<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter ended March 31, 1998 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.)
City National Center
400 North Roxbury Drive, Beverly Hills, California 90210
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (310) 888-6000
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
YES X NO
---------------- -----------------
Number of shares of common stock outstanding at April 30, 1998: 46,742,882
<PAGE>
PART 1 - FINANCIAL INFORMATON
ITEM 1. FINANCIAL STATEMENTS
CITY NATIONAL CORPORATION
CONSOLIDATED BALANCE SHEET
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31, March 31,
Dollars in thousands, except share amounts 1998 1997 1997
- ------------------------------------------ ----------- ----------- -----------
<S> <C> <C> <C>
Assets
Cash and due from banks ................................................. $ 374,309 $ 327,398 $ 268,911
Interest-bearing deposits in other banks ................................ 275 301 1,160
Federal funds sold ...................................................... 280,000 150,000 60,000
Investment securities (fair value $220,785; $227,465 and $212,117 at
March 31, 1998, December 31, 1997 and March 31, 1997, respectively) ... 219,395 225,934 214,820
Securities available-for-sale (cost $595,603; $597,910 and $611,254 at
March 31, 1998, December 31, 1997 and March 31, 1997, respectively) ... 606,313 607,188 602,631
Trading account securities .............................................. 29,484 30,279 39,639
Loans ................................................................... 4,052,046 3,825,224 3,302,001
Less allowance for credit losses ........................................ 137,043 137,761 137,614
----------- ----------- -----------
Net loans ............................................................. 3,915,003 3,687,463 3,164,387
Premises and equipment, net ............................................. 44,839 43,402 32,798
Customers' acceptance liability ......................................... 2,110 1,553 1,988
Other real estate ....................................................... 2,900 2,126 18,958
Deferred tax asset ...................................................... 54,109 58,815 51,834
Goodwill and core deposit intangibles ................................... 73,012 54,921 63,207
Bank owned life insurance ............................................... 40,457 -- --
Other assets ............................................................ 59,916 62,652 63,312
----------- ----------- -----------
Total assets .......................................................... $ 5,702,122 $ 5,252,032 $ 4,583,645
----------- ----------- -----------
----------- ----------- -----------
Liabilities
Demand deposits ......................................................... $ 1,999,820 $ 2,027,014 $ 1,547,850
Interest checking deposits .............................................. 384,642 439,071 375,186
Money market deposits ................................................... 851,413 773,291 813,155
Savings deposits ........................................................ 167,592 171,100 174,072
Time deposits-under $100,000 ............................................ 210,971 204,744 240,054
Time deposits-$100,000 and over ......................................... 755,645 613,128 489,680
----------- ----------- -----------
Total deposits ........................................................ 4,370,083 4,228,348 3,639,997
Federal funds purchased and securities sold under repurchase agreements . 374,275 206,427 130,131
Other short-term borrowings ............................................. 162,969 212,575 262,339
Subordinated debt ....................................................... 124,004 -- --
Other long-term debt .................................................... 75,000 50,000 34,800
Other liabilities ....................................................... 55,642 44,459 49,115
Acceptances outstanding ................................................. 2,110 1,553 1,988
----------- ----------- -----------
Total liabilities ..................................................... 5,164,083 4,743,362 4,118,370
----------- ----------- -----------
Commitments and contingencies
Subsequent events
Shareholders' Equity
Preferred Stock authorized - 5,000,000, none outstanding ................ -- -- --
Common Stock-par value-$1.00; authorized - 75,000,000
Issued- 46,831,840; 46,700,891 and 46,694,668 shares at March 31, 1998,
December 31, 1997 and March 31, 1997, respectively) ................... 46,832 46,701 46,695
Additional paid-in capital .............................................. 296,067 297,654 300,102
Other comprehensive income (loss) ....................................... 6,143 5,349 (4,973)
Retained earnings ....................................................... 189,000 173,089 126,163
Treasury shares, at cost - 1,305; 563,928 and 135,475 shares at March 31,
1998, December 31, 1997 and March 31, 1997, respectively) ............. (3) (14,123) (2,712)
----------- ----------- -----------
Total shareholders' equity ............................................ 538,039 508,670 465,275
----------- ----------- -----------
Total liabilities and shareholders' equity ............................ $ 5,702,122 $ 5,252,032 $ 4,583,645
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
See accompanying Notes to the Unaudited Consolidated Financial Statements
2
<PAGE>
CITY NATIONAL CORPORATION
CONSOLIDATED STATEMENT OF INCOME AND COMPREHENSIVE INCOME
(Unaudited)
<TABLE>
<CAPTION>
For the quarter ended March 31,
-------------------------------
In thousands, except per share amounts 1998 1997
- -------------------------------------- -------- --------
<S> <C> <C>
Interest Income
Loans ............................................... $ 90,074 $ 70,011
Federal funds sold and securities purchased under
resale agreements ................................. 510 312
Investment securities ............................... 3,085 3,028
Securities available-for-sale ....................... 9,181 9,517
Trading account ..................................... 598 439
-------- --------
Total ............................................. 103,448 83,307
-------- --------
Interest Expense
Deposits ............................................ 20,832 16,494
Federal funds purchased and securities sold under
repurchase agreements ............................. 4,892 5,361
Other short-term borrowings ......................... 1,999 1,171
Subordinated debt ................................... 1,749 --
Other long-term debt ................................ 1,152 509
-------- --------
Total ............................................. 30,624 23,535
-------- --------
Net interest income ................................. 72,824 59,772
Provision for credit losses ........................... -- --
-------- --------
Net interest income after provision for credit losses 72,824 59,772
-------- --------
Noninterest Income
Service charges on deposit accounts ................. 5,032 3,304
Investment services ................................. 3,691 3,051
Trust fees .......................................... 2,242 2,016
International services .............................. 1,686 1,526
Bank owned life insurance ........................... 457 --
Gain on sale of assets .............................. 13 1,039
Gain (loss) on sale of securities ................... 974 (277)
Other ............................................... 2,270 1,966
-------- --------
Total noninterest income .......................... 16,365 12,625
-------- --------
Noninterest Expense
Salaries and other employee benefits ................ 29,742 23,496
Professional ........................................ 7,315 4,582
Net occupancy of premises ........................... 2,464 2,362
Data processing ..................................... 1,203 2,152
Promotion ........................................... 2,437 1,722
Depreciation ........................................ 2,030 1,357
Office services ..................................... 2,111 1,556
Equipment ........................................... 508 581
Amortization of goodwill and core deposit intangibles 1,869 1,381
Other operating ..................................... 4,642 4,358
Other real estate ................................... 45 378
-------- --------
Total noninterest expense ......................... 54,366 43,925
-------- --------
Income before income taxes .......................... 34,823 28,472
Income taxes ........................................ 12,354 10,469
-------- --------
Net income .......................................... 22,469 18,003
-------- --------
Other comprehensive income
Unrealized net gains (losses) on securities
available-for-sale .............................. 1,432 (4,096)
Income taxes (benefit) ............................ 638 (1,272)
-------- --------
Other comprehensive income (loss) ................... 794 (2,824)
-------- --------
Comprehensive income ................................ $ 23,263 $ 15,179
-------- --------
-------- --------
Net income per share, basic ......................... $ 0.48 $ 0.39
-------- --------
-------- --------
Net income per share, diluted ....................... $ 0.46 $ 0.38
-------- --------
-------- --------
Shares used to compute income per share, basic ...... 46,677 45,936
-------- --------
-------- --------
Shares used to compute income per share, diluted .... 48,841 47,608
-------- --------
-------- --------
Dividends per share ................................. $ 0.14 $ 0.11
-------- --------
-------- --------
</TABLE>
See accompanying Notes to the Unaudited Consolidated Financial Statements
3
<PAGE>
CITY NATIONAL CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the three months ended
March 31,
-------------------------
Dollars in thousands 1998 1997
- -------------------- --------- ---------
<S> <C> <C>
Cash Flows From Operating Activities
Net income ...................................................... $ 22,469 $ 18,003
Adjustments to net income:
Gain on sales of ORE .......................................... 58 115
Depreciation .................................................. 2,030 1,357
Amortization of goodwill and core deposit intangibles ......... 1,869 1,381
Net (increase) decrease in trading securities ................. 795 (7,510)
Deferred income tax expense (benefit) ......................... (6,177) 13,457
Net increase in other liabilities ............................. 10,165 3,181
Other, net .................................................... 14,344 (15,830)
--------- ---------
Net cash provided by operating activites .................... 45,553 14,154
--------- ---------
Cash Flows From Investing Activities
Net decrease in short-term investments .......................... 26 9,818
Purchase of securities available-for-sale ....................... (88,993) (134,694)
Sales of securities available-for-sale .......................... 80,341 186,565
Maturities of securities available-for-sale ..................... 21,017 11,781
Maturities of investment securities ............................. 9,429 2,988
Purchase of investment securities ............................... (2,528) (21,851)
Purchase of residential mortgage loans .......................... (32,396) (74,681)
Sale of residential mortgage loans .............................. -- 47,513
(Loan originations) and principal collections, net .............. (51,442) (83,751)
Proceeds from sales of ORE ...................................... 647 5,411
Purchase of premises and equipment .............................. (1,143) (2,305)
Net cash from acquisitions ...................................... 43,622 42,876
Bank owned life insurance premium paid .......................... (40,000) --
Gain (loss) on sale of securities ............................... 974 (277)
Other, net ...................................................... 171 (6,151)
--------- ---------
Net cash used by investing activities ....................... (60,275) (16,758)
--------- ---------
Cash Flows From Financing Activities
Net increase in federal funds purchased and securities sold under
repurchase agreements ......................................... 17,848 80,582
Net decrease in deposits ........................................ (63,865) (197,705)
Net increase (decrease) in short-term borrowings ............... 100,394 (31,303)
Net increase from issuance of other long-term debt .............. 25,000 --
Net proceeds of subordinated debt ............................... 124,004 --
Proceeds from excercise of stock options ........................ 6,034 5,312
Stock repurchases ............................................... (13,025) (1,072)
Cash dividends paid ............................................. (6,558) (5,106)
Other, net ...................................................... 1,801 (1,439)
--------- ---------
Net cash provided by financing activities ................... 191,633 (150,731)
--------- ---------
Net increase (decrease) in cash and cash equivalents ............ 176,911 (153,335)
Cash and cash equivalents at beginning of year .................. 477,398 482,246
--------- ---------
Cash and cash equivalents at end of period ...................... $ 654,309 $ 328,911
--------- ---------
--------- ---------
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
Interest .................................................... $ 28,686 $ 21,878
Income taxes ................................................ -- 2
Non-cash investing activities:
Transfer from loans to foreclosed assets .................... 1,436 9,652
</TABLE>
See accompanying Notes to the Unaudited Consolidated Financial Statements
4
<PAGE>
CITY NATIONAL CORPORATION
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(Unaudited)
<TABLE>
<CAPTION>
For the three months ended
March 31,
--------------------------
Dollars in thousands 1998 1997
- -------------------- --------- ---------
<S> <C> <C>
Common Stock
Balance, beginning of period ..................... $ 46,701 $ 46,303
Stock issued for acquisitions .................... 131 --
Stock options exercised .......................... -- 392
--------- ---------
Balance, end of period ........................... 46,832 46,695
--------- ---------
Additional paid-in capital
Balance, beginning of period ..................... 297,654 275,610
Stock options exercised .......................... -- 4,920
Tax benefit from stock options ................... 1,801 1,385
Excess of cost of treasury shares reissued
over stock option excercise amounts ............ (10,295) --
Excess of market value of shares issued
for acquisitions over historical cost .......... 6,907 18,187
--------- ---------
Balance, end of period ........................... 296,067 300,102
--------- ---------
Treasury shares
Balance, beginning of period ..................... (14,123) (32,283)
Purchase of shares ............................... (13,026) (1,072)
Issuance of shares for acquisitions .............. 10,817 30,643
Issuance of shares for stock options ............. 16,329 --
--------- ---------
Balance, end of period ........................... (3) (2,712)
--------- ---------
Other comprehensive income (loss)
Balance, beginning of period ..................... 5,349 (2,149)
Unrealized net gains (losses) on securities
available-for-sale net of income taxes (benefit) 794 (2,824)
--------- ---------
Balance, end of period ........................... 6,143 (4,973)
--------- ---------
Retained earnings
Balance, beginning of period ..................... 173,089 113,266
Net income ....................................... 22,469 18,003
Dividends paid ................................... (6,558) (5,106)
--------- ---------
Balance, end of period ........................... 189,000 126,163
--------- ---------
Total shareholders' equity ......................... $ 538,039 $ 465,275
--------- ---------
--------- ---------
</TABLE>
See accompanying Notes to the Unaudited Consolidated Financial Statements
5
<PAGE>
CITY NATIONAL CORPORATION
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. The results of operations reflect the interim adjustments, all of which
are of a normal recurring nature and which, in the opinion of management,
are necessary for a fair presentation of the results for such interim
periods. These unaudited consolidated financial statements should be read
in conjunction with the audited consolidated financial statements included
in the Company's Annual Report on Form 10-K for the year ended December
31, 1997.
