<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 September 30, 1998 Commission File Number 1-10521
CITY NATIONAL CORPORATION
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 95-2568550
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(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 October 31, 1998: 45,889,186
<PAGE>
PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CITY NATIONAL CORPORATION
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30,
DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS 1998 1997 1997
- -------------------------------------------- ------------- ------------ -------------
A S S E T S
<S> <C> <C> <C>
Cash and due from banks ................................................... $ 326,313 $ 327,398 $ 355,207
Interest-bearing deposits in other banks .................................. 343 301 309
Federal funds sold ........................................................ 122,000 150,000 150,000
Investment securities (fair value $195,844; $227,465 and $229,444 at
September 30, 1998, December 31, 1997 and September 30, 1997,
respectively) ......................................................... 192,771 225,934 228,452
Securities available-for-sale (cost $715,707; $597,910 and $582,134 at
September 30, 1998, December 31, 1997 and September 30, 1997,
respectively) ......................................................... 734,391 607,188 586,751
Trading account securities ................................................ 48,712 30,279 23,988
Loans ..................................................................... 4,343,796 3,825,224 3,530,122
Less allowance for credit losses .......................................... 135,486 137,761 137,850
----------- ----------- -----------
Net loans ............................................................. 4,208,310 3,687,463 3,392,272
Premises and equipment, net ............................................... 52,659 43,402 40,704
Customers' acceptance liability ........................................... 2,101 1,553 3,341
Deferred tax asset ........................................................ 43,005 58,815 55,838
Goodwill and core deposit intangibles ..................................... 63,867 54,921 58,122
Bank owned life insurance ................................................. 41,989 -- --
Other assets .............................................................. 70,847 64,778 79,675
----------- ----------- -----------
Total assets .......................................................... $ 5,907,308 $ 5,252,032 $ 4,974,659
----------- ----------- -----------
----------- ----------- -----------
L I A B I L I T I E S
Demand deposits ........................................................... $ 2,016,327 $ 2,027,014 $ 1,667,458
Interest checking deposits ................................................ 351,817 439,071 345,367
Money market deposits ..................................................... 926,592 773,291 799,488
Savings deposits .......................................................... 170,338 171,100 169,619
Time deposits-under $100,000 .............................................. 190,580 204,744 217,756
Time deposits-$100,000 and over ........................................... 793,018 613,128 614,489
----------- ----------- -----------
Total deposits ........................................................ 4,448,672 4,228,348 3,814,177
Federal funds purchased and securities sold under repurchase agreements ... 459,466 206,427 191,613
Other short-term borrowings ............................................... 77,059 212,575 415,047
Subordinated debt ......................................................... 123,217 -- --
Long-term debt ............................................................ 200,000 50,000 9,800
Other liabilities ......................................................... 55,160 44,459 53,781
Acceptances outstanding ................................................... 2,101 1,553 3,341
----------- ----------- -----------
Total liabilities ..................................................... 5,365,675 4,743,362 4,487,759
----------- ----------- -----------
COMMITMETS 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- 46,885,182; 46,700,891 and 46,700,891 shares at September 30,
1998, December 31, 1997 and September 30, 1997
respectively) ......................................................... 46,885 46,701 46,701
Additional paid-in capital ................................................ 289,508 297,654 298,724
Accumulated comprehensive income .......................................... 10,772 5,349 2,662
Retained earnings ......................................................... 224,932 173,089 156,474
Treasury shares, at cost - 896,907; 563,928 and 731,752 shares at
September 30, 1998, December 31, 1997 and September 30, 1997
respectively) ......................................................... (30,464) (14,123) (17,661)
----------- ----------- -----------
Total shareholders' equity ............................................ 541,633 508,670 486,900
----------- ----------- -----------
Total liabilities and shareholders' equity ............................ $ 5,907,308 $ 5,252,032 $ 4,974,659
----------- ----------- -----------
----------- ----------- -----------
</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 THREE MONTHS FOR THE NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
------------------------- --------------------------
IN THOUSANDS, EXCEPT PER SHARE AMOUNTS 1998 1997 1998 1997
- -------------------------------------- --------- --------- --------- ----------
<S> <C> <C> <C> <C>
I N T E R E S T I N C O M E
Loans.................................... $ 93,490 $ 78,651 $ 273,195 $ 223,679
Federal funds sold and securities
purchased under resale agreements..... 420 313 1,827 896
Investments securities................... 2,776 3,242 8,700 9,356
Securities available-for-sale............ 9,944 9,298 28,440 28,424
Trading account.......................... 880 691 2,155 1,843
--------- -------- --------- ---------
Total................................. 107,510 92,195 314,317 264,198
--------- -------- --------- ---------
I N T E R E S T E X P E N S E
Deposits................................. 22,786 19,081 65,111 53,607
Federal funds purchased and securities
sold under repurchase agreements...... 5,713 2,480 15,280 8,888
Other short-term borrowings.............. 690 5,247 4,027 12,080
Subordinated debt........................ 2,081 -- 5,873 --
Other long-term debt..................... 2,559 804 5,249 2,476
--------- -------- --------- ---------
Total................................. 33,829 27,612 95,540 77,051
--------- -------- --------- ---------
Net interest income...................... 73,681 64,583 218,777 187,147
PROVISION FOR CREDIT LOSSES................. -- -- -- --
--------- -------- --------- ---------
Net interest income after provision
for credit losses..................... 73,681 64,583 218,777 187,147
--------- -------- --------- ---------
N O N I N T E R E S T I N C O M E
Service charges on deposit accounts...... 3,821 3,256 13,031 9,885
Investment services...................... 4,482 3,511 11,900 9,655
Trust fees............................... 2,282 2,257 6,735 6,427
International services................... 2,206 1,912 5,929 5,279
Bank owned life insurance................ 546 -- 1,589 --
Gain on sale of assets................... 223 384 1,881 1,423
Gain (loss) on sale of securities........ 1,120 (224) 2,329 (763)
Other.................................... 2,118 1,952 7,115 7,181
--------- -------- --------- ---------
Total noninterest income.............. 16,798 13,048 50,509 39,087
--------- -------- --------- ---------
N O N I N T E R E S T E X P E N S E
Salaries and other employee benefits..... 29,489 25,308 87,072 73,421
Professional............................. 5,537 5,572 19,408 14,400
Net occupancy of premises................ 3,379 2,407 9,247 7,504
Data processing.......................... 1,125 2,393 3,454 7,199
Promotion................................ 1,784 1,938 7,138 5,660
Depreciation............................. 2,290 1,498 6,369 4,234
Office services.......................... 1,703 1,761 5,686 4,893
Equipment................................ 607 484 1,616 1,679
Amortization of goodwill and core
deposit intangibles................... 1,737 1,345 5,119 4,546
Other operating.......................... 3,380 3,038 13,346 11,480
Other real estate........................ (172) (797) (257) (830)
--------- -------- --------- ---------
Total noninterest expense............. 50,859 44,947 158,198 134,186
--------- -------- --------- ---------
INCOME BEFORE INCOME TAXES............... 39,620 32,684 111,088 92,048
Income taxes............................. 14,231 11,790 39,594 33,593
--------- -------- --------- ---------
NET INCOME............................... 25,389 20,894 71,494 58,455
--------- -------- --------- ---------
Other comprehensive income
Unrealized net gains on securities
available-for-sale.............. 5,693 6,069 11,735 7,581
Less: reclassification adjustment for
gains included in income........ (1,120) 224 (2,329) 763
Income taxes.......................... 2,163 2,673 3,983 3,533
--------- -------- --------- ---------
Other comprehensive income............... 2,410 3,620 5,423 4,811
--------- -------- --------- ---------
COMPREHENSIVE INCOME..................... $ 27,799 $ 24,514 $ 76,917 $ 63,266
--------- -------- --------- ---------
--------- -------- --------- ---------
NET INCOME PER SHARE, BASIC............. $ 0.55 $ 0.45 $ 1.54 $ 1.27
--------- -------- --------- ---------
--------- -------- --------- ---------
NET INCOME PER SHARE, DILUTED........... $ 0.53 $ 0.44 $ 1.48 $ 1.22
--------- -------- --------- ---------
--------- -------- --------- ---------
Shares used to compute income per
share, basic.......................... 46,230 45,993 46,504 46,009
--------- -------- --------- ---------
--------- -------- --------- ---------
Shares used to compute income per
share, diluted........................ 47,842 47,846 48,352 47,734
--------- -------- --------- ---------
