Committee or the Board, as the
case may be, may obtain and may rely upon the advice of experts,
including professional advisors to the Company. No director, officer
or agent of the Company shall be liable for any such action or
determination taken or made or omitted in good faith.
6
<PAGE>
(e) Delegation. The Committee may delegate ministerial, non-discretionary
functions to individuals who are officers or employees of the Company.
1.4. Participation
Awards may be granted by the Committee only to those persons that the
Committee determines to be Eligible Employees. An Eligible Employee who has
been granted an Award may, if otherwise eligible, be granted additional Awards
if the Committee shall so determine. Non-Employee Directors shall be eligible
to receive Awards under this Plan only as specified in Section 2.8.
1.5. Shares Available for Awards
Subject to the provisions of Section 7.2, the capital stock that may be
delivered under this Plan shall be shares of the Company's authorized but
unissued Common Stock. The shares may be delivered for any lawful
consideration.
(a) Number of Shares. The maximum number of shares of Common Stock that
may be delivered pursuant to Awards granted to Eligible Employees
under this Plan shall not exceed 3,000,000 Shares subject to
subsection (c) below and the adjustments contemplated by Section 7.2.
The maximum number of Options and Stock Appreciation Rights (whether
payable in Shares, cash or any combination thereof) that may be
granted to an Eligible Employee during any one-year period shall not
exceed 500,000, subject to adjustment as contemplated in Section 7.2.
(b) Reservation of Shares. Common Stock subject to outstanding Awards of
derivative securities (as defined in Rule 16a-l(c) under the Exchange
Act) shall be reserved for issuance. If a Stock Appreciation Right or
similar right based on the increased market value of a specified
number of Shares is exercised or a Performance Share Award is paid,
the number of Shares to which such exercise or payment relates under
the applicable Award shall be charged against the maximum amount of
Shares that may be delivered pursuant to Awards under this Plan and,
if applicable, such Award. If the Company withholds Shares pursuant
to Section 2.2(b) or 7.5, the number of shares that would have been
deliverable with respect to an Award shall be reduced by the number of
shares withheld and such shares shall not be available for additional
Awards under this Plan. To the extent a Performance Share Award
constitutes an equity security (as this phrase is defined in Rule 16a-
1 under the Exchange Act) issued by the Company and is paid in Shares
the number of Shares (if any) subject to such Performance Share Award
shall be charged (but in the case of tandem or substituted Awards,
without duplication) against the maximum number of Shares that may be
delivered pursuant to Awards under this Plan.
(c) Cash Only Award Limit. Awards payable solely in cash under the Plan
and Awards payable either in cash or shares that are actually paid in
cash shall constitute and be referred to as "Cash Only Awards". The
number of Cash Only Awards shall be determined by reference to the
number of Shares by which the Award is measured. The maximum number
of Cash Only Awards that may be paid shall not, together
7
<PAGE>
with the aggregate number of Shares that may be delivered under
subsection (a), exceed 3,000,000, subject to adjustments under Section
7.2. Awards payable either in cash or shares shall not be counted
against the Cash Only Award limit if charged against the share limit
in subsection (a). Notwithstanding the foregoing, if an Award paid or
payable solely in cash satisfies the requirements for the exclusion
from the definition of a derivative security in Rule 16a-l(c) that
does not require that the award be made under a Rule 16b-3 plan, the
Award shall not be counted against any of the limits of this Section.
(d) Reissue of Awards. Subject to any restrictions under Rule 16b-3, the
shares which are subject to any unexercised, unconverted, unvested or
undistributed portion of any expired, canceled, terminated or
forfeited Award, or any alternative form of consideration under an
Award that is not paid in connection with the settlement of an Award
or any portion of an Award shall again be available for Award under
subsection (a) or (c) above, as applicable, provided the Participant
has not received dividends or Dividend Equivalents during the period
in which the Participant's ownership was restricted or otherwise not
vested. Shares that are issued pursuant to Awards and subsequently
reacquired by the Company pursuant to the terms and conditions of the
Awards also shall be available for reissuance under the Plan. Nothing
in this paragraph shall be interpreted to allow shares which are in
the possession of the Company pursuant to either Section 2.2(b) or 7.5
to be available for reissuance under the Plan.
(e) Interpretive Issues. Additional rules for determining the number of
shares or Cash Only Awards authorized under the Plan may be adopted by
the Committee as it deems necessary or appropriate; provided that such
rules are consistent with Rule 16b.
1.6. Grant of Awards
Subject to the express provisions of this Plan, the Committee shall
determine the number of Shares subject to each Award, and the price (if any) to
be paid for the Shares or the Award and, in the case of Performance Share
Awards, in addition to matters addressed in Section 1.3(b), the specific
objectives, goals and performance criteria (such as an increase in revenues,
market value, earnings or book value over a base period, the years of service
before vesting, the relevant job classification or level of responsibility or
other factors) that further define the terms of the Performance Share Award.
Each Award shall be evidenced by an Award Agreement signed by the Company and,
if required by the Committee, by the Participant.
1.7. Award Period
Each Award and all executory rights or obligations under the related Award
Agreement shall expire on such date (if any) as shall be determined by the
Committee, but, in the case of Options or other rights to acquire Shares, not
later than ten (10) years after the Award Date.
8
<PAGE>
1.8. Limitations on Exercise and Vesting of Awards
(a) Provisions for Exercise. Except as may otherwise be provided in an
Award Agreement or herein, no Award shall be exercisable or shall vest
until at least six months after the initial Award Date. Once
exercisable an Award shall remain exercisable until the expiration or
earlier termination of the Award, unless the Committee otherwise
provides.
(b) Procedure. Any exercisable Award shall be deemed to be exercised when
the Secretary of the Company receives written notice of such exercise
from the Participant, together with any required payment made in
accordance with Section 2.2(b).