2. In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits" ("SFAS 132"). This
Statement standardizes the disclosure requirements for defined benefit
plans and recommends a parallel format for presenting information about
pensions and other postretirement benefits. This Statement is effective
for fiscal years beginning after December 15, 1997. At this time the
Company has determined that this Statement will have no significant
impact, since it has no defined benefit plans.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information" ("SFAS 131"). SFAS 131 establishes
standards for the way that public enterprises report information about
operating segments in annual financial statements and requires that
selected information about those operating segments be reported in interim
financial statements. This statement supersedes SFAS 14 "Financial
Reporting for Segments of a Business Enterprise". SFAS No. 131 requires
that all public enterprises report financial and descriptive information
about its reportable operating segments. Operating segments are defined as
components regularly evaluated by the chief operating decision maker in
deciding how to allocate resources and in assessing performance. This
statement is effective for fiscal year beginning after December 15, 1997.
In the initial year of application, comparative information for earlier
years should be restated. Management is in the process of determining the
impact, if any, this statement will have on the Company.
3. Securities held-for-investment are classified as investment securities.
Because the Company has the ability and management has the intent to hold
investment securities until maturity, investment securities are stated at
cost, adjusted for amortization of premiums and accretion of discounts,
Trading account securities are stated at market value. Investments not
classified as trading securities nor as investment securities are
classified as securities available-for-sale and recorded at fair value.
Unrealized holding gains or losses for securities available-for-sale are
excluded from net income and are reported as comprehensive income included
as a separate component of shareholders' equity net of taxes.
4. On January 9, 1998, the Company completed its acquisition of Harbor
Bancorp (HB), a one-bank holding company with six branches, one of which
was subsequently closed. The total purchase price was approximately $34.5
million. The Company issued approximately 540,000 shares, primarily from
treasury, with an aggregate market value of $17.9 million and paid the
remainder in cash. This acquisition was accounted for under the purchase
method of accounting and resulted in the recording of goodwill and
intangibles of approximately $24.0 million. The results of HB's operations
are included in those reported by the Company beginning on January 10,
1998.
On February 27, 1998, the Company sold its Wilmington branch which had
been acquired as part of the acquisition of Ventura County National
Bancorp to Banco Popular, N.A. (California). With the sale the purchaser
received approximately $40 million of deposits.
6
<PAGE>
The Bank has received regulatory approval from the Office of the
Comptroller of the Currency to close on May 15, 1998 its Magnolia branch
which was acquired in the Company's acquisition of Riverside National
Bank.
5. On January 12, 1998, the Company issued $125 million of 6 3/8%
Subordinated Notes Due 2008. The net proceeds from the sale are being used
for general corporate purposes in the ordinary course of its banking
business.
6. For purposes of reporting cash flows, cash and cash equivalents include
cash on hand, amounts due from banks, and overnight federal funds sold.
7. Certain prior periods' data have been reclassified to conform with current
period presentation.
8. On April 29, 1998, the Company reported it had completed its share
repurchase program announced in March 1997 of 1.5 million shares of its
common stock at a total cost of $42.7 million, or an average price of
$28.46 per share. A new share repurchase program of up to 1.0 million
shares of the Company's common stock from time to time in open market
transactions was also announced at the same time.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
City National Corporation (the Corporation) is the holding Company for City
National Bank (the Bank). Because the Bank comprises substantially all of the
business of the Corporation, references to the "Company" in this Item 2 reflect
the consolidated activities of the Corporation and the Bank.
RESULTS OF OPERATIONS
Overview
The Company recorded consolidated net income of $22.5 million, or $.46 per
diluted common share, in the first quarter of 1998, compared to $18.0 million,
or $.38 per diluted common share, in the first quarter of 1997. Increased net
income was primarily due to $13.1 million higher net interest income, and $3.7
million higher noninterest income, partially offset by $10.4 million in higher
noninterest expense.
Return on average assets for the first quarter of 1998 was 1.70% compared with
1.65% for the corresponding quarter of 1997. Return on average equity for the
first quarter of 1998 increased to 17.19% from 16.25% in 1997 as a result of the
increase in average equity resulting from the issuance of approximately 540,000
shares for the acquisition of Harbor Bancorp (HB) completed in January 1998.
Earnings before the amortization of goodwill and core deposit intangibles (net
of applicable taxes) ("cash" earnings) for the quarter ended March 31, 1998 were
$24.0 million or $0.49 per diluted common share, compared with $ 18.9 million,
or $0.40 per diluted common share for the quarter ended March 31, 1997. On the
same basis, the return on average assets was 1.84% and the return on average
common equity was 20.87% in the first quarter of 1998 compared with 1.76% and
20.68%, respectively in the year ago quarter. "Cash" earnings are presented
because they measure the Company's ability to support growth, pay dividends and
repurchase stock. The Company's "cash" earnings per share and other ratios are
not necessarily comparable to similarly titled measures reported by other
companies.
Taxable equivalent net interest income was $75.6 million in the first quarter of
1998, up 22.4% from the year ago quarter. The increase resulted from the 21.7%
increase in average interest earning assets between quarters and $1.5 million
in higher interest recoveries on problem loans in the first quarter of 1998
compared to the first quarter of 1997. The net interest spread decreased to
4,67% from 4,68% and the net interest margin of 6.11% was the same as in the
year ago quarter. Management expects modest growth in quarterly net interest
income for the remainder of 1998 from first quarter 1998 levels, assuming, among
other things, that interest rates will essentially remain constant but that loan
balances will continue to grow. Actual results may vary if the assumptions prove
to be incorrect. See "Cautionary Statement for Purposes of the 'Safe Harbor`
Provisions of the Private Securities Litigation Reform Act of 1995", below.
Average loans increased $888.5 million (28.5%) between first quarters to
$4,011.0 million at March 31, 1998. This increase reflected higher average
commercial, real estate commercial mortgage and residential first mortgage loans
outstanding, up $560.7 million (38.2%), $176.7 million (29.8%) and $104.5
million (11.6%), respectively. The increase in commercial loans resulted from
the Bank's internal loan generation, the acquisition of HB in January 1998 and
purchases of corporate syndicated loans. The increase in real estate mortgage
loans was primarily from the acquisition of HB. The increase in residential
first mortgage loans resulted from the Bank's internal loan generation. Average
construction loans increased $44.1 million (40.4%) from the first quarter of
1997.
8
<PAGE>
Total average investment and available-for-sale securities decreased by $23.7
million between first quarters due to strong loan demand, which has absorbed any
excess liquidity. Total average deposits increased $678.3 million (20.0%)
between first quarters due primarily to the acquisition of HB as well as
increased deposit levels generated by the Bank's title and escrow department and
existing branches.
The provision for credit losses was zero for the quarters ended March 31, 1998
and 1997. Loans charged off in the first quarter of 1998 were $7.8 million,
compared to $3.7 million in the first quarter of 1997. Recoveries were $4.3
million in both quarters. The allowance for credit losses was 3.38% of total
loans at March 31, 1998 compared to 4.17% at March 31, 1997 and 3.60% at
December 31, 1997. The provision for credit losses is expected to remain at
reduced levels for the remainder of 1998. This assumes that general economic
conditions in Southern California will not deteriorate materially during the
balance of 1998, and if this assumption proves to be inaccurate, an increased
provision for credit losses may be required. See "Cautionary Statement for
Purposes of the `Safe Harbor' Provisions of the Private Securities Litigation
Reform Act of 1995", below.