--------- -------- --------- ---------
Dividends per share...................... $ 0.14 $ 0.11 $ 0.42 $ 0.33
--------- -------- --------- ---------
--------- -------- --------- ---------
</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 NINE MONTHS ENDED
SEPTEMBER 30,
------------------------------
DOLLARS IN THOUSANDS 1998 1997
- -------------------- ----------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income ........................................................... $ 71,494 $ 58,455
Adjustments to net income:
Gain (loss) on sales of ORE....................................... 446 (1,556)
Depreciation...................................................... 6,369 4,234
Amortization of goodwill and core deposit intangibles ............ 5,119 4,546
Net (increase) decrease in trading securities..................... (18,433) 8,141
Deferred income tax benefit....................................... 16,695 5,919
Net increase in other liabilities ................................ 56 5,538
Other, net........................................................ 8,286 (7,291)
---------- ----------
Net cash provided by operating activites...................... 90,032 77,986
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Net (increase) decrease in short-term investments..................... (42) 10,669
Purchase of securities available-for-sale............................. (397,941) (288,767)
Sales of securities available-for-sale................................ 225,649 340,762
Maturities of securities available-for-sale........................... 64,334 40,635
Maturities of investment securities................................... 37,217 9,379
Purchase of investment securities..................................... (3,971) (41,996)
Purchase of residential mortgage loans................................ (32,396) (74,681)
Sale of residential mortgage loans.................................... - 47,513
(Loan originations) and principal collections, net.................... (351,441) (334,623)
Proceeds from sales of ORE............................................ 2,062 16,918
Purchase of premises and equipment ................................... (13,302) (13,087)
Net cash from acquisitions............................................ 43,622 42,876
Bank owned life insurance premium paid ............................... (40,399) -
Gain (loss) on sale of securities .................................... 2,329 (763)
Other, net............................................................ 668 1,227
---------- ----------
Net cash used by investing activities............................. (463,611) (243,938)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net decrease in federal funds purchased and securities sold under
repurchase agreements............................................. (71,961) (2,936)
Net increase (decrease) in deposits................................... 14,724 (23,525)
Net increase in short-term borrowings................................. 189,484 266,405
Net increase (decrease) in other long-term debt....................... 150,000 (25,000)
Net proceeds of subordinated debt .................................... 124,055 -
Proceeds from excercise of stock options.............................. 10,417 9,411
Stock repurchases..................................................... (55,711) (22,502)
Cash dividends paid................................................... (19,651) (15,247)
Other, net............................................................ 3,137 2,307
---------- ----------
Net cash provided by financing activities......................... 344,494 188,913
---------- ----------
Net (decrease) increase in cash and cash equivalents.................. (29,085) 22,961
Cash and cash equivalents at beginning of year........................ 477,398 482,246
---------- ----------
Cash and cash equivalents at end of period............................ $ 448,313 $ 505,207
---------- ----------
---------- ----------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest ..................................................... $ 90,294 $ 73,866
Income taxes.................................................. 24,450 29,902
Non-cash investing activities:
Transfer from loans to foreclosed assets ..................... 2,445 11,433
</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 NINE MONTHS ENDED
SEPTEMBER 30,
-------------------------
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 ............................. 53 398
--------- ---------
Balance, end of period .............................. 46,885 46,701
--------- ---------
Additional paid-in capital
Balance, beginning of period ....................... 297,654 275,610
Stock options exercised ............................. - 2,620
Tax benefit from stock options ...................... 3,137 2,307
Excess of cost of treasury shares reissued
over stock option exercise amounts .............. (18,190) -
Excess of market value of shares issued
for acquisitions over historical cost ........... 6,907 18,187
--------- ---------
Balance, end of period .............................. 289,508 298,724
--------- ---------
Treasury shares
Balance, beginning of period ....................... (14,123) (32,283)
Purchase of shares ................................. (55,711) (22,502)
Issuance of shares for acquisitions ................. 10,817 30,643
Issuance of shares for stock options ................ 28,553 6,481
--------- ---------
Balance, end of period .............................. (30,464) (17,661)
--------- ---------
Accumulated comprehensive income
Balance, beginning of period ....................... 5,349 (2,149)
Unrealized net gains on securities
available-for-sale net of income taxes .......... 5,423 4,811
--------- ---------
Balance, end of period .............................. 10,772 2,662
--------- ---------
Retained earnings
Balance, beginning of period ...................... 173,089 113,266
Net income .......................................... 71,494 58,455
Dividends paid ...................................... (19,651) (15,247)
--------- ---------
Balance, end of period .............................. 224,932 156,474
--------- ---------
Total shareholders' equity ................................ $541,633 $486,900
--------- ---------
--------- ---------
</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 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 June 1998, the Financial Accounting Standard Board "FASB" issued
Statement of Financial Accounting Standards "SFAS" No. 133, "Accounting for
Derivative Instruments and Hedging Activities". This Statement establishes
accounting and reporting standards for derivative instruments and for
hedging activities. This Statement is effective for fiscal years beginning
after June 15, 1999. Management of the Company uses interest rate swaps,
which are accounted for as hedging activities, to manage interest rate
exposure. Therefore, management is in the process of determining the impact
that this statement will have on the Company.
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits". 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. Since the Company has no defined benefit
plans, it has determined that this Statement will have no significant
impact.
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 in which 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 No. 14 "Financial
Reporting for Segments of a Business Enterprise". SFAS 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 years 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 on 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 core
deposit 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.
On May 15, 1998, the Company closed its Magnolia branch, which was acquired
in the Company's acquisition of Riverside National Bank.
6
<PAGE>
5. On January 12, 1998, City National Bank 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 to current
period presentation.
8. In September, the Company completed a 1.0 million common shares stock
buyback program that had been announced in April, at a cost of $34.3
million or an average price of $34.27 per share. Concurrently, a new 1.0
million-share common stock buyback program was announced. Shares are
repurchased from time to time in open market transactions. As of October
31, 1998, the Company had repurchased 128,000 shares under this program at
a total cost of $3.5 million, or an average price of $27.38 per share.
Shares purchased under the buyback program will be reissued upon the
exercise of stock options and for other general corporate purposes.
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.
See "Cautionary Statement for Purposes of the `Safe Harbor' Provision of the
Private Securities Litigation Reform Act of 1995", below in connection with
"forward looking" statements included in the Overview section of Results of
Operations and in the Loan Portfolio section of the Balance Sheet Analysis.
The Company regularly evaluates, and holds discussions with, various potential
acquisition candidates. As a general rule the Company does not publicly announce
such acquisitions until after a definitive agreement has been reached, as in the
September 24, 1998 announcement of the acquisition of North American Trust
Company, an independent trust company and subsidiary of London Pacific Group,
for $11.5 million in an all cash transaction. North American Trust Company has
approximately $4 billion in total assets under management or administration.
Also as a matter of policy, the Company generally does not make any specific
projections as to future earnings nor does it endorse any projections regarding
future performance which may be made by others.
RESULTS OF OPERATIONS
OVERVIEW
The Company recorded consolidated net income of $25.4 million, or $.53 per
diluted common share, in the third quarter of 1998, compared to $20.9 million,
or $.44 per diluted common share, in the third quarter of 1997. Increased net
income was primarily due to $9.1 million higher net interest income, and $3.8
million higher noninterest income, partially offset by $5.9 million in higher
noninterest expense.