(c) Fractional Shares/Minimum Issue. Fractional share interests shall be
disregarded, but may be accumulated. The Committee, however, may
determine that cash, other securities or other property will be paid
or transferred in lieu of any fractional share interests. No fewer
than 100 Shares may be purchased on exercise of any Award at one time
unless the number purchased is the total number at the time available
for purchase under the Award.
1.9. Acceptance of Notes to Finance Exercise
The Company may, with the Committee's approval, accept one or more notes
from any Participant in connection with the exercise or receipt of any
outstanding Award; provided that any such note shall be subject to the following
terms and conditions:
(a) The principal of the note shall not exceed the amount required to be
paid to the Company upon the exercise or receipt of one or more Awards
under the Plan and the note shall be delivered directly to the Company
in consideration of such exercise or receipt.
(b) The initial term of the note shall be determined by the Committee;
provided that the term of the note, including extensions, shall not
exceed a period of 10 years.
(c) The note shall provide for full recourse to the Participant and shall
bear interest at a rate determined by the Committee but not less than
the applicable imputed interest rate specified by the Code.
(d) Except as otherwise provided by the Committee, if the employment of
the Participant terminates, the unpaid principal balance of the note
shall become due and payable on the 10th business day after such
termination; provided, however, that if a sale of any Shares acquired
by the Participant in connection with an Award to which the note
relates would cause such Participant to incur liability under Section
16(b) of the Exchange Act, the unpaid balance shall become due and
payable on the 10th business day after the first day on which a sale
of such shares could have been made
9
<PAGE>
without incurring such liability assuming for these purposes that
there are no other transactions by the Participant subsequent to such
termination.
(e) If required by the Committee or by applicable law, the note shall be
secured by a pledge of any shares or rights financed thereby or any
other collateral determined by the Committee in compliance with
applicable law.
(f) The terms, repayment provisions, and collateral release provisions of
the note and the pledge securing the note shall conform with
applicable rules and regulations of the Federal Reserve Board as then
in effect and any other applicable banking rules and regulations.
1.10. No Transferability
(a) Awards may be exercised only by the Participant or, if the Participant
has died, the Participant's Beneficiary or, if the Participant has
suffered a Total Disability, the Participant's Personal
Representative, if any, or if there is none, the Participant, or (to
the extent permitted by applicable law and Rule 16b-3) a third party
pursuant to such conditions and procedures as the Committee may
establish. Other than by will or the laws of descent and distribution
or pursuant to a QDRO or other exception to transfer restrictions
under Rule 16b-3 (except to the extent not permitted in the case of an
Incentive Stock Option), no right or benefit under this Plan or any
Award, including, without limitation, any Option or shares of
Restricted Stock, that has not vested shall be transferable by the
Participant or shall be subject in any manner to anticipation,
alienation, sale, transfer, assignment, pledge, encumbrance or charge
(other than to the Company) and any such attempted action shall be
void. The Company shall disregard any attempt at transfer, assignment
or other alienation prohibited by the preceding sentences and shall
pay or deliver such cash or Shares in accordance with the provisions
of this Plan.
(b) The restrictions on exercise and transfer above shall not be deemed to
prohibit the authorization by the Committee of "cashless exercise"
procedures with unaffiliated third parties who provide financing for
the purpose of (or who otherwise facilitate) the exercise of Awards
consistent with applicable legal restrictions and Rule 16b-3, nor, to
the extent permitted by the Committee, transfers for estate and
financial planning purposes, notwithstanding that the inclusion of
such features may render the particular Awards ineligible for the
benefits of Rule 16b-3, nor, in the case of Participants who are not
Section 16 Persons, transfers to such other persons or in such other
circumstances as the Committee may in the Award Agreement or other
writing expressly permit.
II. EMPLOYEE OPTIONS
2.1. Grants
One or more Options may be granted under this Article to any Eligible
Employee, subject to the provisions of Section 1.5. Each Option granted may be
either an Option intended to be an
10
<PAGE>
Incentive Stock Option or an Option not so intended, and such intent shall be
indicated in the applicable Award Agreement.
2.2. Option Price
(a) Pricing Limits. Subject to Section 2.4, the purchase price per share
of the Common Stock covered by each Option shall be determined by the
Committee at the time the Option is granted, but shall not be less
than 100% of the Fair Market Value of the Common Stock on the date of
grant.
(b) Payment Provisions. The purchase price of any shares purchased on
exercise of an Option granted under this Article shall be paid in full
at the time of each purchase in one or a combination of the following
methods: (i) in cash or by electronic funds transfer; (ii) by check
payable to the order of the Company; (iii) if authorized by the
Committee or specified in the applicable Award Agreement, in cash in
an amount equal to the par value of the shares being purchased, and,
in the form of a promissory note (consistent with the requirements of
Section 1.9) of the Participant in an amount equal to the difference
between said cash amount and the purchase price of such shares; (iv)
by notice and third party payment in such manner as may be authorized
by the Committee; (v) by the delivery of Shares already owned by the
Participant, provided, however, that the Committee may in its absolute
discretion limit the Participant's ability to exercise an Award by
delivering such Shares; or (vi) if authorized by the Committee or
specified in the applicable Award Agreement, by reduction in the
number of Shares otherwise deliverable upon exercise by that number of
Shares which have a then Fair Market Value equal to such purchase
price. Previously owned Shares used to satisfy the exercise price of
an Option under clause (v) shall be valued at their Fair Market Value
on the date of exercise.