Noninterest income excluding gains and losses on the sale of securities and
assets totaled $16.4 million for the first quarter of 1998, up $3.7 million
(29.6%) from a year earlier. Service charges on deposit accounts increased $1.7
million (52.3%) for the quarter ended March 31, 1998 compared to the year ago
quarter due primarily to increases in service charge fee schedules effective
during the fourth quarter of 1997 and the acquisition of HB. Investment services
income increased $0.6 million (21.0%) for the quarter ended March 31, 1998
compared to the same period a year ago due to new customers and new investment
products offered to customers. During the quarter, the company invested in bank
owned life insurance that generated $0.5 million of income. Management expects
modest growth in noninterest income for the remainder of 1998. See "Cautionary
Statement for Purposes of the `Safe Harbor' Provisions of the Private Securities
Litigation Reform Act of 1995", below.
Noninterest expense totaled $54.4 million in the first quarter of 1998, an
increase of $10.4 million (23.8%) from the first quarter of 1997. Salaries and
other employee benefits increased $6.2 million (26.6%) for the quarter ended
March 31, 1998 from the first quarter of 1997 due primarily to the additional
personnel added as a result of the acquisition of HB, from the hiring of
additional personnel to pursue other opportunities, and because of moving to a
more performance based compensation structure. The expense categories other than
staff increased $4.2 million (20.5%) for the quarter ended March 31, 1998 from
the comparable period in 1997. The increase in professional expenses resulted
primarily from higher customer service expense due to increased volumes and
higher consulting fees. Higher promotion expense resulted from the Company's
increased advertising program. Amortization of goodwill and core deposit
intangibles increased to $1.9 million in the first quarter of 1998 from $1.4
million in the first quarter of 1997 reflecting primarily the acquisition of HB.
Lower data processing expense is attributable to savings from the conversion of
core operating systems to a new data processing provider. Other increases are
attributable primarily to the acquisition of HB. Noninterest expense levels for
the remainder of 1998 are expected to be higher than in 1997 reflecting the
growth of the Company and the acquisition of HB. See "Cautionary Statement for
Purposes of the `Safe Harbor' Provisions of the Private Securities Litigation
Reform Act of 1995", below.
During the first quarter, efforts continued to address Year 2000 matters. A
detailed plan was completed. All information and environmental systems have been
identified and inventoried. A business impact analysis and a risk assessment and
renovation decision was made for each of the Bank's systems. In the first
quarter, $0.2 million was spent on Year 2000 matters.
9
<PAGE>
The Company's effective tax rate decreased to 35.5% in the first quarter of
1998 from 36.8% in the first quarter of 1997. The Company expects the
effective tax rate for the remainder of 1998 to remain near 1998 first
quarter levels. See "Cautionary Statement for Purposes of the `Safe Harbor'
Provisions of the Private Securities Litigation Reform Act of 1995", below.
10
<PAGE>
Net Interest Income Summary
The following table presents the components of net interest income on a fully
taxable equivalent basis for the quarters ended March 31, 1998 and 1997.
<TABLE>
<CAPTION>
Net Interest Income Summary
March 31, 1998 March 31, 1997
--------------------------------------- -------------------------------------
Interest Average Interest Average
Average income/ interest Average income/ interest
Dollars in thousands Balance expense rate Balance expense rate
--------------------------------------- -------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Assets
Earning assets (1)
Loans:
Commercial ............................ $ 2,029,445 $ 47,816 9.56% $ 1,468,793 $ 34,115 9.14%
Residential first mortgages ........... 1,007,686 19,317 7.77 903,224 17,728 7.96
Real estate - construction ............ 153,352 4,123 10.90 109,243 3,089 11.47
Real estate - commercial mortgage ..... 770,175 18,471 9.73 593,469 14,577 9.96
Installment ........................... 50,330 1,434 11.56 47,725 1,164 9.89
--------- ------ --------- ------
Total loans (2) ....................... 4,010,988 91,161 9.22 3,122,454 70,673 9.18
Due from banks-interest bearing ......... 425 7 6.68 7,730 96 5.04
State and municipal investment securities 106,799 1,872 7.11 98,714 1,724 7.08
Taxable investment securities ........... 116,686 1,876 6.52 112,684 1,825 6.57
Securities available for sale ........... 590,688 10,118 6.95 626,430 10,218 6.62
Federal funds sold and securities
purchased under resale agreements ..... 39,370 510 5.25 25,081 312 5.04
Trading account securities .............. 43,373 666 6.23 39,775 437 4.46
--------- ------ --------- ------
Total earning assets .................. 4,908,329 106,210 8.78 4,032,868 85,285 8.47
------ ------
Allowance for credit losses ............. (140,789) (136,644)
Cash and due from banks ................. 312,983 318,480
Other nonearning assets ................. 270,086 210,385
--------- ---------
Total assets .......................... $ 5,350,609 $ 4,425,089
--------- ---------
--------- ---------
Liabilities and Shareholders' Equity
Interest-bearing deposits:
Interest checking accounts .............. $ 386,152 949 1.00 $ 367,322 908 1.00
Money market accounts ................... 832,527 6,164 3.00 776,539 5,755 3.01
Savings deposits ........................ 176,323 1,511 3.48 167,001 1,367 3.32
Time deposits - under $100,000 .......... 230,187 2,789 4.91 218,718 2,738 5.08
Time deposits - $100,000 and over ....... 708,469 9,419 5.39 449,025 5,726 5.17
--------- ------ ----- --------- ------
Total interest - bearing deposits ..... 2,333,658 20,832 3.62 1,978,605 16,494 3.38
-----
Federal funds purchased and securities
sold under repurchase agreements ...... 363,954 4,892 5.45 233,214 2,922 5.08
Other borrowings ........................ 327,799 4,900 6.06 305,508 4,119 5.47
--------- ------ --------- ------
Total interest - bearing liabilities .. 3,025,411 30,624 4.11 2,517,327 23,535 3.79
------ ------
Noninterest - bearing deposits ............ 1,732,799 1,409,595
Other liabilities ......................... 62,305 48,754
Shareholders' equity ...................... 530,094 449,413
--------- ---------
Total liabilities and shareholders'
equity ...................... $ 5,350,609 $ 4,425,089
--------- ---------
--------- ---------
Net interest spread ......................... 4.67% 4.68%
----- ----
----- ----
Fully taxable equivalent net interest income $ 75,586 $ 61,750
-------- --------
-------- --------
Net interest margin ......................... 6.11% 6.11%
----- ----
----- ----
</TABLE>
(1) Includes average nonaccrual loans of $35,621 and $42,723 for 1998 and 1997,
respectively.
(2) Loan income includes loan fees of $2,519 and $1,762 for 1998 and 1997,
respectively.
11
<PAGE>
The following table sets forth the change in net interest income on a fully
taxable equivalent basis broken down by volume and rates. The change in interest
due to both rate and volume has been allocated to change due to volume and rate
in proportion to the relationship of the absolute dollar amounts of the change
in each.
<TABLE>
<CAPTION>
Changes In Net Interest Income
Quarter Ended March 31, Quarter Ended March 31,
1998 vs 1997 1997 vs 1996
--------------------------------- -----------------------------------
Increase Increase
(decrease) (decrease)
due to Net due to Net
--------------------- increase --------------------- increase
Dollars in thousands Volume Rate (decrease) Volume Rate (decrease)
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Interest earned on:
Interest-bearing deposits
in other banks ........ $ (113) $ 23 $ (90) $ (246) $ (50) $ (296)
Loans ................... 20,179 309 20,488 17,357 (295) 17,062
Investment securities ... 206 (7) 199 1,319 (34) 1,285
Securities available-
for-sale .............. (598) 498 (100) (1,297) 661 (636)
Trading account
securities ............ 43 186 229 103 (153) (50)
Federal funds sold
and securities
purchased under
resale agreements ..... 185 14 199 (964) (131) (1,095)
-------- -------- -------- -------- -------- --------
Total interest-
earning assets ...... 19,902 1,023 20,925 16,272 (2) 16,270
-------- -------- -------- -------- -------- --------
Interest paid on:
Interest checking ....... 41 -- 41 92 -- 92
Money market deposits ... 427 (18) 409 287 112 399
Savings deposits ........ 77 67 144 268 92 360
Other time deposits ..... 3,525 219 3,744 2,370 (160) 2,210
Other borrowings ........ 2,129 622 2,751 1,391 (78) 1,313
-------- -------- -------- -------- -------- --------
Total interest-bearing
liabilities ........... 6,199 890 7,089 4,408 (34) 4,374
-------- -------- -------- -------- -------- --------
$ 13,703 $ 133 $ 13,836 11,864 $ 32 $ 11,896
-------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- --------
</TABLE>
12
<PAGE>
BALANCE SHEET ANALYSIS
Security Portfolio
Comparative period-end security portfolio balances are presented below.
<TABLE>
<CAPTION>
Investment Securities
March 31, December 31, March 31,
1998 1997 1997
--------------------- --------------------- ---------------------
Dollars in thousands Cost Fair Value Cost Fair Value Cost Fair Value
-------- ---------- -------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Mortgage-backed ....... $102,324 $102,569 $107,386 $107,728 $104,726 $102,725
State and Municipal ... 105,126 106,271 107,567 108,756 100,240 99,538
Other debt ............ 3,154 3,141 3,216 3,201 3,337 3,337
-------- -------- -------- -------- -------- --------
Total debt securities 210,604 211,981 218,169 219,685 208,303 205,600
Equity ................ 8,791 8,804 7,765 7,780 6,517 6,517
-------- -------- -------- -------- -------- --------
Total securities .... $219,395 $220,785 $225,934 $227,465 $214,820 $212,117
-------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- --------
</TABLE>
<TABLE>
<CAPTION>
Available-for-Sale Securities
March 31, December 31, March 31,
1998 1997 1997
--------------------- --------------------- ---------------------
Dollars in thousands Cost Fair Value Cost Fair Value Cost Fair Value
-------- ---------- -------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
U.S. Gov. and federal agency $271,680 $273,067 $178,078 $179,903 $244,868 $242,239
Mortgage-backed ............ 129,339 130,156 248,913 249,229 240,267 232,357
State and Municipal ........ 2,180 2,183 5,911 5,997 13,961 13,895
Other debt ................. 43,345 44,882 23,928 25,920 -- --
-------- -------- -------- -------- -------- --------
Total debt securities .... 446,544 450,288 456,830 461,049 499,096 488,491
Marketable equity securities 149,059 156,025 141,080 146,139 112,158 114,140
-------- -------- -------- -------- -------- --------
Total securities ......... $595,603 $606,313 $597,910 $607,188 $611,254 $602,631
-------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- --------
</TABLE>
The following tables provide the expected remaining maturities and yields
(taxable-equivalent basis) of debt securities within the securities portfolios.