Net income for the first nine months of 1998 totaled $71.5 million, or $1.48 per
diluted common share compared with $58.5 million, or $1.22 per diluted common
share in the 1997 period. The nine month increase resulted largely from a $31.6
million increase in net interest income and a $11.4 million increase in
noninterest income, partially offset by a $24.0 million increase in noninterest
expense.
Returns on average assets for the third quarter and first nine months of 1998
were 1.78% and 1.74% respectively compared with 1.74% and 1.69% for the
corresponding periods of 1997. Returns on average equity for the third quarter
and first nine months of 1998 increased to 18.70% and 17.86% respectively from
17.26% and 16.80% in 1997.
Earnings before the amortization of goodwill and core deposits intangibles (net
of applicable taxes) ("cash" earnings) for the quarter and nine months ended
September 30, 1998 were $26.6 million or $.56 per diluted common share and $75.6
million or $1.56 per diluted common share, respectively compared to $21.9
million or $.46 per diluted common share and $61.6 million or $1.29 per diluted
common share in the corresponding periods of 1997. On the same basis, the
returns on average assets were 1.88% and 1.86% for the quarter and nine months
ended September 30, 1998, respectively compared to 1.84% and 1.80% in the 1997
periods. Cash returns on average common equity were 21.91% and 20.98% for the
quarter and nine months ended September 30, 1998, respectively compared to
20.04% and 19.69% for the year ago periods. "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 $76.3 million in the third quarter of
1998, up 13.7% from the year ago quarter. The increase resulted from a 20.3%
increase in average interest earning assets between quarters. The net interest
spread and the net interest margin decreased to 4.16% and 5.79%, respectively
for the third quarter from 4.61% and 6.13%, for the comparable period a year
ago. Management expects net interest income to be essentially flat for the
remainder of the year reflecting higher loan balances but lower rates. Actual
results may vary if the assumption proves to be incorrect.
8
<PAGE>
Average loans increased $848.4 million (24.6%) between third quarters to
$4,302.8 million for quarter ended September 30, 1998. This increase reflected
higher average commercial, construction, real estate commercial mortgage and
residential first mortgage loans outstanding, up $588.4 million (35.6%), $90.1
million (67.7%), $85.1 million (12.8%) and $79.1 million (8.3%), 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 commercial mortgage loans was
primarily from the acquisition of HB. The increases in construction loans and
residential first mortgage loans resulted from the Bank's internal loan
generation.
Total average deposits increased $672.6 million (18.6%) between third quarters
due primarily to the acquisition of HB as well as increased deposit levels
generated by the Bank's specialty deposit department and existing branches.
For the first nine months of 1998, average loans increased $834.1 million
(25.2%) and total average investment and available-for-sale securities decreased
$18.8 million (2.3%) over the same period of 1997. Total deposits for the nine
months ended September 30, 1998 increased $658.0 million (18.6%) compared to the
1997 period. The change in the nine month average balance resulted from the same
factors that caused the change between the third quarter average balances.
The provision for credit losses was zero for the quarters and nine months ended
September 30, 1998 and 1997. Loans charged off in the third quarter of 1998 were
$3.1 million, compared to $3.4 million in the third quarter of 1997. Recoveries
were $2.8 million and $8.3 million in the quarters ended September 30, 1998 and
1997, respectively. The allowance for credit losses was 3.12% of total loans at
September 30, 1998 compared to 3.90% at September 30, 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, a higher provision for
credit losses may be required.
Noninterest income excluding gains and losses on the sale of securities and
assets totaled $15.5 million for the third quarter of 1998, up $2.6 million
(19.9%) from a year earlier. For the nine months ended September 30, 1998,
noninterest income, excluding gains and losses on sale of securities and
assets, totaled $46.3 million, an increase of $7.9 million (20.5%) from last
year's total of $38.4 million. Service charges on deposit accounts increased
$0.6 million (17.4%) and $3.1 million (31.8%), respectively, for the quarter
and nine months ended September 30, 1998 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 $1.0 million
(27.7%) and $2.2 million (23.3%) compared to the same periods a year ago due
to new customers and new investment products offered to customers. During the
first quarter of 1998, the company invested in bank owned life insurance that
generated $0.5 million and $1.6 million in noninterest income in the third
quarter and first nine months of 1998, respectively. Noninterest income is
expected to continue to grow during the remainder of 1998 and will benefit
from the acquisition of North American Trust Company when the transaction is
completed.
Noninterest expense totaled $50.9 million in the third quarter of 1998, an
increase of $5.9 million (13.2%) from the third quarter of 1997. For the nine
months of 1998, noninterest expense totaled $158.2 million, an increase of
$24.0 million (17.9%) from the same period last year. Salaries and other
employee benefits increased $4.2 million (16.5%) and $13.7 million (18.6%)
for the quarter and nine months ended September 30, 1998 from the comparable
periods in 1997, due primarily to the additional personnel added as a result
of the acquisition of HB, the hiring of additional personnel to pursue other
opportunities, and moving to a more performance-based compensation structure.
The expense categories, other than staff, increased $1.7 million (8.8 %) and
$10.4 million (17.1%) for the quarter and nine months ended September 30,
1998 from the comparable periods in 1997. For the quarter increases in net
occupancy of premises ($1.0 million), due to the HB acquisition, and
depreciation ($0.8 million), due to capital expenditures in 1997, were the
major contributors to higher expenses. In addition to the year to date
increases in these categories, increases in professional expenses resulted
primarily from higher customer service expense due to increased volumes and
higher consulting fees, and higher promotion expense resulted from the
Company's increased advertising program. Amortization of goodwill and core
deposit intangibles for the third quarter was $1.7 million and increased to
$5.1 million for the first nine months of 1998 from $4.5 million in the same
period of 1997, reflecting primarily the
9
<PAGE>
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.
The Year 2000 issue is the result of computer programs written using two
digits (rather than four) to define years. Computers or other equipment with
date-sensitive software may recognize "00" as 1900 rather than 2000. This
could result in system failure or miscalculations. If the Company or
significant customers, suppliers or other third parties fail to correct Year
2000 issues, the Company's ability to operate could be affected.
During the third quarter, efforts continued to address Year 2000 matters in
accordance with the Company's five-phase project plan which covers
information technology as well as embedded systems. The five phases are
awareness, assessment, renovation, validation and implementation with
contingency planning as a part of the validation phase. As previously
reported, the first two phases of awareness and assessment have been
completed. The Company has now completed approximately 80% of its renovation
phase. The renovation phase pertains to internal programs and applications
that are not mission critical. As part of the validation phase, the Company
has completed development of its test lab and has already certified as Year
2000 compliant 80% of its hardware, and software applications. On October 4,
1998, M&I, the Bank's core processing provider, successfully completed the
Year 2000 upgrade of its software. The upgrade had no production impact on
either Bank customers or the Bank. Final Year 2000 certification will be
completed with M&I by the end of the first quarter of 1999. In accordance
with the Federal Financial Institution Examination Council's latest guidance,
the Company expects to complete its implementation of mission critical
internal and external systems and applications by June 30, 1999. The Company
has developed a contingency plan for each of its mission critical business
functions. The plan establishes trigger dates by which the contingency plan
will be implemented for each vendor who is not Year 2000 compliant. However,
these plans do not guarantee that circumstances beyond the Company's control
will not adversely impact operations. At this time based on assessments and
testing to date, the Company does not foresee any Year 2000 issues that would
materially impair the Bank's ability to conduct business.
The Company is engaged in the ongoing process of considering and examining
whether or not there would be a material effect on its business, net income
or balance sheet if its vendors, suppliers and customers do not become Year
2000 compliant in a timely manner. With regard to customer readiness the
Company has queried all borrowers with loans of $1.0 million and over. For
those customers having responded, it has been determined that the customer
base would either be only slightly impacted by Year 2000 matters or the
customer's compliance efforts at this time are satisfactory to the point
where the Company has determined there would not be a material effect on the
Company. In addition, there is a group of customers that have indicated that
their compliance will be in the future and the Company continues to monitor
their progress. Wherein the Company is a third party vendor, as in the area
of cash management, it is believed at this time, that the Company will reach
compliance by March 31, 1999. However, if the Company is not compliant, the
customer will be allowed to terminate their contract. The loss of revenue
from this type of relationship would not be material. In terms of our
corporate counterparts for Asset/Liability Management and the International
Department, the Company's analysis of the corporate counterparts is underway
and the effect if any should be finalized by March 31, 1999.