2.3. Limitations on Grant and Terms of Incentive Stock Options
(a) $100,000 Limit. To the extent that the aggregate "fair market value"
of Common Stock with respect to which Incentive Stock Options first
become exercisable by a Participant in any calendar year exceeds
$100,000, taking into account both Common Stock subject to Incentive
Stock Options under this Plan and stock subject to incentive stock
options under all other plans of the Company, such options shall be
treated as Nonqualified Stock Options. For this purpose, the "fair
market value" of the Common Stock subject to Options shall be
determined as of the date the Options were awarded. In reducing the
number of Options treated as Incentive Stock Options to meet the
$100,000 limit, the most recently granted Options shall be reduced
first. To the extent a reduction of simultaneously granted Options is
necessary to meet the $100,000 limit, the Committee may, in the manner
and to the extent permitted by law, designate which shares of Common
Stock are to be treated as shares acquired pursuant to the exercise of
an Incentive Stock Option.
(b) Option Period. Subject to Section 2.4, each Option and all rights
thereunder shall expire no later than ten years after the Award Date.
11
<PAGE>
(c) Other Code Limits. There shall be imposed in any Award Agreement
relating to Incentive Stock Options such terms and conditions as from
time to time are required in order that the Option be an "incentive
stock option" as that term is defined in Section 422 of the Code.
2.4. Limits on 10% Holders
No Incentive Stock Option may be granted to any person who, at the time the
Option is granted, owns (or is deemed to own under Section 424(d) of the Code)
shares of outstanding Common Stock possessing more than 10% of the total
combined voting power of all classes of stock of the Company, unless the
exercise price of such Option with respect to the Common Stock covered by the
Option is at least 110% of the Fair Market Value of the Common Stock subject to
the Option and such Option by its terms is not exercisable after the expiration
of five years from the date such Option is granted.
2.5. Option Repricing; Cancellation and Regrant; Waiver of Restrictions
Subject to Section 1.5 and Section 7.6 and the specific limitations on
Awards contained in this Plan, the Committee from time to time may authorize,
generally or in specific cases only, for the benefit of any Eligible Employee,
any adjustment in the exercise or purchase price, the number of shares subject
to, the restrictions upon or the term of, an Award granted under this Article by
cancellation of an outstanding Award and a subsequent regranting of an Award, by
amendment, by substitution of outstanding Award, by waiver or by other legally
valid means. Such amendment or other action may result among other changes in
an exercise or purchase price which is higher or lower than the exercise or
purchase price of the original or prior Award, provide for a greater or lesser
number of shares subject to the Award, or provide for a longer or shorter
vesting or exercise period. Notwithstanding the foregoing, any amendment or
other action must contain terms and provisions permitted under the terms of this
Plan as if the Option were granted on the date of the amendment.
2.6. Dividend Equivalents
The Committee may, at the time of granting an Option, grant Dividend
Equivalents attributable to Shares subject to the Option. Dividend Equivalents
shall be paid in cash only to the extent the Option is unexercised as of the
dividend record date, as specified in the Award Agreement, as follows: the
Dividend Equivalent per Share shall be multiplied by the number of Shares
subject to Option and an amount equal to the product so derived shall be paid in
cash to the Participant on the dividend payment date. The Committee may, in the
Award, specify that Dividend Equivalents shall be paid only for a specified time
period or only as to that portion of the Option that has vested.
2.7. Surrender of Stock Options
The Committee, in its sole discretion, shall have the authority under the
circumstances set forth herein to agree mutually with a Participant to grant
such Participant the right on such terms and conditions as the Committee may
prescribe, to surrender such Participant's Options to the Company for
cancellation and to receive upon such surrender a cash payment equal to the
Spread
12
<PAGE>
applicable to such surrendered Option. Such right shall be made available only
in the event of an Offer (as defined in the following paragraph).
The term "Offer" as used in this Section means any tender offer or exchange
offer for Shares, other than one made by the Company, provided that the
corporation, person or other entity making the offer acquires Shares pursuant to
such offer.
The term "Offer Price per Share" as used in this Section means the highest
price per share paid on any Offer which is in effect at any time during the
period beginning on the sixtieth day prior to the date on which the Option is
surrendered pursuant to this Section and ending on such date of surrender. Any
securities or property which are part or all of the consideration paid for
shares in the Offer shall be valued in determining the Offer Price per Share at
the higher of (a) the valuation placed on such securities or property by any
other corporation, person or entity making the Offer or (b) the valuation placed
on such securities or property by the Committee.
The term "Spread" as used in this Section means with respect to any
surrendered Option and associated right, if any, an amount equal to the product
computed by multiplying (i) the excess of (A) the Offer Price per Share or the
highest market price per share of the Company's Common Stock during the period
beginning on the sixtieth day prior to the date on which the Stock Option is
surrendered pursuant to this Section and ending on such date of surrender over
(B) the purchase price per share at which the surrendered Option is then
exercisable, by (ii) the number of shares subject to such Option with respect to
which it has not theretofore been exercised.
2.8. Special Requirements for Director Stock Options
(a) Eligibility. All directors of the Company who are not employees of
the Company shall be eligible to receive Director Stock Options, as
set forth in this Section 2.8. Notwithstanding the foregoing, any
director who is, or who during the preceding calendar year was, a
member of the Committee or any committee administering any other stock
option, stock appreciation, stock bonus or other stock plan of the
Company or any Subsidiary will not be eligible to receive Director
Stock Options hereunder if, in the opinion of counsel for the Company,
the receipt of Director Stock Options will cause such director to
cease to be a "disinterested person" with respect to the Plan or any
other stock option, stock appreciation, stock bonus or other stock
plan of the Company or any Subsidiary pursuant to Rule 16b-3 of the
Securities and Exchange Commission, or will otherwise disqualify the
Plan or any other such plan from compliance with said rule.
(b) Grant of Director Options. Every eligible director will receive
Director Stock Options having a value equal to the Retainer Amount for
the year beginning on the date of each annual meeting of shareholders.