<TABLE>
<CAPTION>
Investment Debt Securities
One year Over 1 year Over 5 years
or less thru 5 years thru 10 years Over 10 years Total
-------------------- ------------------- ------------------ ------------------ ------------------
Dollars in thousands Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield
--------- -------- --------- ------- --------- ------- --------- ------- --------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Mortgage-backed ....... $ -- --% $ 2,800 7.03% $ 19,661 5.96% $ 79,863 6.71% $102,324 6.57%
State and Municipal ... 18,128 6.66 61,306 6.65 21,851 7.05 3,841 6.46 105,126 6.73
Other debt ............ 1,000 7.75 2,154 7.23 -- -- -- -- 3,154 7.39
------- ---- ------- ---- ------- ---- ------- ---- ------- ----
Total debt securities $ 19,128 6.72% $ 66,260 6.68% $ 41,512 6.53% $ 83,704 6.70% $210,604 6.66%
------- ------- ------- ------- -------
------- ------- ------- ------- -------
Fair value .......... $ 19,193 $ 67,028 $ 41,839 $ 83,921 $211,981
------- ------- ------- ------- -------
------- ------- ------- ------- -------
</TABLE>
<TABLE>
<CAPTION>
Available-for-Sale Debt Securities
One year Over 1 year Over 5 years
or less thru 5 years thru 10 years Over 10 years Total
---------------- ----------------- ----------------- ------------------- ----------------
Dollars in thousands Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Gov. and federal agency $ 25,049 5.88% $226,780 6.11% $ 21,238 5.89% $ -- --% $273,067 6.07%
Mortgage-backed ............ -- -- -- -- -- -- 130,156 6.76 130,156 6.76
State and Municipal ........ -- -- 2,183 6.07 -- -- -- -- 2,183 6.07
Other debt ................. -- -- -- -- -- -- 44,882 8.03 44,882 8.03
-------- ---- -------- ---- -------- ---- -------- ---- -------- ----
Total debt securities .... $ 25,049 5.88% $228,963 6.11% $ 21,238 5.89% $175,038 7.09% $450,288 6.47%
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Amortized cost ........... $ 24,991 $227,672 $ 21,197 $172,684 $446,544
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
</TABLE>
Dividend income included in interest income on securities in the
Consolidated Statement of Income and Comprehensive Income in the first quarters
of 1998 and 1997 was $2.4 million and $1.8 million, respectively.
13
<PAGE>
BALANCE SHEET ANALYSIS
LOAN PORTFOLIO
A comparative period-end loan table is presented below.
<TABLE>
<CAPTION>
Loans
March 31, December 31, March 31,
Dollars in thousands 1998 1997 1997
----------- ----------- -----------
<S> <C> <C> <C>
Commercial ...................... $ 2,076,271 $ 1,972,232 $ 1,561,797
Residential first mortgage ...... 1,008,592 980,040 929,205
Real estate - construction ...... 149,886 144,558 121,746
Real estate - commercial mortgage 765,198 686,188 640,866
Installment ..................... 52,099 42,206 48,387
----------- ----------- -----------
Total loans, gross ............ 4,052,046 3,825,224 3,302,001
Less: Allowance for credit losses (137,043) (137,761) (137,614)
----------- ----------- -----------
Total loans, net .............. $ 3,915,003 $ 3,687,463 $ 3,164,387
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
Gross loans at March 31, 1998 amounted to $4,052.0 million, up $750.0 million
(22.7%) from March 31, 1997 and up $226.8 million (5.9%) from December 31, 1997.
Approximately $152.2 million of the increase was due to the acquisition of HB.
Also contributing to the $514.5 million increase in commercial loans from March
31, 1997 were loan originations and the purchase of syndicated corporate loans.
The $79.4 million increase in residential first mortgage loans from the year ago
quarter resulted from the Bank's own originations. Construction loans also
increased by $ 28.1 million from March 31, 1997 as the Company continued to
expand its lending for residential construction development. The Company expects
that the Bank's loan portfolio will continue to increase from first quaarter
1998 levels due primarily to to its own internal generation activities. See
"Cautionary Statement for Purposes of the `Safe Harbor' Provisions of the
Private Securities Litigation Reform Act of 1995", below.
The following table presents information concerning nonaccrual loans, ORE, and
restructured loans.
<TABLE>
<CAPTION>
Nonaccrual Loans, ORE and Restructured Loans
March 31, December 31, March 31,
Dollars in thousands 1998 1997 1997
--------- ------------ ---------
<S> <C> <C> <C>
Nonaccrual loans:
Commercial ............................. $13,894 $ 6,589 $19,211
Real estate ............................ 22,881 19,243 21,464
Installment ............................ 0 1,734 0
------- ------- -------
Total ................................ 36,775 27,564 40,675
ORE ...................................... 2,900 2,126 18,958
------- ------- -------
Total nonaccrual loans and ORE ....... $39,675 $29,692 $59,633
------- ------- -------
------- ------- -------
Restructured loans, accruing ............. $ 2,899 $ 2,813 $ 5,744
------- ------- -------
------- ------- -------
Total nonaccrual loans as a
percentage of total loans .............. 0.91% 0.72% 1.23%
Total nonaccrual loans and ORE as a
percentage of total loans and ORE ...... 0.98 0.78 1.80
Allowance for credit losses to total loans 3.38 3.60 4.17
Allowance for credit losses
to nonaccrual loans .................... 372.65 499.75 338.33
</TABLE>
14
<PAGE>
The table below summarizes the approximate changes in nonaccrual loans for the
quarters ended March 31, 1998 and March 31, 1997.
<TABLE>
<CAPTION>
Changes in Nonaccrual Loans
For the three months ended
March 31,
---------------------------
Dollars in millions 1998 1997
------- -------
<S> <C> <C>
Balance, beginning of period ....................... $ 27.6 $ 41.5
Additions from acquisitions ........................ 3.1 2.4
Loans placed on nonaccrual ......................... 20.4 9.1
Charge offs ........................................ (5.3) (2.9)
Loans returned to accrual status ................... 0.0 (0.7)
Repayments (including interest applied to principal) (9.0) (6.0)
Transfer to ORE .................................... (0.0) (2.7)
------- -------
Balance, end of period ............................. $ 36.8 $ 40.7
------- -------
------- -------
</TABLE>
At March 31, 1998, in addition to loans disclosed above as nonaccrual or
restructured, management had also identified $10.4 million of problem loans
about which the ability of the borrowers to comply with the present loan
repayment terms in the future is questionable.
ALLOWANCE FOR CREDIT LOSSES
The following table summarizes average loans outstanding and changes in the
allowance for credit losses for the periods presented.
<TABLE>
<CAPTION>
Changes in Allowance for Credit Losses
For the three months ended
March 31,
--------------------------
(Dollars in millions) 1998 1997
----------- -----------
<S> <C> <C>
Average amount of loans outstanding ............... $ 4,011.0 $ 3,122.5
----------- -----------
----------- -----------
Balance of allowance for credit losses,
beginning of period ............................. $ 137.8 $ 130.1
Loans charged off:
Commercial ...................................... 7.4 1.4
Real estate ..................................... 0.4 2.3
----------- -----------
Total loans charged off ....................... 7.8 3.7
----------- -----------
Less recoveries of loans previously charged off:
Commercial ..................................... 4.3 4.2
Real estate .................................... 0.0 0.1
----------- -----------
Total recoveries .............................. 4.3 4.3
----------- -----------
Net loans (charged off) recovered ................. (3.5) 0.6
Additions to allowance charged to operating expense 0.0 0.0
Additions to allowance from acquisitions .......... 2.7 6.9
----------- -----------
Balance, end of period ............................ $ 137.0 $ 137.6
----------- -----------
----------- -----------
Ratio of net charge-offs
to average loans ................................ 0.09% *
----------- -----------
----------- -----------
Ratio of allowance for credit losses
to total period end loans ....................... 3.38% 4.17%
----------- -----------
----------- -----------
</TABLE>
* Not meaningful
15
<PAGE>
CAPITAL ADEQUACY REQUIREMENT
The following table presents the regulatory standards for well capitalized
institutions and the capital ratios for the Company and the Bank at March 31,
1998, December 31, 1997 and March 31, 1997.
<TABLE>
<CAPTION>
Regulatory
Well Capitalized March 31, December 31, March 31,
Standards 1998 1997 1997
<S> <C> <C> <C> <C>
---------------- --------- ------------ ---------
City National Corporation
- -------------------------
Tier 1 leverage 5.00% 8.79% 9.19% 9.48%
Tier I risk-based capital 6.00 10.54 10.99 12.18
Total risk-based capital 10.00 14.63 12.27 13.46
City National Bank
- ------------------
Tier I leverage ......... 5.00 7.70 7.93 8.48
Tier 1 risk-based capital 6.00 9.26 9.50 10.85
Total risk-based capital 10.00 13.38 10.78 12.13
</TABLE>
On March 17, 1997, the Company announced a program for repurchase of up to 1.5
million shares of its common stock which was completed on April 28, 1998. The
Company repurchased these shares at a total cost of $42.7 million. A new
repurchase program of up to 1.0 million shares was announced on April 29, 1998.
Shares purchased under the buyback program will be reissued upon the exercise of
stock options and for other general purposes.
On April 22, 1998, the Company declared a regular quarterly dividend of $.14 per
share, payable May 14, 1998 to shareholders of record as of May 4, 1998.
ASSET/LIABILITY MANAGEMENT
The principal objectives of asset/liability management are to maximize net
interest margin subject to margin volatility and liquidity constraints. Margin
volatility results when the rate reset (or repricing) characterstics 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 risk-taking is
not excessive and that liquidity is properly managed.
The Company has established three measurement process 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 assets and liability repricing characteristics. Present
value of equity calculations are used to estimate the theoretical price
sensitivity of shareholder equity to changes in interest rates.
Generally, an asset sensitive gap indicates that net interest income will
improve during a period of rising interest rates. The gap report is based on the
contractual cash flows of all asset and liability balances on the Company's
books. The contractual life of these balances may differ substantially from
their expected lives however. For example, checking accounts are all subject to
immediate withdrawal. Experience suggests that these accounts will have an
average life of several years. Also, certain loans (such as first mortgages) are
subject to prepayment. The cash flows shown in the gap report are adjusted to
reflect these behaviors. The gap report also shows the effects that interest
rate swaps have had on the repricing profile of the Company.
16
<PAGE>
The use of interest rate swaps to manage interest rate exposure involves the
risk of dealing with counterparties and their ability to meet contractual terms.