In the third quarter of 1998, approximately $0.5 million was spent on Year 2000
matters, bringing the nine months total expenditures to approximately $1.2
million.
The Company's effective tax rate of 35.9% in the third quarter of 1998 was
slightly higher than the previous quarter and essentially unchanged from the
previous year's third quarter.
10
<PAGE>
The following table presents the components of net interest income on a fully
taxable equivalent basis for the three months ended September 30, 1998 and 1997.
NET INTEREST INCOME SUMMARY
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998 SEPTEMBER 30, 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>
A S S E T S
Earning assets(1)
Loans:
Commercial $ 2,241,282 $ 49,867 8.83% $ 1,652,857 $ 39,342 9.44%
Residential first mortgages 1,035,779 19,966 7.65 956,729 18,477 7.66
Real estate - construction 223,136 6,543 11.63 133,054 4,084 12.18
Real estate - commercial mortgage 751,291 17,369 9.17 666,195 16,373 9.75
Installment 51,345 958 7.40 45,550 1,295 11.28
-------------- ---------- ------------- ----------
Total loans(2) 4,302,833 94,703 8.73 3,454,385 79,571 9.14
Due from banks-interest bearing 9,282 144 6.15 413 2 1.92
State and municipal investment securities 103,175 1,799 6.92 108,715 1,916 6.99
Taxable investment securities 95,005 1,477 6.17 122,231 2,010 6.52
Securities available for sale 620,063 10,601 6.78 586,648 10,143 6.86
Federal funds sold and securities
purchased under resale agreements 31,067 420 5.36 21,918 313 5.67
Trading account securities 63,555 951 5.94 49,455 763 6.12
-------------- ---------- ------------- ----------
Total earning assets 5,224,980 110,095 8.36 4,343,765 94,718 8.65
---------- ----------
Allowance for credit losses (136,083) (135,597)
Cash and due from banks 304,435 337,037
Other nonearning assets 275,427 224,273
-------------- -------------
Total assets $ 5,668,759 $ 4,769,478
-------------- -------------
-------------- -------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing deposits:
Interest checking accounts $ 372,978 929 0.99 $ 347,785 881 1.01
Money market accounts 917,014 7,128 3.08 804,442 6,163 3.04
Savings deposits 166,525 1,542 3.67 167,650 1,433 3.39
Time deposits - under $100,000 193,123 2,584 5.31 223,996 2,909 5.15
Time deposits - $100,000 and over 780,447 10,603 5.39 561,287 7,695 5.44
-------------- ---------- ------------- ----------
Total interest - bearing deposits 2,430,087 22,786 3.72 2,105,160 19,081 3.60
Federal funds purchased and securities
sold under repurchase agreements 414,103 5,713 5.47 183,749 2,480 5.35
Other borrowings 350,958 5,330 6.03 422,808 6,051 5.68
-------------- ---------- ------------- ----------
Total interest - bearing liabilities 3,195,148 33,829 4.20 2,711,717 27,612 4.04
---------- ----------
Noninterest - bearing deposits 1,866,634 1,518,937
Other liabilities 68,467 58,524
Shareholders' equity 538,510 480,300
-------------- -------------
Total liabilities and shareholders'
equity $ 5,668,759 $ 4,769,478
-------------- -------------
-------------- -------------
Net interest spread 4.16% 4.61%
---- ----
---- ----
Fully taxable equivalent net interest income $ 76,266 $ 67,106
---------- ----------
---------- ----------
Net interest margin 5.79% 6.13%
---- ----
---- ----
</TABLE>
(1) Includes average nonaccrual loans of $31,239 and $36,483 for 1998 and
1997, respectively.
(2) Loan income includes loan fees of $3,116 and
$2,630 for 1998 and 1997, respectively.
11
<PAGE>
The following table presents the components of net interest income on a fully
taxable equivalent basis for the nine months ended September 30, 1998 and 1997.
NET INTEREST INCOME SUMMARY
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998 SEPTEMBER 30, 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>
A S S E T S
Earning assets (1)
Loans:
Commercial $ 2,128,408 $144,618 9.08% $ 1,570,668 $110,040 9.34%
Residential first mortgages 1,028,118 58,684 7.63 935,067 54,584 7.80
Real estate - construction 174,332 14,763 11.32 122,766 10,766 11.72
Real estate - commercial mortgage 760,594 54,768 9.63 633,082 46,848 9.89
Installment 51,340 3,808 9.92 47,075 3,780 10.74
------------- ----------- ------------ ---------
Total loans (2) 4,142,792 276,641 8.93 3,308,658 226,018 9.13
Due from banks-interest bearing 6,391 283 5.92 2,825 100 4.73
State and municipal investment securities 104,942 5,313 6.77 104,547 5,500 7.03
Taxable investment securities 105,488 5,006 6.34 117,123 5,725 6.54
Securities available for sale 601,186 30,727 6.83 608,742 30,840 6.77
Federal funds sold and securities
purchased under resale agreements 43,850 1,827 5.57 22,012 896 5.44
Trading account securities 52,650 2,349 5.97 46,004 2,000 5.81
------------- ----------- ------------ ---------
Total earning assets 5,057,299 322,146 8.52 4,209,911 271,079 8.60
----------- ---------
Allowance for credit losses (137,742) (136,123)
Cash and due from banks 309,709 334,080
Other nonearning assets 273,766 220,145
------------- ------------
Total assets $ 5,503,032 $ 4,628,013
------------- ------------
------------- ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing deposits:
Interest checking accounts $ 384,482 2,850 0.99 $ 366,036 2,757 1.01
Money market accounts 870,405 19,865 3.05 793,900 17,952 3.02
Savings deposits 167,688 4,520 3.60 169,210 4,216 3.33
Time deposits - under $100,000 204,683 8,050 5.26 226,787 8,672 5.11
Time deposits - $100,000 and over 749,724 29,826 5.32 506,560 20,010 5.28
------------- ----------- ------------ ---------
Total interest - bearing deposits 2,376,982 65,111 3.66 2,062,493 53,607 3.48
Federal funds purchased and securities
sold under repurchase agreements 375,071 15,280 5.45 225,770 8,888 5.26
Other borrowings 335,240 15,149 6.04 348,533 14,556 5.58
------------- ----------- ------------ ---------
Total interest - bearing liabilities 3,087,293 95,540 4.14 2,636,796 77,051 3.91
----------- ---------
Noninterest - bearing deposits 1,815,518 1,471,934
Other liabilities 65,010 54,218
Shareholders' equity 535,211 465,065
------------- ------------
Total liabilities and shareholders'
equity $ 5,503,032 $ 4,628,013
------------- ------------
------------- ------------
Net interest spread 4.38% 4.69%
---- ----
---- ----
Fully taxable equivalent net interest income $226,606 $194,028
----------- ---------
----------- ---------
Net interest margin 5.99% 6.16%
---- ----
---- ----
</TABLE>
(1) Includes average nonaccrual loans of $33,833 and $40,922 for 1998 and
1997, respectively.
(2) Loan income includes loan fees of $8,814 and $6,516
for 1998 and 1997, respectively.