Director Stock Options shall be granted automatically to each such
eligible director on the business day following such annual meeting of
shareholders, without further action of the Committee or the Board.
The number of Director Stock Options granted hereunder shall be
determined according to the following formula, rounded to the nearest
share: The Retainer Amount shall be divided by the Fair Market Value
of a share of stock on
13
<PAGE>
the date of the annual meeting of shareholders immediately preceding
the grant less $1.00. The "Retainer Amount" shall be $3,000.
(c) Stock Option Price. The purchase price of stock pursuant to a
Director Stock Option shall be $1.00 per share.
(d) Other Terms of Director Stock Options. Each Director Stock Option
shall become exercisable six (6) months after the date of grant.
Unless otherwise determined by the Committee, if the holder of
Director Stock Options ceases to serve as a director of the Company
for any reason other than for cause, the Director Stock Options shall
expire at the end of their fixed term or three months after the date
of such termination, and until then shall be exercisable in full,
regardless of any vesting schedule otherwise applicable. Except as
set forth in this Section 2.8, all terms and provisions of the
Director Stock Options shall be as set forth in the Plan with respect
to Options which are not Director Stock Options.
III. STOCK APPRECIATION RIGHTS
3.1. Grants
In its discretion, the Committee may grant to any Eligible Employee Stock
Appreciation Rights either concurrently with the grant of another Award or in
respect of an outstanding Award, in whole or in part, or independently of any
other Award. Any Stock Appreciation Right granted in connection with an
Incentive Stock Option shall contain such terms as may be required to comply
with the provisions of Section 422 of the Code and the regulations promulgated
thereunder.
3.2. Exercise of Stock Appreciation Rights
(a) Exercisability. A Stock Appreciation Right related to another Award
shall be exercisable at such time or times, and to the extent, that
the related Award shall be exercisable, provided, however, that any
exercise of any Stock Appreciation Right hereunder shall be made
beginning on the third business day following the date of release of
the financial data specified in paragraph (e)(1)(ii) of Rule 16b-3 of
the regulations promulgated under the Securities Exchange Act of 1934
and ending on the twelfth business day following such date or at such
other time as may be permitted under an agreement or successor rule.
(b) Effect on Available Shares. In the event that a Stock Appreciation
Right is exercised, the number of Shares subject to the Award shall be
charged against the number of Shares subject to the Stock Appreciation
Right and the related Option of the Participant.
(c) Stand-Alone SARs. A Stock Appreciation Right granted independently of
any other Award shall be exercisable pursuant to the terms of the
Award Agreement but, unless the Committee determines otherwise, in no
event earlier than six months after the Award Date.
14
<PAGE>
3.3. Payment
(a) Amount. Unless the Committee otherwise provides, upon exercise of a
Stock Appreciation Right, the Participant shall be entitled to receive
payment of an amount determined by multiplying
(i) The difference obtained by subtracting the exercise price per
Share under the related Award (if applicable) or the initial
share value specified in the Award from the Fair Market Value of
a Share on the date of exercise of the Stock Appreciation Right,
by
(ii) The number of Shares with respect to which the Stock Appreciation
Right shall have been exercised.
Notwithstanding the above, the Committee may place a maximum
limitation on the amount payable upon exercise of a Stock Appreciation
Right. Such limitation, however, must be determined as of the date of
the grant and noted on the instrument evidencing the Stock
Appreciation Right granted hereunder.
(b) Form of Payment. The Committee, in its sole discretion, shall
determine the form in which payment shall be made of the amount
determined under paragraph (a) above, either solely in cash, solely in
Shares (valued at Fair Market Value on the date of exercise of the
Stock Appreciation Right), or partly in such Shares and partly in
cash, provided that the Committee shall have determined that such
exercise and payment are consistent with applicable law. If the
Committee permits the Participant to elect to receive cash or Shares
(or a combination thereof) on such exercise, any such election shall
be subject to such conditions as the Committee may impose and, in the
case of any Section 16 Person, any election to receive cash shall be
subject to any applicable limitations under Rule 16b-3.
IV. RESTRICTED STOCK AWARDS
4.1. Grants
The Committee may, in its discretion, grant one or more Restricted Stock
Awards to any Eligible Employee. Each Restricted Stock Award Agreement shall
specify the number of Shares to be issued, the date of such issuance, the
consideration for such Shares (but not less than the minimum lawful
consideration) to be paid, if any, by the Participant and the restrictions
imposed on such Shares and the conditions of release or lapse of such
restrictions. Such restrictions shall not lapse earlier than six months after
the Award Date, except to the extent the Committee may otherwise provide. Stock
certificates evidencing shares of Restricted Stock pending the lapse of the
restrictions ("restricted shares") shall bear a legend making appropriate
reference to the restrictions imposed hereunder and shall be held by the Company
or by a third party designated by the Committee until the restrictions on such
shares shall have lapsed and the shares shall have vested in accordance with the
provisions of the Award and Section 1.8. Upon issuance of the Restricted Stock
Award, the Participant may be required to provide such further assurance and
documents as the Committee may require to enforce the restrictions.
15
<PAGE>
4.2. Restrictions
(a) Pre-Vesting Restraints. Except as provided in Section 1.10 and 4.1,
restricted shares comprising any Restricted Stock Award may not be
sold, assigned, transferred, pledged or otherwise disposed of or
encumbered either voluntarily or involuntarily, until such shares have
vested.
(b) Dividend and Voting Rights. Unless otherwise provided in the
applicable Award Agreement, a Participant receiving a Restricted Stock
Award shall be entitled to cash dividend and voting rights for all
shares issued even though they are not vested, provided that such
rights shall terminate immediately as to any restricted shares which
cease to be eligible for vesting.