These counterparties must receive appropriate credit approval before the Company
enters into an interest rate contract. Notional principal amounts express the
volume of these transactions, although the amounts potentially subject to credit
and market risks are much smaller. At March 31, 1998, almost all of the
Company's interest rate swaps were entered into as hedges against a decrease in
interest income generated from prime based loans if the prime decreased. The
Company has not entered into transactions involving any other interest rate
derivative financial instruments, such as interest rate floors, caps and
interest rate futures contracts,
At March 31, 1998, the under-one-year cumulative gap was a $456 million (8% of
total assets) net asset position compared with a net asset position of $132
million (3% of total assets) at December 31, 1997. The increase resulted from
the Company's funding of asset growth with equity, subordinate debt and seasonal
rate stable deposits. As of March 31, 1998, the Company has $565 million of
notional principal in receive fixed-pay LIBOR interest rate swaps, of which $210
million have maturities greater than one year. The Company's interest-rate
risk-management instruments had a fair value of $2.2 million and $1.7 million
and an exposure to credit risk of $2.2 million and $1.8 million at March 31,
1998 and December 31, 1997, respectively. The credit exposure represents the
cost to replace, on a present value basis and at current market rates, all
profitable contracts outstanding at the end of the period. The Company's swaps
agreements require the deposit of collateral to mitigate the amount of credit
risk if certain thresholds are exceeded. No amounts were required to be
deposited by the Company or its counterparties as of March 31, 1998.
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
fully explore the complex relationships within the gap over time and various
interest rate scenarios.
At March 31, 1998, the Company's outstanding foreign exchange contracts totaled
$9.5 million. The Company enters into foreign exchange contracts with its
customers and counterparty banks solely for the purpose of offsetting or hedging
transaction and economic exposures arising out of commercial transactions. The
Company's policies prohibit outright speculation by the Company and its
employees. The Company actively manages its foreign exchange exposures within
prescribed risk limits and controls. All foreign exchange contracts outstanding
at March 31, 998 had remaining maturities of six months or less, with the
exception of $0.4 million which had remaining maturities ranging between six
months and 24 months.
LIQUIDITY MANAGEMENT
The Company continues to manage its liquidity through the combination of core
deposits, federal funds purchased, repurchase agreements, collateralized
borrowing lines at the Federal Reserve Bank and the Federal Home Loan Bank of
San Francisco, and a portfolio of securities available-for-sale. Liquidity is
also provided by maturing investment securities and loans.
Average core deposits and shareholders' equity comprised 72.7% of total funding
in the first quarter of 1998, compared to 76.6% in the first quarter of 1997.
This decrease has required that the Company increase its use of more costly
alternative funding sources. Despite the decrease in percentage of funding
derived from core deposits and shareholders' equity, the Company has not faced
any liquidity constraints.
17
<PAGE>
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF
THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
The Company wishes to take advantage of the "safe harbor" provisions of the
Private Securities Litigation Reform Act of 1995 as to "forward looking"
statements in this Quarterly Report which are not historical facts. The
Company cautions readers that the following important factors could affect the
Company's business and cause actual results to differ materially from those
expressed in any forward looking statement made by, or on behalf of, the
Company.
--Economic conditions. The Company's results are strongly influenced by
general economic conditions in its market area, Southern California, and a
deterioration in these conditions could have a material adverse impact on the
quality of the Bank's loan portfolio and the demand for its products and
services. In particular, changes in economic conditions in the real estate and
entertainment industries may affect the Company's performance.
--Interest rates. Management anticipates that interest rate levels will remain
generally constant, but there is some risk of Federal Reserve tightening. If
interest rates vary substantially from present levels, this may cause the
Company's results to differ materially.
--Government regulation and monetary policy. All forward looking statements
presume a continuation of the existing regulatory environment and U.S.
Government policies. The banking industry is subject to extensive federal and
state regulations, and significant new laws or changes in, or repeal of,
existing laws may cause results to differ materially. Further, federal
monetary policy, particularly as implemented through the Federal Reserve
System, significantly affects credit conditions for the Bank, primarily
through open market operations in U.S. government securities, the discount
rate for member bank borrowing and bank reserve requirements, and a material
change in these conditions would be likely to have an impact on results.
--Competition. The Bank competes with numerous other domestic and foreign
financial institutions and non-depository financial intermediaries. Results
may differ if circumstances affecting the nature or level of competitive
change, such as the merger of competing financial institutions or the
acquisition of California institutions by out-of-state companies.
--Credit quality. A significant source of risk arises from the possibility
that losses will be sustained because borrowers, guarantors and related
parties may fail to perform in accordance with the terms of their loans. The
Bank has adopted underwriting and credit monitoring procedures and credit
policies, including the establishment and review of the allowance for credit
losses, that management believes are appropriate to minimize this risk by
assessing the likelihood of nonperformance, tracking loan performance and
diversifying the Bank's credit portfolio, but such policies and procedures may
not prevent unexpected losses that could adversely affect the Company's
results.
--Other risks. From time to time, the Company details other risks to its
businesses and/or its financial results in its filings with the Securities and
Exchange Commission.
While management believes that its assumptions regarding these and other
factors on which forward looking statements are based arc reasonable, such
assumptions are necessarily speculative in nature, and actual outcomes can be
expected to differ to some degree. Consequently, there can be no assurance
that the results described in such forward looking statements will, in fact,
be achieved.
18
<PAGE>
PART 11. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS.
None
ITEM 5.
OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.29 Employment agreement (Change of Control Agreement) with members
of the Bank's Executive Committee.
(b) Reports on Form 8-K
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CITY NATIONAL CORPORATION
(Registrant)
DATE: May 14,1998 /S/ FRANK P. PEKNY
---------------- ---------------------------
FRANK P. PEKNY
Executive Vice President
And Chief Financial Officer
19
<PAGE>
EXHIBIT 10.29
EMPLOYMENT AGREEMENT
AGREEMENT by and between City National Corporation, a Delaware
corporation (the "Company") and (the "Executive"), dated as
of the 31st day of March, 1997.
The Board of Directors of the Company (the "Board"), has determined that
it is in the best interest of the Company and its shareholders to assure that
the Company will have the continued dedication of the Executive,
notwithstanding the possibility, threat or occurrence of a Change of Control
(as defined below) of the Company. The Board believes it is imperative to
diminish the inevitable distraction of the Executive by virtue of the
personal uncertainties and risks created by a pending or threatened Change of
Control and to encourage the Executive's full attention and dedication to the
Company currently and in the event of any threatened or pending Change of
Control, and to provide the Executive with compensation and benefits
arrangements upon a Change of Control which ensure that the compensation and
benefits expectations of the Executive will be satisfied and which are
competitive with those of other corporations. Therefore, in order to
accomplish these objectives, the Board has caused the Company to enter into
this Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. CERTAIN DEFINITIONS. (a) The "Effective Date" shall mean the first
date during the Change of Control Period (as defined in Section 1(b)) on
which a Change of Control (as defined in Section 2) occurs. Anything in this
Agreement to the contrary notwithstanding, if a Change of Control occurs and
if the Executive's employment with the Company is terminated prior to the date
on which the Change of Control occurs, and if it is reasonably demonstrated
by the Executive that such termination of employment (i) was at the request
of a third party who has taken steps reasonably calculated to effect a Change
of Control or (ii) otherwise arose in connection with or anticipation of a
Change of Control, then for all purposes of this Agreement the "Effective
Date" shall mean the date immediately prior to the date of such termination
of employment.
(b) The "Change of Control Period" shall mean the period commencing on
the date hereof and ending on the second anniversary of the date hereof;
provided, however that commencing on the date one year after the hereof, and
on each annual anniversary of such date (such date and each annual
anniversary thereof shall be hereinafter referred to as the "Renewal Date"),
unless previously terminated, the Change of Control Period shall be
automatically extended so as to terminate two years from such Renewal Date,
unless at least 60 days prior to the Renewal Date the Company shall give
notice to the Executive that the Change of Control Period shall not be so
extended.
<PAGE>
2. CHANGE OF CONTROL. For the purpose of this Agreement, a "Change of
Control" shall mean:
(a) The acquisition by any individual, entity or group (within the
meaning of Section 13(d) (3) or 14(d) (2) or the Securities Exchange Act of
1934, as amended (the "Exchange Act")) (a "Person") of beneficial ownership
(within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20%
of more of either (i) the then outstanding shares of common stock of the
Company (the "Outstanding Company Common Stock") or (ii) the combined voting
power of the then outstanding voting securities of the Company entitled to
vote generally in the election of directors (the "Outstanding Company Voting
Securities"); provided, however, that for purposes of this subsection (a),
the following acquisitions shall not constitute a Change of Control: (i) any
acquisition 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, (iv) any acquisition by any corporation pursuant to a transaction
which complies with clauses (i), (ii) and (iii) of subsection (c) of this
Section 2, or (v) any acquisition by the Goldsmith family or any trust or
partnership for the benefit of any member of the Goldsmith family; or
(b) 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 becoming 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 an actual or threatened election contest with respect
to the election or removal of directors of other actual or threatened
solicitation of proxies or consents by or on behalf of a Person other than
the Board; or
(c) Consummation of a reorganization, merger or consolidation or sale or
other disposition of all or substantially all of the assets of the Company
(a "Business Combination"), in each case, unless, following such Business
Combination, (i) all or substantially all of the individuals and entities who
were the beneficial owners, respectively, of the Outstanding Company Common
Stock and Outstanding Company Voting Securities immediately prior to such
Business Combination beneficially own, directly or indirectly, more than 50%
of, respectively, the then outstanding shares of common stock and the
combined voting power of the then outstanding voting securities entitled to
vote generally in the election of directors, as the case may be, of the
corporation resulting from such Business Combination (including, without
limitation, a corporation which as a result of such transaction owns the
Company of all or substantially all of the Company's assets either directly
or through one or more
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subsidiaries) in substantially the same proportions as their ownership,
immediately prior to such Business Combination of the Outstanding Company
Common Stock and Outstanding Company Voting Securities, as the case may be,
(ii) no Person (excluding any corporation resulting from such Business
Combination or any employee benefit plan (or related trust) of the Company or
such corporation resulting from such Business Combination) beneficially owns,
directly or indirectly, 20% or more of, respectively, the then outstanding
shares of common stock of the corporation resulting from such Business
Combination or the combined voting power of the then outstanding voting
securities of such corporation except to the extent that such ownership
existed prior to the Business Combination and (iii) at least a majority of
the members of the board of directors of the corporation resulting from such
Business Combination were members of the Incumbent Board at the time of the
execution of the initial agreement, or of the action of the Board, providing
for such Business Combination; or
(d) Approval by the shareholders of the Company of a complete
liquidation or dissolution of the Company.