12
<PAGE>
The following tables set forth the changes in net interest income on a
fully taxable equivalent basis broken down by volume and rates. The change in
interest due to both volume and rate 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
FOR THE THREE FOR THE THREE
MONTHS ENDED SEPTEMBER 30, MONTHS ENDED SEPTEMBER 30,
DOLLARS IN THOUSANDS 1998 VS 1997 1997 VS 1996
- --------------------------- ---------------------------------------- -------------------------------------------
INCREASE (DECREASE) NET INCREASE (DECREASE) NET
DUE TO INCREASE DUE TO INCREASE
---------------------- ------------------------
VOLUME RATE (DECREASE) VOLUME RATE (DECREASE)
---------- --------- -------------- ----------- --------- --------------
<S> <C> <C> <C> <C> <C> <C>
Interest earned on:
Interest-bearing deposits
in other banks $ 130 $ 12 $ 142 $ (191) $ (117) $ (308)
Loans 18,832 (3,700) 15,132 18,994 2,059 21,053
Investment securities (547) (103) (650) 691 81 772
Securities available for sale 576 (118) 458 (1,204) 487 (717)
Trading account securities 211 (23) 188 150 10 160
Federal funds sold and
securities purchased
under resale agreements 125 (18) 107 (492) 12 (480)
-------- ------- -------- -------- -------- --------
Total interest-earning assets 19,327 (3,950) 15,377 17,948 2,532 20,480
-------- ------- -------- -------- -------- --------
Interest paid on:
Interest checking 66 (18) 48 117 -- 117
Money market deposits 882 83 965 498 96 594
Savings deposits (10) 119 109 302 75 377
Other time deposits 2,563 20 2,583 3,793 416 4,209
Other borrowings 2,278 234 2,512 (420) 389 (31)
-------- ------- -------- -------- -------- --------
Total interest-bearing liabilities 5,779 438 6,217 4,290 976 5,266
-------- ------- -------- -------- -------- --------
$ 13,548 $(4,388) $ 9,160 $ 13,658 $ 1,556 $ 15,214
-------- ------- -------- -------- -------- --------
-------- ------- -------- -------- -------- --------
</TABLE>
<TABLE>
<CAPTION>
FOR THE NINE FOR THE NINE
MONTHS ENDED SEPTEMBER 30, MONTHS ENDED SEPTEMBER 30,
DOLLARS IN THOUSANDS 1998 VS 1997 1997 VS 1996
- ----------------------------- ---------------------------------------- -------------------------------------------
INCREASE (DECREASE) NET INCREASE (DECREASE) NET
DUE TO INCREASE DUE TO INCREASE
---------------------- ------------------------
VOLUME RATE (DECREASE) VOLUME RATE (DECREASE)
---------- --------- -------------- ----------- --------- --------------
<S> <C> <C> <C> <C> <C> <C>
Interest earned on:
Interest-bearing deposits
in other banks $ 153 $ 30 $ 183 $ (892) $ (154) $ (1,046)
Loans 55,683 (5,060) 50,623 56,583 3,016 59,599
Investment securities (562) (344) (906) 2,742 86 2,828
Securities available for sale (385) 272 (113) (3,242) 1,754 (1,488)
Trading account securities 293 56 349 512 (55) 457
Federal funds sold and
securities purchased
under resale agreements 910 21 931 (1,999) (63) (2,062)
-------- -------- -------- -------- -------- --------
Total interest-earning assets 56,092 (5,025) 51,067 53,704 4,584 58,288
-------- -------- -------- -------- -------- --------
Interest paid on:
Interest checking 145 (52) 93 387 -- 387
Money market deposits 1,734 179 1,913 1,499 276 1,775
Savings deposits (38) 342 304 907 220 1,127
Other time deposits 8,750 444 9,194 9,421 488 9,909
Other borrowings 5,778 1,207 6,985 2,088 553 2,641
-------- -------- -------- -------- -------- --------
Total interest-bearing liabilities 16,369 2,120 18,489 14,302 1,537 15,839
-------- -------- -------- -------- -------- --------
$ 39,723 $ (7,145) $ 32,578 $ 39,402 $ 3,047 $ 42,449
-------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- --------
</TABLE>
13
<PAGE>
BALANCE SHEET ANALYSIS
SECURITY PORTFOLIO
Comparative period-end security portfolio balances are presented below:
<TABLE>
<CAPTION>
INVESTMENT SECURITIES
SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30,
1998 1997 1997
---------------------- ----------------------- -----------------------
DOLLARS IN THOUSANDS COST FAIR VALUE COST FAIR VALUE COST FAIR VALUE
- -------------------- ---- ---------- ---- ---------- ---- ----------
<S> <C> <C> <C> <C> <C> <C>
Mortgage-backed $ 87,456 $ 88,406 $107,386 $107,728 $110,913 $110,985
State and Municipal 102,148 104,272 107,567 108,756 107,804 108,724
Other debt 3,155 3,154 3,216 3,201 3,215 3,215
-------- -------- -------- -------- -------- --------
Total debt securities 192,759 195,832 218,169 219,685 221,932 222,924
Equity 12 12 7,765 7,780 6,520 6,520
-------- -------- -------- -------- -------- --------
Total securities $192,771 $195,844 $225,934 $227,465 $228,452 $229,444
-------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- --------
</TABLE>
<TABLE>
<CAPTION>
AVAILABLE-FOR-SALE SECURITIES
SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30,
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 $270,032 $279,521 $255,552 $257,057 $259,859 $260,246
Mortgage-backed 189,559 193,225 171,439 172,075 153,697 152,930
State and Municipal 2,179 2,195 5,911 5,997 5,920 5,983
Other debt 136,870 138,942 23,928 25,920 24,131 24,979
-------- -------- -------- -------- -------- --------
Total debt securities 598,640 613,883 456,830 461,049 443,607 444,138
Marketable equity securities 117,067 120,508 141,080 146,139 138,527 142,613
-------- -------- -------- -------- -------- --------
Total securities $715,707 $734,391 $597,910 $607,188 $582,134 $586,751
-------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- --------
</TABLE>
The following tables provide the expected remaining maturities and
yields (taxable-equivalent basis) of debt securities within the securities
portfolio as of September 30, 1998.
<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 $28,686 6.77% $ 48,908 6.49% $ 9,862 7.12% $ -- -- % $ 87,456 6.66%
State and Municipal 24,922 6.60 64,064 6.73 13,162 7.03 -- -- 102,148 6.74
Other debt 1,000 8.00 2,155 7.14 -- -- -- -- 3,155 7.41
------- ----- -------- ----- ------- ----- ------- ---- -------- -----
Total debt securities $54,608 6.71% $115,127 6.64% $23,024 7.07% $ -- -- % $192,759 6.71%
------- -------- ------- ------- --------
------- -------- ------- ------- --------
Fair value $54,651 $117,314 $23,867 $ -- $195,832
------- -------- ------- ------- --------
------- -------- ------- ------- --------
</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........ $12,489 5.74% $235,751 6.12% $ 31,281 6.26% $ -- -- % $279,521 6.12%
Mortgage-backed........ -- -- -- -- -- -- 193,225 6.75 193,225 6.75
State and Municipal.... -- -- 2,195 5.92 -- -- -- -- 2,195 5.92
Other debt............. -- -- -- -- 95,842 7.71 43,100 8.07 138,942 7.82
------- ---- -------- ----- -------- ----- -------- ----- -------- -----
Total debt securities. $12,489 5.74% $237,946 6.12% $127,123 7.35% $236,325 6.99% $613,883 6.70%
------- -------- -------- -------- --------
------- -------- -------- -------- --------
Amortized cost.... $12,464 $229,868 $124,830 $231,478 $598,640
------- -------- -------- -------- --------
------- -------- -------- -------- --------
</TABLE>
Dividend income included in interest income on securities in the
Consolidated Statement of Income and Comprehensive Income in the third quarter
of 1998 and 1997 was $1.9 million and $2.4 million, respectively and for the
nine months of 1998 and 1997 was $6.5 million and $6.3 million, respectively.