(c) Cash Payments. If the Participant shall have paid or received cash
(including any dividends) in connection with the Restricted Stock
Award, the Award Agreement shall specify whether and to what extent
such cash shall be returned (with or without an earnings factor) as to
any restricted shares which cease to be eligible for vesting.
4.3. Return to the Company
Unless the Committee otherwise expressly provides, shares of Restricted
Stock that are subject to restrictions at the time of termination of employment
or are subject to other conditions to vest that have not been satisfied by the
time specified in the applicable Award Agreement shall not vest and shall be
returned to the Company in such manner and on such terms as the Committee shall
therein provide.
V. PERFORMANCE SHARE AWARDS AND STOCK BONUSES
5.1. Grants of Performance Share Awards
The Committee may, in its discretion, grant one or more Performance Share
Awards to any Eligible Employee based upon such factors, which in the case of
any Award to a Section 16 Person shall include but not be limited to the
contributions, responsibilities and other compensation of the person, as the
Committee shall deem relevant in light of the specific type and terms of the
Award. An Award Agreement shall specify the maximum number of Shares (if any)
subject to the Performance Share Award, the consideration (but not less than the
minimum lawful consideration) to be paid for any such Shares as may be issuable
to the Participant, the duration of the Award and the conditions upon which
delivery of any Shares or cash to the Participant shall be based. The amount of
Shares that may be deliverable pursuant to such Award shall be based upon the
degree of attainment over a specified period (a "performance cycle") as may be
established by the Committee of such measure(s) of the performance of the
Company (or any part thereof) or the Participant as may be established by the
Committee. The Committee may provide for full or partial credit, prior to
completion of such performance cycle or the attainment of the performance
achievement specified in the Award, in the event of the Participant's death,
Retirement, or Total Disability, a Change in Control Event or in such other
circumstances as the Committee, consistent with Section 7.10(c)(2), if
applicable, may determine.
16
<PAGE>
5.2. Grants of Stock Bonuses
The Committee may grant a stock bonus to any Eligible Employee to reward
exceptional or special services, contributions or achievements in the manner and
on such terms and conditions (including any restrictions on such shares) as
determined from time to time by the Committee.
The number of Shares so awarded shall be determined by the Committee. The
stock bonus may be granted independently or in lieu of a cash bonus.
5.3. Deferred Payments
The Committee may authorize for the benefit of any Eligible Employee the
deferral of any payment of cash or Shares that may become due or of cash
otherwise payable under this Plan, and provide for accreted benefits thereon
based upon such deferment, at the election or at the request of such
Participant, subject to the other terms of this Plan. Such deferral shall be
subject to such further conditions, restrictions or requirements as the
Committee may impose, subject to any then vested rights of Participants.
VI. TAX OFFSET BONUS RIGHTS
6.1. Grants
The Committee may, in its discretion, grant Tax Offset Bonus Rights to
selected Participants. Such rights shall be evidenced by Tax Offset Bonus
Rights agreements on the terms and conditions set forth in the Plan, which
agreements shall specify the amount or method of calculating the amount of the
rights being granted and may contain such other terms and conditions as are not
inconsistent with the purposes and provisions of the Plan. Each Tax Offset
Bonus Right must relate to a specific Nonqualified Stock Option granted under
Section II of the Plan. Tax Offset Bonus Rights granted in relation to a
specific Nonqualified Stock Option shall be granted either concurrently or at
such later time as determined by the Committee. The amount of any Tax Offset
Bonus Right may be, but is not required to be, calculated as a specified
percentage of the excess of the Fair Market Value of a share of the Company's
Common Stock on the date when the right is exercised over the price per share
under the Option exercised concurrently with the exercise of such right.
6.2. Tax Offset Bonus Rights Period
Each Tax Offset Bonus Right and all rights or obligations thereunder shall
expire upon the expiration of the related Nonqualified Stock Option. In no
event may a Tax Offset Bonus Right be exercised later than the tenth anniversary
of the date on which the Tax Offset Bonus Right is granted, and shall be subject
to earlier termination as hereinafter provided.
6.3. Exercise of Rights
Tax Offset Bonus Rights shall be exercisable to the extent, and only to the
extent, the related Nonqualified Stock Option is exercisable. Tax Offset Bonus
Rights shall only be exercisable concurrently with the exercise of the related
Nonqualified Stock Option; any exercise of the
17
<PAGE>
Nonqualified Stock Option shall also be deemed an exercise of the equivalent
number of Tax Offset Bonus Rights.
Each holder of a Tax Offset Bonus Right shall agree to give the Committee
prompt written notice of an election made by such holder to exercise said Tax
Offset Bonus Rights subject to the approval of the Committee.
Despite any other provision of the Plan, the Committee may impose such
conditions on exercise of Tax Offset Bonus Rights as may be required to satisfy
the requirements of Rule 16b-3 (or any successor rule), promulgated by the
Securities and Exchange Commission pursuant to the Securities Exchange Act of
1934.
Any exercise of a Tax Offset Bonus Right hereunder shall be made
beginning on the third business day following the date of release of the
financial data specified in paragraph (e)(1)(ii) of Rule 16b-3 of the
regulations promulgated under the Securities Exchange Act of 1934 and ending on
the twelfth business day following such date or at such other time as may be
permitted under an amendment or successor rule.
6.4. Payments
Upon the exercise of a Tax Offset Bonus Right, the Company shall deliver to
the person exercising such right the amount of the right being exercised,
calculated as specified in the Tax Offset Bonus Right agreement with respect
thereto. Payment shall be in either cash, Common Stock or a combination
thereof, as the Committees shall determine. No fractional shares will be
issued.