3. EMPLOYMENT PERIOD. The Company hereby agrees to continue the
Executive in its employ, and the executive hereby agrees to remain in the
employ of the Company subject to the terms and conditions of this Agreement,
for the period commencing on the Effective Date and ending on the second
anniversary of such date (the "Employment Period").
4. TERMS OF EMPLOYMENT. (a) POSITION AND DUTIES.
(i) During the Employment Period, (A) the Executive's position
(including status, offices, titles and reporting requirements), authority,
duties and responsibilities shall be at least commensurate in all material
respects with the most significant of those held, exercised and assigned at
any time during the 120-day period immediately preceding the Effective Date
and (B) the Executive's services shall be performed at the location where the
Executive was employed immediately preceding the Effective Date or any office
or location less than 35 miles from such location.
(ii) During the Employment Period, and excluding any periods of
vacation and sick leave to which the Executive is entitled, the Executive
agrees to devote reasonable attention and time during normal business hours
to the business and affairs of the Company and, to the extent necessary to
discharge the responsibilities assigned to the Executive hereunder, to use the
Executive's reasonable best efforts to perform faithfully and efficiently
such responsibilities. During the Employment Period it shall not be a
violation of this Agreement for the Executive to (A) serve on corporate,
civic or charitable boards or committees, (B) deliver lectures, fulfill
speaking engagements or teach at educational institutions and (C) manage
personal investments, so long as such activities do not significantly
interfere with the performance of the Executive's responsibilities as an
employee of the Company in accordance with this Agreement.
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It is expressly understood and agreed that to the extent that any such
activities have been conducted by the Executive prior to the Effective Date,
the continued conduct of such activities (or the conduct of activities
similar in nature and scope thereto) subsequent to the Effective Date shall
not thereafter be deemed to interfere with the performance of the Executive's
responsibilities to the Company.
(b) COMPENSATION. (i) BASE SALARY. During the Employment Period, the
Executive shall receive an annual base salary ("Annual Base Salary"), which
shall be paid at a monthly rate, at least equal to twelve times the highest
monthly base salary paid or payable, including any base salary which has been
earned but deferred, to the Executive by the Company and its affiliated
companies in respect of the twelve-month period immediately preceding the
month in which the Effective Date occurs. During the Employment Period, the
Annual Base Salary shall be reviewed no more than 12 months after the last
salary increase awarded to the Executive prior to the Effective Date and
thereafter at least annually. Any increase in Annual Base Salary shall not
serve to limit or reduce any other obligation to the Executive under this
Agreement. Annual Base Salary shall not be reduced after any such increase
and the term Annual Base Salary as utilized in this Agreement shall refer to
Annual Base Salary as so increased. As used in this Agreement, the term
"affiliated companies" shall include any company controlled by, controlling
or under common control with the Company.
(ii) ANNUAL BONUS. In addition to Annual Base Salary, the Executive
shall be awarded, for each fiscal year ending during the Employment Period,
an annual bonus (the "Annual Bonus") in cash at least equal to the
Executive's highest bonus under the Company's annual incentive plans for the
last three full fiscal years prior to the Effective Date (annualized in the
event that the Executive was not employed by the Company for the whole of
such fiscal year) (the "Recent Annual Bonus"). Each such Annual Bonus shall
be paid no later that the end of the third month of the fiscal year next
following the fiscal year for which the Annual Bonus is awarded, unless the
Executive shall elect to defer the receipt of such Annual Bonus.
(iii) INCENTIVE, SAVINGS AND RETIREMENT PLANS.
During the Employment Period, the Executive shall be entitled to participate
in all incentive, savings and retirement plans, practices, policies and
programs applicable generally to other executive of the Company and its
affiliated companies, but in no event shall such plans, practice, policies
and programs provide the Executive with incentive opportunities (measured
with respect to both regular and special incentive opportunities, to the
extent, if any, that such distinction is applicable), savings opportunities
and retirement benefit opportunities, in each case, less favorable in the
aggregate, than the most favorable of those provided by the Company and its
affiliated companies for the Executive under such plans, practices, policies
and programs as in effect at any time during the 120-day period immediately
preceding the Effective Date or if more favorable to the Executive, those
provided generally at
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any time after the Effective Date to other peer executives of the Company and
its affiliated companies.
(iv) WELFARE BENEFIT PLANS. During the employment Period, the
Executive and/or the Executive's family, as the case may be, shall be
eligible for participation in and shall receive all benefits under welfare
benefit plans, practices, policies and programs provided by the Company and
its affiliated companies (including, without limitation, medical,
prescription, dental, disability, employee life, group life, accidental death
and travel accident insurance plans and programs) to the extent applicable
generally to other peer executives of the Company and its affiliated
companies, but in no event shall such plans, practices, policies and programs
provide the Executive with benefits which are less favorable, in the
aggregate, than the most favorable of such plans, practices, policies and
programs in effect for the Executive at any time during the 120-day period
immediately preceding the Effective Date or, if more favorable to the
Executive, those provided generally at any time after the Effective Date to
the other peer executive of the Company and its affiliated companies.
(v) EXPENSES. During the Employment Period, the Executive shall be
entitled to receive prompt reimbursement for all reasonable expenses incurred
by the Executive in accordance with the most favorable policies, practices
and procedures of the Company and its affiliated companies in effect for the
Executive at any time during the 120-day period immediately preceding the
Effective Date or, if more favorable to the Executive, as in effect generally
at any time thereafter with respect to other peer executives of the Company
and its affiliated companies.
(vi) FRINGE BENEFITS. During the Employment Period, the Executive
shall be entitled to fringe benefits, including, without limitation, tax and
financial planning services, payment of club dues, and if applicable,
automobile allowance and/or use of an automobile and payment of related
expenses, in a accordance with the most favorable plans, practices, programs
and policies of the Company and its affiliated companies in effect for the
Executive at any time during the 120-day period immediately preceding the
Effective Date or, if more favorable to the Executive, as in effect generally
at any time thereafter with respect to other peer executives of the Company
and it's affiliated companies.
(vii) OFFICE AND SUPPORT STAFF. During the Employment Period, the
Executive shall be entitled to an office or offices of a size and with
furnishings and other appointments, and to exclusive personal secretarial and
other assistance, at least equal to the most favorable of the foregoing
provided to the Executive by the Company and its affiliated companies at any
time during the 120-day period immediately preceding the Effective Date or,
if more favorable to the Executive, as provided generally at any time
thereafter with respect to other peer executives of the Company and its
affiliated companies.
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(viii) VACATION. During the Employment Period, the Executive shall
be entitled to paid vacation in accordance with the most favorable plans,
policies, programs and practices of the Company and its affiliated companies
as in effect for the Executive at any time during the 120-day period
immediately preceding the Effective Date or, of more favorable to the
Executive, as in effect generally at any time thereafter with respect to
other peer executives of the Company and its affiliated companies.
5. TERMINATION OF EMPLOYMENT. (a) DEATH OR DISABILITY.
The Executive's employment shall terminate automatically upon the Executive's
death during the Employment Period. If the Company determines in good faith
that the Disability of the Executive has occurred during the Employment
Period (pursuant to the definition of Disability set forth below), it may
give to the Executive written notice in accordance with Section 12(b) of this
Agreement of its intention to terminate the Executive's employment. In such
event, the Executive's employment with the Company shall terminate effective
on the 30th day after receipt of such notice by the Executive (the
"Disability Effective Date"), provided that, within the 30 days after such
receipt, the Executive shall not have returned to full-time performance of
the Executive's duties. For purposes of this Agreement, "Disability" shall
mean the absence of the Executive from the Executive's duties with the
Company on a full-time basis for 180 consecutive business days as a result of
incapacity due to mental or physical illness which is determined to be
total and permanent by a physician selected by the Company of its insurers
and acceptable to the Executive or the Executive's legal representative.
(b) CAUSE. The Company may terminate the Executive's employment
during the Employment Period for Cause. For purposes of this Agreement,
"Cause" shall mean:
(i) the willful and continued failure of the Executive to
perform substantially the Executive's duties with the Company or
one of its affiliated (other than any such failure resulting from
incapacity due to physical or mental illness), after a written
demand for substantial performance is delivered to the Executive by
the Board or the Chief Executive Officer of the Company which
specifically identifies the manner in which the Board or Chief
Executive Officer believes that the Executive has not substantially
performed the Executive's duties, or
(ii) the willful engaging by the Executive in illegal conduct
or gross misconduct which is materially and demonstrably injurious
to the Company
For purposes of this provision, no act or failure to act, on the part of the
Executive, shall be considered "willful" unless it is done, or omitted to be
done, by the Executive
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in bad faith or without reasonable belief that the Executive's action or
omission was in the best interests of the Company. Any act, or failure to
act, based upon authority given pursuant to a resolution duly adopted by the
Board or upon the instructions of the Chief Executive Officer or a senior
officer of the Company or based upon the advice of counsel for the Company
shall be conclusively presumed to be done, or omitted to be done, by the
Executive in good faith and in the best interests of the Company. The
cessation of employment of the Executive shall not be deemed to be for Cause
unless and until there shall have been delivered to the Executive a copy of a
resolution duly adopted by the affirmative vote of not less than
three-quarters of the entire membership of the Board at a meeting of the
Board called and held for such purpose (after reasonable notice is provided
to the Executive and the Executive is given an opportunity, together with
counsel, to be heard before the Board), finding that, in the good faith
opinion of the Board, the Executive is guilty of the conduct described in
subparagraph (i) or (ii) above, and specifying the particulars thereof in
detail.
(c) GOOD REASON. The Executive's employment may be terminated By
the Executive for Good Reason. For purpose of this Agreement, "Good Reason"
shall mean:
(i) the assignment to the Executive of any duties inconsistent in
any respect with the Executive's position (including status, offices, titles
and reporting requirement), authority, duties or responsibilities as
contemplated by Section 4(a) of this Agreement, or any other action by the
Company which results in a diminution in such position, authority, duties or
responsibilities, excluding for this purpose an isolated, insubstantial and
inadvertent action not taken in bad faith and which is remedied by the
Company promptly after receipt of notice thereof given by the Executive;
(ii) any failure by the Company to comply with any of the
provisions of Section 4(b) of this Agreement, other than in isolated,
insubstantial and inadvertent failure not occurring in bad faith and which is
remedied by the Company promptly after receipt of notice thereof given by
the Executive;
(iii) the Company's requiring the Executive to be based at any
office or location other than as provided in Section 4(a) (i) (B) hereof or
the Company's requiring the Executive to travel on Company business to a
substantially greater extent than required immediately prior to the Effective
Date;
(iv) any purported termination by the Company of the Executive's
employment otherwise than as expressly permitted by this Agreement; or
(v) any failure by the Company to comply with and satisfy Section
11 (c) of this Agreement.