14
<PAGE>
LOAN PORTFOLIO
A comparative period-end loan table is presented below:
<TABLE>
<CAPTION>
LOANS
SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30,
DOLLARS IN THOUSANDS 1998 1997 1997
- ----------------------------- ------------- ------------ -------------
<S> <C> <C> <C>
Commercial $ 2,280,202 $ 1,972,232 $ 1,694,859
Residential first mortgage 1,033,799 980,040 951,688
Real estate - construction 234,519 144,558 144,989
Real estate - mortgage 744,265 686,188 695,434
Installment 51,011 42,206 43,152
------------- ------------ -------------
Total loans, gross 4,343,796 3,825,224 3,530,122
Less: Allowance for credit losses (135,486) (137,761) (137,850)
------------- ------------ -------------
Total loans, net $ 4,208,310 $ 3,687,463 $ 3,392,272
------------- ------------ -------------
------------- ------------ -------------
</TABLE>
Gross loans at September 30, 1998 amounted to $4,343.8 million, up
$813.7 million (23.0%) from September 30, 1997 and up $518.6 million (13.6%)
from December 31, 1997. Approximately $152.2 million of the increase was due
to the acquisition of HB. Also contributing to the $585.3 million increase in
commercial loans from September 30, 1997 were loan originations and the
purchase of syndicated corporate loans. The $82.1 million increase in
residential first mortgage loans from the year ago quarter resulted from the
Bank's own originations. Construction loans also increased by $89.5 million
from September 30, 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 third quarter 1998 levels.
The following table presents information concerning nonaccrual loans,
ORE, and restructured loans.
<TABLE>
<CAPTION>
NONACCRUAL LOANS, ORE AND RESTRUCTURED LOANS
SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30,
DOLLARS IN THOUSANDS 1998 1997 1997
- ----------------------------- ------------- ------------ -------------
<S> <C> <C> <C>
Nonaccrual loans:
Commercial $ 10,200 $ 6,589 $ 11,443
Real estate 19,664 19,243 19,594
Installment 2,642 1,734 --
------------- ------------ -------------
Total 32,506 27,566 31,037
ORE: 2,148 2,126 7,433
------------- ------------ -------------
Total nonaccrual loans and ORE $ 34,654 $ 29,692 $ 38,470
------------- ------------ -------------
------------- ------------ -------------
Restructured loans, accruing $ 1,766 $ 2,813 $ 4,165
------------- ------------ -------------
------------- ------------ -------------
Total non accrual loans as a
percentage of total loans................... 0.75% 0.72% 0.88%
Total non accrual loans and ORE as a
percentage of total loans and ORE........... 0.80 0.78 1.09
Allowance for credit losses to total loans..... 3.12 3.60 3.90
Allowance for credit losses
to nonaccrual loans........................ 416.80 499.75 444.15
</TABLE>
15
<PAGE>
The table below summarizes the approximate changes in nonaccrual loans for
the quarters and nine months ended September 30, 1998 and September 30, 1997.
<TABLE>
<CAPTION>
CHANGES IN NONACCRUAL LOANS
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------------- -------------------------
DOLLARS IN MILLIONS 1998 1997 1998 1997
- ------------------- ---- ---- ---- ----
<S> <C> <C> <C> <C>
Balance, beginning of period $33.2 $40.8 $27.6 $41.5
Additions from acquisitions -- -- 3.1 2.4
Loans placed on nonaccrual 5.4 5.2 30.2 25.7
Charge offs (1.9) (2.2) (9.5) (11.0)
Loans returned to accrual status -- (6.8) -- (9.9)
Repayments (including interest
applied to principal) (4.2) (5.5) (18.9) (14.6)
Transfer to ORE -- (0.5) -- (3.1)
----- ----- ----- -----
Balance, end of period $32.5 $31.0 $32.5 $31.0
----- ----- ----- -----
----- ----- ----- -----
</TABLE>
At September 30, 1998, in addition to loans disclosed above as nonaccrual
or restructured, management had also identified $3.5 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 FOR THE NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------------- -------------------------
DOLLARS IN MILLIONS 1998 1997 1998 1997
- ------------------- ---- ---- ---- ----
<S> <C> <C> <C> <C>
Average amount of loans outstanding $4,302.8 $3,454.4 $4,142.8 $3,308.7
-------- -------- -------- --------
-------- -------- -------- --------
Balance of allowance for credit losses,
beginning of period $ 135.8 $ 132.9 $ 137.8 $ 130.1
Loans charged off:
Commercial 1.9 2.7 12.9 10.9
Real estate 1.2 0.7 2.1 4.2
-------- -------- -------- --------
Total loans charged off 3.1 3.4 15.0 15.1
-------- -------- -------- --------
Less recoveries of loans previously charged off:
Commercial 2.4 2.4 9.5 8.7
Real estate 0.4 5.9 0.5 7.1
-------- -------- -------- --------
Total recoveries 2.8 8.3 10.0 15.8
-------- -------- -------- --------
Net loans (charged off) recovered (0.3) 4.9 (5.0) 0.7
Additions to allowance from provisions -- -- -- --
Additions to allowance from acquisitions -- -- 2.7 7.0
-------- -------- -------- --------
Balance, end of period $ 135.5 $ 137.8 $ 135.5 $ 137.8
-------- -------- -------- --------
-------- -------- -------- --------
Ratio of net charge-offs
to average loans 0.01% * 0.12% *
-------- -------- -------- --------
-------- -------- -------- --------
Ratio of allowance for credit losses
to total period end loans 3.12% 3.90%
-------- -------
-------- -------
</TABLE>
* Not meaningful
16
<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 September
30, 1998, December 31, 1997 and September 30, 1997.
<TABLE>
<CAPTION>
Regulatory
Well Capitalized September 30, December 31, September 30,
Standards 1998 1997 1997
---------------- ------------- ------------ -------------
<S> <C> <C> <C> <C>
CITY NATIONAL CORPORATION
Tier 1 leverage 4.00% 8.33% 9.19% 9.09%
Tier 1 risk-based capital 6.00 9.81 10.99 11.43
Total risk-based capital 10.00 13.69 12.27 12.71
CITY NATIONAL BANK
Tier 1 leverage 5.00 7.90 7.93 7.86
Tier 1 risk-based capital 6.00 9.28 9.50 9.92
Total risk-based capital 10.00 13.17 10.78 11.20
</TABLE>
In September, the Company completed a 1.0 million-share common stock buyback
program that had been announced in April, at a cost of $34.3 million or an
average price of $34.27 per share. Concurrently, a new 1.0 million-share
common stock buyback program was announced. Shares are repurchased from time
to time in open market transactions. As of October 31, 1998 the Company had
repurchased 128,000 shares under this program at a total cost of $3.5
million, or an average price of $27.38 per share. Shares purchased under the
buyback program will be reissued upon the exercise of stock options and for
other general corporate purposes.
On October 28, 1998, the Company declared a regular quarterly dividend of
$.14 per share, payable November 12, 1998 to shareholders of record as of
November 3, 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) characteristics
of assets are materially different from those of the Company's liabilities.
Liquidity risk results from the mismatching of asset and liability cash
flows. Management chooses asset/liability strategies that promote stable
earnings and reliable funding. Interest rate risk and funding positions are
kept within limits established by the Company's board of directors to ensure
that 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 those 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
17
<PAGE>
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.
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 September 30, 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 September 30, 1998, the under-one-year cumulative gap was a $63.2 million
(1.1% of total assets) net asset position compared with a net asset position
of $132 million (3% of total assets) at December 31, 1997. The decrease
resulted from an increase in interest rate risk mitigation activities and
relatively low holdings of short-term rate-sensitive assets. As of September
30, 1998, the Company has $610.0 million of notional principal in receive
fixed-pay LIBOR interest rate swaps, of which $420.0 million have maturities
greater than one year. The Company's interest-rate risk-management
instruments had a fair value of $9.9 million and $1.7 million and an exposure
to credit risk of $2.2 million and $1.8 million at September 30, 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 swap 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 September 30, 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 September 30, 1998, the Company's outstanding foreign exchange contracts
totaled $20.3 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 September 30, 1998 had remaining maturities
of six months or less with the exception of $8.9 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 availabie-for-sale. Liquidity is
also provided by maturing investment securities and loans.
Average core deposits and shareholders' equity comprised 71.5% of total
funding in the third quarter of 1998, compared to 74.3% in the third 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.