6.5. Termination of Employment
Unless otherwise determined by the Committee, in the event a Participant
ceases to be an employee of the Company for any reason, any Tax Offset Bonus
Right will be exercisable only to the extent that any related Nonqualified Stock
Option is exercisable under the applicable provisions of the Plan and related
Award Agreement.
VII. OTHER PROVISIONS
7.1. Rights of Eligible Employees, Participants and Beneficiaries
(a) Employment Status. Status as an Eligible Employee shall not be
construed as a commitment that any Award will be made under this Plan
to an Eligible Employee or to Eligible Employees generally.
(b) No Employment Contract. Nothing contained in this Plan (or in any
other documents related to this Plan or to any Award) shall confer
upon any Eligible Employee or Participant any right to continue in the
employ or other service of the Company or constitute any contract or
agreement of employment or other service, nor shall interfere in any
way with the right of the Company to change such person's compensation
or other benefits or to terminate the employment of such person, with
18
<PAGE>
or without cause, but nothing contained in this Plan or any document
related hereto shall adversely affect any independent contractual
right of such person without his or her consent thereto.
(c) Plan Not Funded. Awards payable under this Plan shall be payable in
Shares or from the general assets of the Company, and no special or
separate reserve, fund or deposit shall be made to assure payment of
such Awards. No Participant, Beneficiary or other person shall have
any right, title or interest in any fund or in any specific asset
(including shares of Common Stock except as expressly otherwise
provided) of the Company by reason of any Award hereunder. Neither
the provisions of this Plan (or of any related documents), nor the
creation or adoption of this Plan, nor any action taken pursuant to
the provisions of this Plan shall create, or be construed to create, a
trust of any kind or a fiduciary relationship between the Company and
any participant, Beneficiary or other person. To the extent that a
Participant, Beneficiary or other person acquires a right to receive
payment pursuant to any Award hereunder, such right shall be no
greater than the right of any unsecured general creditor of the
Company.
7.2. Adjustments; Acceleration
(a) Adjustments. If the outstanding shares of Common Stock are changed
into or exchanged for cash, other property or a different number or
kind of shares or securities of the Company, or if additional shares
or new or different securities are distributed with respect to the
outstanding shares of Common Stock, through a reorganization or merger
in which the Company is the surviving entity, or through a
combination, consolidation, recapitalization, reclassification, stock
split, stock dividend, reverse stock split, stock consolidation,
dividend or distribution of cash or property to the shareholders of
the Company or if there shall occur any other extraordinary corporate
transaction or event in respect of the Common Stock or a sale of
substantially all the assets of the Company as an entirety which in
the judgment of the Committee materially affects the Common Stock,
then the Committee shall, in such manner and to such extent (if any)
as it deems appropriate and equitable (1) proportionately adjust any
or all terms of outstanding Awards including, but not limited to (A)
the number and kind of shares of Common Stock or other consideration
that is subject to or may be delivered under this Plan and pursuant to
outstanding Awards, (B) the consideration payable with respect to
Awards granted prior to any such change and the price, if any, paid in
connection with Restricted Stock Awards or (C) the performance
standards appropriate to any outstanding Awards; or (2) in the case of
an extraordinary dividend or other distribution, merger,
reorganization, consolidation, combination, sale of assets, split up,
exchange, or spin off, make provision for a cash payment or for the
substitution or exchange of any or all outstanding Awards or the cash,
securities or property deliverable to the holder of any or all
outstanding Awards based upon the distribution or consideration
payable to holders of Common Stock upon or in respect of such event;
provided, however, in each case, that with respect to Awards of
Incentive Stock Options, no such adjustment shall be made which would
cause the Plan to violate Section 422 or 424(a) of the Code or any
successor provisions thereto.
19
<PAGE>
Corresponding adjustments shall be made with respect to any Stock
Appreciation Rights based upon the adjustments made to the Options to
which they are related. In any of such events, the Committee may take
such action sufficiently prior to such event if necessary to permit
the Participant to realize the benefits intended to be conveyed with
respect to the underlying shares in the same manner as is available to
shareholders generally.
(b) Acceleration of Awards Upon Change in Control. As to any or all
Participants, upon the occurrence of a Change in Control Event (i)
each Option and Stock Appreciation Right shall become immediately
exercisable, (ii) Restricted Stock shall immediately vest free of
restrictions, and (iii) each Performance Share Award shall become
payable to the Participant; provided, however, that in no event shall
any Award be accelerated as to any Section 16 Person to a date less
than six months after the Award Date of such Award. Notwithstanding
the foregoing, prior to a Change in Control Event, the Committee may
determine that, upon its occurrence, there shall be no acceleration of
benefits under Awards or determine that only certain or limited
benefits under Awards shall be accelerated and the extent to which
they shall be accelerated, and/or establish a different time in
respect of such event for such acceleration. In that event, the
Committee will make provision in connection with such transaction for
continuance of the Plan and the assumption of Options and Awards
theretofore granted, or the substitution for such with new Options and
Awards covering the stock of a successor employer corporation, or a
parent or subsidiary thereof, with appropriate adjustments as to
number and kind of shares and prices. In addition, the Committee may
override the limitations on acceleration in this Section 7.2(b) by
express provision in the Award Agreement and may accord any
Participant a right to refuse any acceleration, whether pursuant to
the Award Agreement or otherwise, in such circumstances as the
Committee may approve. Any acceleration of Awards shall comply with
applicable regulatory requirements. including without limitation
Section 422 of the Code.
(c) Possible Early Termination of Accelerated Awards. If any Option or
other right to acquire Shares under this Plan has not been exercised
prior to (i) a dissolution of the Company, (ii) a reorganization event
described in Section 7.2(a) that the Company does not survive, or
(iii) the consummation of a reorganization event described in Section
7.2(a) that results in a Change in Control Event approved by the Board
and no provision has been made for the survival, substitution,
exchange or other settlement of such Option or right, such Option or
right shall thereupon terminate.