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For purposes of this Section 5 (c), any good faith determination of "Good
Reason" made by the Executive shall be conclusive. Anything in the Agreement
to the Contrary notwithstanding, a termination by the Executive for any
reason during the 30-day period immediately following the first anniversary
of the Effective Date shall be deemed to be a termination for Good Reason for
all purposes of this Agreement.
(d) NOTICE OF TERMINATION. Any TERMINATION by the Company for
Cause, or by the Executive for Good Reason, shall be communicated by Notice
of Termination to the other party hereto given in accordance with Section
12(b) of this Agreement. For purposes of this Agreement, a "Notice of
Termination" means a written notice which (i) indicates the specific
termination provision in this Agreement relied upon, (ii) to the extent
applicable, sets forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of the Executive's employment
under the provision so indicated and (iii) if the Date of Termination (as
defined below) is other than the date of receipt of such notice, specifies
that termination date (which date shall be not more than thirty days after
the giving of such notice). The failure by the Executive or the Company to
set forth in the notice of Termination any fact or circumstance which
contributes to a showing of Good Reason or Cause shall not waive any right of
the Executive or the Company, respectively, hereunder or preclude the
Executive or the Company, respectively, from asserting such fact or
circumstance in enforcing the Executive's or the Company's rights hereunder.
(e) DATE OF TERMINATION. "Date of Termination" means (i) if the
Executive's employment is terminated by the Company for Cause, or by the
Executive for Good Reason, the date of receipt of the Notice of Termination
or any later date specified therein, as the case may be, (ii) if the
Executive employment is terminated by the Company other than for Cause or
Disability, the Date of Termination shall be the date on which the Company
notifies the Executive of such termination and (iii) if the Executive's
employment is terminated by reason of death or Disability, the Date of
Termination shall be the date of death of the Executive or the Disability
Effective Date, as the case may be.
6. OBLIGATIONS OF THE COMPANY UPON TERMINATION
(a) GOOD REASON; OTHER THAN FOR CAUSE, DEATH OR DISABILITY. If, during
the Employment Period, the Company shall terminate the Executive's employment
other than for Cause or Disability or the Executive shall terminate
employment for Good Reason:
(i) the Company shall pay to the Executive in a lump sum in cash
within 30 days after the Date of Termination the aggregate of the following
amounts:
A. the sum of (1) the Executive's Annual Base Salary through the
Date of Termination to the extent not theretofore paid, (2) the product of
(x) the higher of
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(i) the Recent Annual Bonus and (ii) the Annual Bonus paid or payable,
including any bonus or portion thereof which has been earned but deferred
(and annualized for any fiscal year consisting of less than twelve full months
or during which the Executive was employed for less than twelve full months),
for the most recently completed fiscal year during the Employment Period, if
any (such higher amount being referred to as the "Highest Annual Bonus") and
(y) a fraction, the numerator of which is the number of days in the current
fiscal year through the Date of Termination, and the denominator of which is
365 and (3) any compensation previously deferred by the Executive (together
with any accrued interest or earnings thereon) and any accrued vacation pay,
in each case to the extent not theretofore paid (the sum of the amounts
described in clauses (1), (2), and (3) shall be hereinafter referred to as the
"Accrued Obligations"); and
B. the amount equal to the product of (1) and (2) the sum of (x) the
Executive's Annual Base Salary and (y) the Highest Annual Bonus; and
C. an amount equal to the contributions to the Executive's account in
the Company's Profit Sharing Plan which the Executive would receive if the
Executive's employment continued for years after the Date of Termination
assuming for this purpose that all such contributions are fully vested, and,
and assuming that the Company's contribution to the Profit Sharing Plan in
each such year is in an amount equal to the greatest amount contributed by
the Company in any of the three years ending prior to the Effective Date.
(ii) for years after the Executive's Date of Termination, or such
longer period as may be provided by the terms of the appropriate plan,
program, practice or policy, the Company shall continue benefits to the
Executive and/or the Executive's family at least equal to those which would
have been provided to them in accordance with the plans, programs, practices
and policies described in Section 4 (b)(iv) of the Agreement if the
Executive's employment has not been terminated or, if more favorable to the
Executive, as in effect generally at any time thereafter with respect to
other peer executives of the Company and its affiliated companies and their
families, provided, however, that if the Executive becomes reemployed with
another employer and is eligible to receive medical or other welfare benefits
under another employer provided plan, the medical and other welfare benefits
described herein shall be secondary to those provided under such other plan
during such applicable period of eligibility.
(iii) the Company shall, at its sole expense as incurred, provide the
Executive with out placement services the scope and provider of which shall
be selected by the Executive in his sole discretion; and
(iv) to the extent not theretofore paid or provided, the Company shall
timely pay or provide to the Executive any other amounts or benefits required
to be
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paid or provided or which the Executive is eligible to receive under any
plan, program, policy or practice or contract or agreement of the Company and
its affiliated companies (such other amounts and benefits shall be hereinafter
referred to as the "Other Benefits").
(b) DEATH. If the Executive's employment is terminated by reason of the
Executive's death during the Employment Period, this Agreement shall
terminate without further obligations to the Executive's legal
representatives under this Agreement, other than for payment of Accrued
Obligations and the timely payment or provision of Other Benefits. Accrued
Obligations shall be paid to the Executive's estate or beneficiary, as
applicable, in a lump sum in cash within 30 days of the Date of Termination.
With respect to the provision of Other Benefits, the term Other Benefits as
utilized in this Section 6 (b) shall include, without limitation, and the
Executive's estate and/or beneficiaries shall be entitled to receive,
benefits at least equal to the most favorable benefits provided by the Company
and affiliated companies to the estates and beneficiaries of peer executives
of the Company and such affiliated companies under such plans, programs,
practices and policies relating to death benefits, if any, as in effect with
respect to other peer executives and their beneficiaries at any time during
the 120-day period immediately preceding the Effective Date or, if more
favorable to the Executive's estate and/or the Executive's beneficiaries, as
in effect on the date of Executive's death with respect to other peer
executive of the Company and its affiliated companies and their beneficiaries.
(c) DISABILITY. If the Executive's employment is terminated by reason of
the Executive's Disability during the Employment Period, this Agreement shall
terminate without further obligations to the Executive, other than for
payment of Accrued obligations and the timely payment or provision of Other
Benefits. Accrued Obligations shall be paid to the Executive in a lump sum in
cash within 30 days of the Date of Termination. With respect to the provision
of Other Benefits, the term Other Benefits as utilized in this Section 6(c)
shall include, and the Executive shall be entitled after the Disability
Effective Date to receive, disability and other benefits at least equal to
the most favorable of those generally provided by the Company and its
affiliated Companies to disabled executives and/or their families in
accordance with such plans, programs, practices and policies relating to
disability, if any, as in effect generally with respect to other peer
executives and their families at any time during the 120-day period
immediately preceding the Effective Date or, if more favorable to the
Executive and/or the Executive's family, as in effect at any time thereafter
generally with respect to other peer executives of the Company and its
affiliated companies and their families.
(d) CAUSE; OTHER THAN FOR GOOD REASON. If the Executive's employment
shall be terminated for Cause during the Employment Period, this Agreement
shall terminate without further obligations to the Executive other than the
obligation to pay
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to the Executive (x) his Annual Base Salary through the Date of Termination,
(y) the amount of any compensation previously deferred by the Executive, and
(z) Other Benefits, in each case to the extent theretofore unpaid. If the
Executive voluntarily terminates employment during the Employment Period,
excluding a termination for Good Reason, this Agreement shall terminate
without further obligations to the Executive, other than for Accrued
Obligations and the timely payment or provision of Other Benefits. In such
case, timely payment or provision of Other Benefits. In such case, all
Accrued Obligations shall be paid to the Executive in a lump sum in cash
within 30 days of the Date of Termination.
7. NON-EXCLUSIVITY OF RIGHTS. Nothing in this Agreement shall prevent or
limit the Executive's continuing or future participation in any plan,
program, policy or practice provided by the Company or any of its affiliated
companies and for which or otherwise affect such rights as the Executive may
have under any contract or agreement with the Company or any of its
affiliated companies. Amounts which are vested benefits or which the
Executive is otherwise entitled to receive under any plan, policy, practice or
program of or any contract or agreement with the Company or any of its
affiliated companies at or subsequent to the Date of Termination shall be
payable in accordance with such plan, policy, practice or program or contract
or agreement except as explicitly modified by this Agreement.
8. FULL SETTLEMENT. The Company's obligation to make the payment
provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any set-off, counterclaim, recoupment,
defense or other claim, right or action which the Company may have against
the Executive or others. In no event shall the Executive be obligated to
seek other employment or take any other action by way of mitigation of the
amounts payable to the Executive under any of the provisions of this
Agreement and such amounts shall not be reduced whether or not the Executive
obtains other employment. The Company agrees to pay as incurred, to the full
extent permitted by law, all legal fees and expenses which the Executive may
reasonably incur as a result of any contest (regardless of the outcome
thereof) by the Company, the Executive or others of the validity or
enforceability of, or liability under, any provision of this Agreement or any
guarantee of performance thereof (including as a result of any contest by the
Executive about the amount of any payment pursuant to this Agreement), plus
in each case interest on any delayed payment at the applicable Federal rate
provided for in Section 7872(f) (2) (A) of the Internal Revenue Code of 1986,
as amended (the "Code").
9. CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY.
(a) Anything in this Agreement to the contrary notwithstanding and
except as set forth below, in the event it shall be determined that any
payment or distribution by the Company to or for the benefit of the Executive
(whether paid or payable or distributed or distributable pursuant to the
terms of this Agreement or
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otherwise, but determined without regard to any additional payments required
under this Section 9) (a "Payment") would be subject to the excise tax
imposed by Section 4999 of the Code or any interest or penalties are incurred
by the Executive with respect to such excise tax (such excise tax, together
with any such interest and penalties, are hereinafter collectively referred
to as the "Excise Tax"), then the Executive shall be entitled to receive an
additional payment (a "Gross-Up Payment") in an amount such that after
payment by the Executive of all taxes (including any interest or penalties
imposed with respect to such taxes), including, without limitation, any
income taxes (and any interest and penalties imposed with respect thereto)
and Excise tax imposed upon the Gross-Up Payment, the Executive retains an
amount of the Gross-Up Payment equal to the Excise Tax imposed upon the
Payments. Notwithstanding the foregoing provisions of this Section 9(a), if
it shall be determined that the Executive is entitled to a Gross-Up Payment,
but that the Payments do not exceed 110% of the greatest amount (the
"Reduced Amount") that could be paid to the Executive such that the receipt
of Payments would not give rise to any Excise Tax, then no Gross-Up Payment
shall be made to the Executive and the Payments, in the aggregate, shall be
reduced to the Reduced Amount.
(b) Subject to the provisions of Section 9(c), all determinations
required to be made under this Section 9, including whether and when a
Gross-Up Payment is required and the amount of such Gross-Up Payment and the
assumptions to be utilized in arriving at such determination, shall be made
by KPMG Peat Marwick or such other certified public accounting firm as may
be designated by the Executive (the "Accounting Firm") which
shall provide detailed supporting calculations both to the Company and the
Executive within 15 business days of the receipt of notice from the Company.
In the event that the Accounting Firm is serving as accountant or auditor for
the individual, entity or group effecting the Change of Control, the
Executive shall appoint another nationally recognized accounting firm to make
the determinations required hereunder (which accounting firm shall then be
referred to as the Accounting Firm hereunder). All fees and expenses of the
Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment,
as determined pursuant to this Section 9, shall be paid by the Company to the
Executive within five days of the receipt of the Accounting Firm's
determination. Any determination by the Accounting Firm shall be binding upon
the Company and the Executive. As a result of the uncertainty in the
application of Section 4999 of the Code at the time of the initial
determination by the Accounting firm hereunder, it is possible that Gross-Up
Payments which will not have been made by the Company should have been made
("Underpayment"), consistent with the calculations required to be made
hereunder. In the event that the Company exhausts its remedies pursuant to
Section 9 (c) and the Executive thereafter is required to make a payment of
any Excise Tax, the Accounting Firm shall determine the amount of the
Underpayment that has occurred and any such Underpayment shall be promptly
paid by the Company to or for the benefit of the Executive.
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(c) The Executive shall notify the Company in writing of any claim by
the Internal Revenue Service that, if successful, would require the payment by
the Company of the Gross-Up Payment. Such notification shall be given as
soon as practicable but no later than ten business days after the Executive is
informed in writing of such claim and shall apprise the Company of the nature
of such claim and the date on which such claim is requested to be paid. The
Executive shall not pay such claim prior to the expiration of the 30-day
period following the date on which it gives such notice to the Company (or
such shorter period ending on the date that any payment of taxes with respect
to such claim is due). If the Company notifies the Executive in writing prior
to the expiration of such period that it desires to contest such claim, the
Executive shall:
(i) give the Company any information reasonably requested by the
Company relating to such claim,
(ii) take such action in connection with contesting such claim as
the Company shall reasonably request in writing from time to time, including,
without limitation, accepting legal representation with respect to such claim
by an attorney reasonably selected by the Company.
(iii) cooperate with the Company in good faith in order effectively
to contest such claim, and
(iv) permit the Company to participate in any proceedings relating
to such claim;
provide, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation
and payment of costs and expenses. Without limitation on the foregoing
provisions of this Section 9(c), the Company shall control all proceedings
taken in connection with such contest and, at its sole option, may pursue or
forgo any and all administrative appeals, proceedings, hearings and conferences
with the taxing authority in respect of such claim and may, at its sole option,
either direct the Executive to pay the tax claimed and sue for a refund or
contest the claim in any permissible manner, and the Executive agrees to
prosecute such contest to a determination before any administrative tribunal,
in a court of initial jurisdiction and in one or more appellate courts, as the
Company shall determine; provided, however, that if the Company directs the
Executive to pay such claim and sue for a refund, the Company shall advance
the amount of such payment to the Executive, on an interest-free basis and
shall indemnify and hold the Executive harmless, on an after-tax basis, from
any Excise Tax or income tax (including interest
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or penalties with respect thereto) imposed with respect to such advance or
with respect to any imputed income with respect to such advance; and further
provided that any extension of the statute of limitations relating to payment
of taxes for the taxable year of the Executive with respect to which such
contested amount is claimed to be due is limited solely to such contested
amount. Furthermore, the Company's control of the contest shall be limited to
issues with respect to which a Gross-Up Payment would be payable hereunder and
the Executive shall be entitled to settle or contest, as the case may be,
any other issue raised by the Internal Revenue Service or any other taxing
authority.
(d) If, after the receipt by the Executive of an amount advanced by the
Company pursuant to Section 9 (c), the Executive becomes entitled to receive
any refund with respect to such claim, the Executive shall (subject the
Company's complying with the requirements of Section 9 (c) promptly pay to the
Company the amount of such refund (together with any interest paid or credited
thereon after taxes applicable thereto). If, after the receipt by the
Executive of an amount advanced by the Company pursuant to Section 9 (c), a
determination is made that the Executive shall not be entitled to any refund
with respect to such claim and the Company does not notify the Executive in
writing of its intent to contest such denial of refund prior to the expiration
of 30 days after such determination, then such advance shall be forgiven and
shall not be required to be repaid and the amount of such advance shall offset,
to the extent thereof, the amount of Gross-Up Payment required to be paid.
10. CONFIDENTIAL INFORMATION: The Executive shall hold in a fiduciary
capacity for the benefit of the Company all secret or confidential information,
knowledge or data relating to the Company or any of its affiliated companies,
and their respective businesses, which shall have been obtained by the
Executive during the Executive's employment by the Company or any of its
affiliated companies and which shall not be or become public knowledge (other
than by acts by the Executive or representative of the Executive in violation
of this Agreement). After termination of the Executive's employment with the
Company, the Executive shall not, without the prior written consent of the
Company or as may otherwise be required by law or legal process, communicate
or divulge any such information, knowledge or data to anyone other than the
Company and those designated by it. In no event shall an asserted violation
of the provisions of this Section 10 constitute a basis for deferring or
withholding any amounts otherwise payable to the Executive under this
Agreement.
11. SUCCESSORS. (a) This Agreement is personal to the Executive and
without the prior written consent of the Company shall not be assignable by the
Executive otherwise than by will or the laws of descent and distribution. This
Agreement shall inure to the benefit of and be enforceable by the Executive's
legal representative.
(b) This Agreement shall inure to the benefit of and be binding upon the
Company and its successors and assigns.
14
<PAGE>
(c) The Company will require any successor (whether direct or indirect,
by purchase, merger, consolidation or otherwise) to all or substantially all
of the business and/or assets of the Company to assume expressly and agree to
perform this Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such succession had taken
place. As used in this Agreement, "Company" shall mean the Company as
hereinbefore defined and any successor to its business and/or assets as
aforesaid which assumes and agrees to perform this Agreement by operation of
law, or otherwise.
12. MISCELLANEOUS. (a) This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware, without
reference to principles of conflict of laws. The captions of this Agreement
are not part of the provisions hereof and shall have no force or effect. This
Agreement may not be amended or modified otherwise than by a written
agreement executed by the parties hereto or their respective successors and
legal representatives.
(b) All notices and other communications hereunder shall be in writing
and shall be given by hand delivery to the other party or by registered
certified mail, return receipt requested, postage prepaid, addressed as
follows:
IF TO THE EXECUTIVE:
IF TO THE COMPANY: City National Bank
400 North Roxbury Drive
Beverly Hills, CA 90210
Attention: General Counsel
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
(c) The invalidity of unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.
(d) The Company may withhold from any amounts payable under this
Agreement such Federal, state, local or foreign taxes as shall be required to
be withheld pursuant to any applicable law or regulation.
(e) The Executive's or the Company's failure to insist upon strict
compliance with any provision of this Agreement or the failure to assert any
right the Executive or the Company may have hereunder, including, without
limitation, the right of the Executive to terminate employment for Good
Reason pursuant to Section 5(c)
15
<PAGE>
(i) - (v) of this Agreement, shall not be deemed to be a waiver of such
provision or right or any other provision or right of the Agreement.
(f) The Executive and the Company acknowledge that, except as may
otherwise be provided under any other written agreement between the Executive
and the Company, the employment of the Executive by the Company is "at will"
and, subject to Section 1(a) hereof, prior to the Effective Date, the
Executive's employment and/or this Agreement may be terminated by either the
Executive or the Company at any time prior to the Effective Date, in which
case the Executive shall have no further rights under this Agreement. From
and after the Effective Date of this Agreement shall supersede any other
agreement between the parties with respect to the subject matter hereof.
IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand and,
pursuant to the authorization from its Board of Directors, the Company has
caused these presents to be executed in its name on its behalf, all as of the
day and year first above written.
-----------------------------
CITY NATIONAL CORPORATION
By /s/ RICHARD SHEEHAN, JR.
---------------------------
Richard Sheehan, Jr.
16
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 374,309
<INT-BEARING-DEPOSITS> 275
<FED-FUNDS-SOLD> 280,000
<TRADING-ASSETS> 29,484
<INVESTMENTS-HELD-FOR-SALE> 606,313
<INVESTMENTS-CARRYING> 219,395
<INVESTMENTS-MARKET> 220,785
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<ALLOWANCE> 137,043
<TOTAL-ASSETS> 5,702,122
<DEPOSITS> 4,370,083
<SHORT-TERM> 537,244
<LIABILITIES-OTHER> 57,752
<LONG-TERM> 199,004
0
0
<COMMON> 46,832
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<TOTAL-LIABILITIES-AND-EQUITY> 5,702,122
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<INTEREST-OTHER> 1,108
<INTEREST-TOTAL> 103,448
<INTEREST-DEPOSIT> 20,832
<INTEREST-EXPENSE> 30,624
<INTEREST-INCOME-NET> 72,824
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 974
<EXPENSE-OTHER> 54,366
<INCOME-PRETAX> 34,823
<INCOME-PRE-EXTRAORDINARY> 34,823
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 22,469
<EPS-PRIMARY> 0.48
<EPS-DILUTED> 0.46
<YIELD-ACTUAL> 8.55
<LOANS-NON> 36,775
<LOANS-PAST> 10,015
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<FN>
<F1>ADJUSTED FOR ACQUISITION OF HARBOR BANK
</FN>
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