18
<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 the recent easing of interest
rates may continue. 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.
- --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. These
procedures and policies assess the likelihood of nonperformance, track loan
performance and diversify the Bank's credit portfolio, but may not prevent
unexpected losses that could adversely affect the Company's results.
- --Other risks. From time to time, the Company details other risks to its
businesses and/or its financial results in its filings with the Securities
and Exchange Commission.
While management believes that its assumptions regarding these and other
factors on which forward looking statements are based are reasonable, such
assumptions are necessarily speculative in nature, and actual outcomes can be
expected to differ to some degree. Consequently, there can be no assurance
that the results described in such forward looking statements will, in fact,
be achieved.
19
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PART 11. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
None
ITEM 5. OTHER INFORMATION
(a) Exhibits
10.22.2 Employment agreement dated as of July 15, 1998,
between Russell Goldsmith and City National Bank
(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: November 16, 1998 /s/ FRANK P. PEKNY
------------------------- -------------------------------
FRANK P. PEKNY
Executive Vice President
and Chief Financial Officer
20
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EXHIBIT 10.22.2
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is made as of the 15th day of July, 1998 by
and between RUSSELL GOLDSMITH ("Goldsmith"), on the one hand, and CITY
NATIONAL BANK, a National Bank ("CNB") and CITY NATIONAL CORPORATION ("Parent
Corporation"), on the other hand.
1. EMPLOYMENT. CNB and Parent Corporation (collectively the
"Employer") hereby employ Goldsmith, and Goldsmith hereby accepts employment,
under the terms and conditions hereafter set forth. The Employment Agreement
dated as of the 16th of October, 1995 by and between Goldsmith, CNB and
Parent Corporation, as amended, is terminated effective upon the execution
and delivery of this Employment Agreement.
2. DUTIES. Goldsmith shall be employed as the Chairman of the Board of
Directors and Chief Executive Officer of CNB and Vice-Chairman of the Board
of Directors and Chief Executive Officer of the Parent Corporation and his
powers and duties shall be consistent with such offices and positions. As
Chief Executive Officer of Employer, Goldsmith shall supervise, control and
be responsible for all aspects of the business and affairs of Employer and
their subsidiaries.
3. PLACE OF SERVICE. Substantially all of Goldsmith's duties shall be
performed in Los Angeles and Beverly Hills, California and unless mutually
agreed upon by Goldsmith and Employer, Goldsmith shall be headquartered in
Beverly Hills, California.
4. TERM. Subject to the provisions for termination as hereinafter
provided, the term of this Agreement shall commence on July 15, 1998 (the
"Start Date") and shall terminate four (4) years thereafter.
5. ANNUAL BASE COMPENSATION. Employer shall pay Goldsmith as annual
base compensation (the "Annual Base Compensation"), payable in equal
semimonthly payments, the sum of Six Hundred Seventy Five Thousand Dollars
($675,000) during the first year of the term hereof. On each July 15 during
the term hereof, the then Annual Base Compensation shall be increased by the
lesser of (i) that percentage equal to five percent (5%) plus the percentage
increase (but not decrease) in the Consumer Price Index for all Urban
Consumers for Los Angeles and Riverside-Orange Counties (or if no
longer being published, a comparable index) between the month of May of the
prior year and the month of May immediately preceding the July 15 date and
(ii) ten percent (10%).
6. BONUS COMPENSATION. Goldsmith shall participate in CNB's Executive
Management Bonus Plan and any other cash bonus or incentive compensation plan
of Employer established for corporate executive officers of Employer,
including corporate officers who
<PAGE>
are members of the Executive Committee and the Strategy and Planning
Committee. The amount of annual bonus or incentive compensation (the "Annual
Bonus") paid to Goldsmith pursuant to the Executive Management Bonus Plan for
any year (including the fiscal year ending December 31, 1998 and the fiscal
year during which his employment is terminated) shall not be less than one
hundred twenty five percent (125%) of his Annual Base Compensation as of
December 31 of the year for which the bonus is being paid if plan goals for
the year are achieved, scaled up ratably to two hundred percent (200%) if one
hundred thirty percent (130%) of plan goals are achieved and scaled down
ratably to thirty five percent (35%) if eighty five percent (85%) of plan
goals are achieved. In determining the Annual Bonus payable to Goldsmith for
any year in which he was not employed by Employer for the entire year, the
Annual Bonus for the portion of such fiscal year preceding the termination of
his employment shall be an amount equal to (i) the amount which the Annual
Bonus would have been had the plan goals achieved through the month ending
immediately following the date of termination of his employment been the plan
goals for the entire fiscal year, the fiscal year had ended at the end of
such month and Goldsmith's Annual Base Compensation had been the Annual Base
Compensation payable to him as of the following December 31 had his
employment continued through the following December 31, (ii) multiplied by a
fraction, the numerator of which is the number of months in the fiscal year
through the end of the month immediately following the date of termination of
Goldsmith's employment and the denominator of which is 12. Unless Goldsmith
elects to defer receipt thereof, each Annual Bonus shall be paid no later
than the end of the third month of the fiscal year following the fiscal year
for which the bonus is being paid; provided, however, that if the employment
of Goldsmith is terminated prior to the end of the fiscal year for which the
bonus is being paid, the Annual Bonus for the partial year preceding the
termination of his employment shall be paid no later than the end of the
third month following the termination of his employment and any amounts
payable under any subparagraphs of Paragraph 10 as an Annual Bonus applicable
to any portion of a fiscal year of less than twelve months shall be paid no
later than the end of the third month following the end of the period for
which such amount is payable.
7. Stock Options. Prior to October 16, 1998, Goldsmith will be granted
by the Board of Directors of Parent Corporation, non-qualified stock options
to purchase an aggregate of three hundred fifty thousand (350,000) shares of
Common Stock of Parent Corporation at a purchase price equal to the fair
market value of the Common Stock on the date of grant. Said options will be
granted pursuant to the provisions of the 1995 Omnibus Plan of Parent
Corporation and be represented by an agreement executed by the Parent
Corporation. Such options will have a term of ten years and, subject to
subparagraphs 10(b), (c), (d) and (e) hereof, will be exercisable as to one
hundred sixteen thousand six hundred sixty seven (116,667) shares of Common
Stock from and after the date of grant, as to an additional one hundred
sixteen thousand six hundred sixty seven (116,667) shares of Common Stock
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<PAGE>
from and after one year from the date of grant and in full from and after the
second year from the date of grant.
8. FRINGE BENEFITS AND REIMBURSEMENT OF EXPENSES. Employer shall
provide Goldsmith with such medical and other health, dental, accidental life
and disability insurance, and he shall be entitled to all employee and fringe
benefits and reimbursement of expenses and to participate in all benefit
plans (including stock option plans) as are consistent with his position and
duties and those previously provided to the Chief Executive Officer of
Employer; provided, however, that during the first two years of the term
hereof Employer shall not be required to grant any additional employee stock
options to Goldsmith.
9. EXTENT OF SERVICE. Goldsmith shall devote his time, attention and
energies to the business of Employer and shall not, during the term of this
Agreement, be engaged in any other activity which will materially interfere
with the performance of his duties hereunder. Time expended by Goldsmith on
philanthropic activities, as a general partner of Sunbar Properties, as a
passive investor in real estate ventures and other investments, or in
managing the existing properties of Goldsmith Entertainment Corporation shall
be deemed not to interfere with the performance of his duties hereunder.
10. TERMINATION OF EMPLOYMENT.
(a) TERMINATION BY EMPLOYER FOR GOOD CAUSE. Employer may
terminate the employment of Goldsmith for "good cause" by written notice to
Goldsmith. For purposes of this Agreement, "good cause" shall mean only (i)
conviction of a crime directly related to his employment hereunder, (ii)
conviction of a felony involving moral turpitude, (iii) willful and gross
mismanagement of the business and affairs of Employer, or (iv) breach of any
material provision of this Agreement. In the event the employment of
Goldsmith is terminated pursuant to this subparagraph 10(a), Employer shall
have no further liability to Goldsmith other than for compensation accrued
through the date of termination but not yet paid.