7.3. Effect of Termination of Employment
The Committee shall establish in respect of each Award granted to an
Eligible Employee the effect of a termination of employment on the rights and
benefits thereunder and in so doing may make distinctions based upon the cause
of termination, e.g., retirement, early retirement, termination for cause,
disability or death. Notwithstanding any terms to the contrary in an Award
Agreement or this Plan, the Committee may decide in its complete discretion to
extend the exercise period of an Award (although not beyond the period described
in Section 2.3(b)) and the number of shares covered by the Award with respect to
which the Award is exercisable or vested.
20
<PAGE>
7.4. Compliance with Laws
This Plan, the granting and vesting of Awards under this Plan and the
offer, issuance and delivery of Shares and/or the payment of money under this
Plan or under Awards granted hereunder are subject to compliance with all
applicable federal and state laws, rules and regulations (including, but not
limited to, state and federal securities laws and federal margin requirements)
and to such approvals by any listing, regulatory or governmental authority as
may, in the opinion of counsel for the Company, be necessary or advisable in
connection therewith. Any securities delivered under this Plan shall be subject
to such restrictions, and the person acquiring such securities shall, if
requested by the Company, provide such assurances and representations to the
Company as the Company may deem necessary or desirable to assure compliance with
all applicable legal requirements.
7.5. Tax Withholding
(a) Cash or Shares. Upon any exercise, vesting, or payment of any Award,
the Company shall have the right at its option to (i) require the
Participant (or Personal Representative or Beneficiary, as the case
may be) to pay or provide for payment of the amount of any taxes which
the Company may be required to withhold with respect to such
transaction or (ii) deduct from any amount payable in cash the amount
of any taxes which the Company may be required to withhold with
respect to such cash amount. In any case where a tax is required to
be withheld in connection with the delivery of Shares under this Plan,
the Committee may grant (either at the time of the Award or
thereafter) to the Participant the right to elect, or the Committee
may require (either at the time of the Award or thereafter), pursuant
to such rules and subject to such conditions as the Committee may
establish, to have the Company reduce the number of shares to be
delivered by the appropriate number of shares valued at their then
Fair Market Value, to satisfy such withholding obligation.
(b) Tax Loans. The Committee may, in its discretion, authorize a loan to
an Eligible Employee in the amount of any taxes which the Company may
be required to withhold with respect to Shares received (or disposed
of, as the case may be) pursuant to a transaction described in
subsection (a) above. Such a loan shall be for a term, at a rate of
interest and pursuant to such other terms and conditions as the
Committee, under applicable law, may establish and such loan need not
comply with the provisions of Section 1.9.
7.6. Plan Amendment, Termination and Suspension
(a) Board Authorization. The Board may, at any time, terminate or, from
time to time, amend, modify or suspend this Plan, in whole or in part.
No Awards may be granted during any suspension of this Plan or after
termination of this Plan, but the Committee shall retain jurisdiction
as to Awards then outstanding in accordance with the terms of this
Plan. Any suspension will not affect the expiration of the Plan set
forth in Section 7.9.
21
<PAGE>
(b) Shareholder Approval. If any amendment would (i) materially increase
the benefits accruing to participants under this Plan, (ii) materially
increase the aggregate number of securities that may be issued under
this Plan, or (iii) materially modify the requirements as to
eligibility for participation in this Plan, then to the extent then
required by Rule 16b-3 to secure benefits thereunder or to avoid
liability under Section 16 of the Exchange Act (and Rules thereunder)
or required under Section 424 of the Code or any other applicable law,
or deemed necessary or advisable by the Board, such amendment shall be
subject to shareholder approval. Notwithstanding the foregoing, the
provisions of Section 2.8 shall not be amended more than once every
six months other than to comport with changes in the Code, ERISA or
the rules thereunder.
(c) Amendments to Awards. Without limiting any other express authority of
the Committee under, but subject to the express limits of, this Plan,
the Committee by agreement or resolution may waive conditions of or
limitations on Awards that the Committee in the prior exercise of its
discretion has imposed, without the consent of the Participant, and
may make other changes to the terms and conditions of Awards that do
not affect in any manner materially adverse to the Participant his or
her rights and benefits under an Award.
(d) Limitations on Amendments to Plan and Awards. No amendment,
suspension or termination of the Plan or change of or affecting any
outstanding Award shall, without written consent of the Participant,
affect in any manner materially adverse to the Participant any rights
or benefits of the Participant or obligations of the Company under any
Award granted under this Plan prior to the effective date of such
change. Changes contemplated by Section 7.2 shall not be deemed to
constitute changes or amendments for purposes of this Section 7.6.
7.7. Privileges of Stock Ownership
Except as otherwise expressly authorized by the Committee or this Plan, a
Participant shall not be entitled to any privilege of stock ownership as to any
Shares not actually delivered to and held of record by him or her. No
adjustment will be made for dividends or other rights as a shareholder for which
a record date is prior to such date of delivery.
7.8. Effective Date of the Plan
This Plan shall be effective as of February 22, 1995, the date of Board
approval, subject to shareholder approval within 12 months thereafter.
7.9. Term of the Plan
No Award shall be granted more than ten years after the effective date of
this Plan (the "termination date"). Unless otherwise expressly provided in this
Plan or in an applicable Award Agreement, any Award thereto granted may extend
beyond such date, and all authority of the Committee with respect to Awards
hereunder shall continue during any suspension of this Plan and in respect of
outstanding Awards on such termination date.
22
<PAGE>
7.10. Governing Law; Construction; Severability
(a) Choice of Law. This Plan, the Awards, all documents evidencing Awards
and all other related documents shall be governed by, and construed in
accordance with the laws of the State of California applicable to
contracts made and performed within such State, except as such laws
may be supplanted by the laws of the United States of America, which
laws shall then govern its effect and its construction to the extent
they supplant California law.
(b) Severability. If any provision shall be held by a court of competent
jurisdiction to be invalid and unenforceable, the remaining provisions
of this Plan shall continue in effect.
(c) Plan Construction.
(i) It is the intent of the Company that this Plan and Awards hereunder
satisfy and be interpreted in a manner that in the case of
Participants who are or may be subject to Section 16 of the Exchange
Act satisfies the applicable requirements of Rule 16b-3 so that such
persons will be entitled to the benefits of Rule 16b-3 or other
exemptive rules under Section 16 of the Exchange Act and will not be
subjected to avoidable liability thereunder. If any provision of this
Plan or of any Award or any prior action by the Committee would
otherwise frustrate or conflict with the intent expressed above, that
provision to the extent possible shall be interpreted and deemed
amended so as to avoid such conflict, but to the extent of any
remaining irreconcilable conflict with such intent as to such persons
in the circumstances, such provision shall be deemed void.
(ii) It is the further intent of the Company that options or Stock
Appreciation Rights with an exercise or base price not less than Fair
Market Value on the date of grant, that are granted to or held by a
Section 16 Person, shall qualify as performance-based compensation
under Section 162(m) of the Code, and this Plan shall be interpreted
consistent with such intent.
7.11. Captions
Captions and headings are given to the sections and subsections of this
Plan solely as a convenience to facilitate reference. Such headings shall not
be deemed in any way material or relevant to the construction or interpretation
of the Plan or any provision thereof.
7.12. Non-Exclusivity of Plan
Nothing in this Plan shall limit or be deemed to limit the authority of the
Board or the Committee to grant awards or authorize any other compensation, with
or without reference to the Common Stock under any other plan or authority.
23
<PAGE>
EXHIBIT 21
Parent and Subsidiaries
------------------------------
| CITY NATIONAL CORPORATION |
------------------------------
|
------------------------------
| CITY NATIONAL BANK |
------------------------------
|
-------------------------------------------------------------
| | | |
- --------------------- ----------------- ----------------- -----------------
| CITY NATIONAL | | CITINATIONAL | | CITY NATIONAL | | CITY NATIONAL |
|FINANCIAL SERVICES,| | BANCORPORATION| | MORTGAGE | | PROPERTIES |
| INC. | | | | COMPANY | | INC. |
- --------------------- ----------------- ----------------- -----------------
City National Corporation is a corporation organized under the laws of the
State of Delaware. City National Bank is a national banking association
organized under the laws of the United States of America. Each of the other
above-named subsidiaries is a corporation organized under the laws of the State
of California. Registrant owns 100% of the outstanding capital stock of City
National Bank ("Bank"). The Bank owns 100% of the outstanding common stock of
Citinational Bancorporation, City National Mortgage Company, City National
Properties, Inc. and City National Financial Services. The consolidated
financial statements in the Registrant's Annual Report to Shareholders include
Registrant, Bank, City National Financial Services, Inc., Citinational
Bancorporation, City National Properties, Inc. and City National Mortgage
Company.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
City National Corporation:
We consent to incorporation by reference in the registration statements (Nos.
33-32543, 33-38029 and 33-37471) on Form S-8 of City National Corporation of our
report dated January 17, 1996, relating to the consolidated balance sheet of
City National Corporation and subsidiaries (the "Company") as of December 31,
1995 and 1994, and the related consolidated statements of operations, changes in
shareholders' equity and cash flows for each of the years in the three-year
period ended December 31, 1995, which report appears in the December 31, 1995
Annual Report on Form 10-K of City National Corporation.
KPMG PEAT MARWICK LLP
Los Angeles, California
March 13, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 339,737
<INT-BEARING-DEPOSITS> 80,696
<FED-FUNDS-SOLD> 351,803
<TRADING-ASSETS> 29,728
<INVESTMENTS-HELD-FOR-SALE> 865,401
<INVESTMENTS-CARRYING> 110,006
<INVESTMENTS-MARKET> 110,524
<LOANS> 2,346,611
<ALLOWANCE> 131,514
<TOTAL-ASSETS> 4,157,551
<DEPOSITS> 3,248,035
<SHORT-TERM> 453,453
<LIABILITIES-OTHER> 64,106
<LONG-TERM> 25,000
0
0
<COMMON> 45,554
<OTHER-SE> 321,403
<TOTAL-LIABILITIES-AND-EQUITY> 4,157,551
<INTEREST-LOAN> 168,862
<INTEREST-INVEST> 39,704
<INTEREST-OTHER> 9,028
<INTEREST-TOTAL> 217,594
<INTEREST-DEPOSIT> 32,039
<INTEREST-EXPENSE> 55,331
<INTEREST-INCOME-NET> 162,263
<LOAN-LOSSES> 0
<SECURITIES-GAINS> (596)
<EXPENSE-OTHER> 118,076
<INCOME-PRETAX> 78,753
<INCOME-PRE-EXTRAORDINARY> 78,753
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 48,792
<EPS-PRIMARY> 1.06
<EPS-DILUTED> 1.06
<YIELD-ACTUAL> 8.37
<LOANS-NON> 48,124
<LOANS-PAST> 6,496
<LOANS-TROUBLED> 8,048
<LOANS-PROBLEM> 19,100
<ALLOWANCE-OPEN> 105,343
<CHARGE-OFFS> 17,041
<RECOVERIES> 24,135
<ALLOWANCE-CLOSE> 131,514
<ALLOWANCE-DOMESTIC> 131,514
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