In the event Employer contends that it has good cause to terminate
Goldsmith pursuant to clause (iii) or (iv) of the second sentence of this
subparagraph 10(a), Employer shall provide Goldsmith with written notice
specifying in reasonable detail the services or matters which it contends
Goldsmith has not been adequately performing, or the material provisions of
this Agreement of which Goldsmith is in violation and the acts constituting
such violation, why Employer has good cause to terminate this Agreement, and
what Goldsmith should do to adequately perform his obligations hereunder. If
within thirty (30) days of receipt of the notice Goldsmith performs the
required services or modifies his performance to correct the matters
complained of, Goldsmith's breach will be deemed cured, and Goldsmith's
employment shall not be terminated. However, if the nature of the service
not performed by Goldsmith or the
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<PAGE>
matters complained of are such that more than thirty (30) days are reasonably
required to perform the required service or to correct the matters complained
of, then his breach will be deemed cured if he commences to perform such
service or to correct such matters within the thirty (30) day period and
thereafter diligently prosecutes such performance or correction to
completion. If Goldsmith does not perform the required services or modify his
performance to correct the matter complained of within the thirty (30) day
period or the extension thereof, Employer shall have the right to terminate
this Agreement at the end of the thirty (30) day period or extension thereof.
It is understood that Goldsmith's performance hereunder shall not be deemed
unsatisfactory solely on the basis of any economic performance of Employer
because this performance will depend in part on a variety of factors over
which Goldsmith has little control.
(b) TERMINATION BY EMPLOYER WITHOUT GOOD CAUSE. Employer may
terminate the employment of Goldsmith without "good cause" (as defined in
subparagraph 10(a) above) at any time during the term hereof by giving
written notice to Goldsmith specifying therein the effective date of
termination. Upon such notice being given, if not then exercisable in full,
the options described in Paragraph 7 hereof shall become exercisable in full.
In the event the employment of Goldsmith is terminated pursuant to this
subparagraph 10(b) without good cause, Employer shall be obligated to pay to
Goldsmith (which shall be in lieu of any other amounts which would be payable
to Goldsmith on account of such termination pursuant to any separation pay
plan or policy of Employer) (i) the Annual Base Compensation and Annual Bonus
he would have been paid had he remained in the employ of the Employer
hereunder, and had the term hereof extended, for a period of three years
from the effective date of termination, provided that (x) the Annual Bonus for
any fiscal year ending after the date of termination (including the fiscal
year during which the termination of employment occurs and any portion of a
fiscal year for which he is entitled to an Annual Bonus under this
subparagraph) shall be computed by multiplying Goldsmith's Annual Base
Compensation (in case of an Annual Bonus for a partial year, the amount which
the Annual Base Compensation would have been as of the following December 31
had his employment continued through such December 31) by (in lieu of
percentages of Annual Compensation set forth in paragraph 6) the highest
percentage of Annual Base Compensation previously used in determining any
prior Annual Bonus paid or payable to Goldsmith, (y) the Annual Bonus
applicable to any portion of a fiscal year of less than twelve months shall be
an amount determined as provided in the preceding subclause (x) multiplied by
a fraction, the numerator of which is the number of months of the fiscal year
with respect to which Goldsmith is entitled to the Annual Bonus pursuant to
this subparagraph (with each partial month being deemed a whole month) and the
denominator of which is 12, and (z) the penultimate sentence of paragraph 6
shall be disregarded and have no force or effect, and (ii) all other employee
benefits he would have received hereunder had he remained in the employ of
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<PAGE>
the Employer for such three-year period (and, if required, the term hereof
would have been appropriately extended), including reimbursement of Goldsmith
for all expenses and costs incurred by him during such three-year period in
obtaining and maintaining medical and health insurance (through COBRA or
otherwise) for him, his spouse and dependents for such three-year period
which is equivalent to that provided to him by Employer at the time of
termination of his employment. Notwithstanding the foregoing clause (ii) of
the immediately preceding sentence, if long-term disability insurance
coverage is an employee benefit which Goldsmith would have received had he
remained in the employ of Employer, Employer's obligation to provide
Goldsmith with comparable long-term disability insurance coverage for such
three-year period shall be subject to Goldsmith being insurable at the
effective date of termination of his employment. Goldsmith shall have no duty
to mitigate and during the first eighteen months following the effective date
of termination of his employment, Employer shall have no right to offset any
other compensation paid to Goldsmith during such time period. Any
compensation paid to Goldsmith for services rendered as an employee of a
third party during the last eighteen months during which he is entitled to
compensation under this subparagraph 10(b) shall reduce (not below zero) the
compensation payable to Goldsmith by Employer during such period pursuant to
this subparagraph 10(b).
(c) TERMINATION BY DISABILITY. Employer may terminate the
employment of Goldsmith during the term hereof or the term of the Amended
Employment Agreement (as hereinafter defined) by written notice to Goldsmith
if Goldsmith shall become incapable of fulfilling his obligations hereunder
because of injury or physical or mental illness which shall exist or may
reasonably be anticipated to exist for a period of twelve (12) consecutive
months or for an aggregate of twelve (12) months during any twenty-four (24)
month period. In the event the employment of Goldsmith is terminated by
Employer pursuant to this subparagraph 10(c) because of injury, physical or
mental illness, Employer shall be obligated to pay Goldsmith (or his
personal representatives) from and after the termination of his employment
the same amounts and provide him with the same benefits for the same periods
it would have paid or provided him had his employment been terminated without
cause pursuant to subparagraph 10(b) as of the date his employment is
terminated pursuant to this subparagraph 10(c). If the employment of
Goldsmith is terminated pursuant to this subparagraph 10(c), the options
described in Paragraph 7 shall, if not then fully exercisable, upon such
termination become exercisable in full.
(d) TERMINATION BY DEATH. Except for compensation accrued but not
paid at the date of death and as provided in this subparagraph 10(d), the
death of Goldsmith during the term of this Agreement shall terminate this
Agreement and the Amended Employment Agreement (as hereinafter defined). In
the event of the death of Goldsmith during the term hereof or the term of the
Amended Employment Agreement (as hereinafter defined), Employer
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<PAGE>
shall be obligated to pay to whomever he shall have designated in writing to
Employer, or if no designation has been made by him, to Goldsmith's wife, if
she is then living, or if she is not then living, to his estate, the same
amounts and provide the same benefits Employer would have paid or provided
Goldsmith pursuant to subparagraph 10(b) had his employment been terminated
without cause on the date of his death. If not then fully exercisable, the
options described in Paragraph 7 shall upon Goldsmith's death become
exercisable in full.
(e) CHANGE OF CONTROL. Attached to this Agreement as Annex A is a
copy of the Employment Agreement dated as of March 31, 1997 between Parent
Corporation and Goldsmith (the "Amended Employment Agreement"). Upon the
Effective Date (as defined in the Amended Employment Agreement) during the
term of Goldsmith's employment with Employer, the Amended Employment
Agreement shall become effective with (notwithstanding the provisions of the
Amended Employment Agreement to the contrary) the following modifications:
(i) the "Change of Control Period" as defined in the Amended Employment
Agreement shall not terminate prior to the end of the term of this Agreement;
(ii) the term thereof (referred to therein as the "Employment Period") shall
be the greater of three years, as provided therein, or the then remaining
term of this Agreement: (iii) Paragraphs 3 and 5 and subparagraph 10(g) of
this Agreement shall remain in full force and effect: (iv) clause (B) of
Section 4(a)(i) and all of Section 4(b)(i) (except for the last sentence
thereof) of the Amended Employment Agreement shall be of no force or effect,
all direct or indirect references in the Amended Employment Agreement to
Annual Base Salary or base salary (including, without limitation, references
to Section 4(b) in clause (ii) of Section 5(c) of the Amended Employment
Agreement) shall be deemed to refer to the Annual Base Compensation described
and determined and computed in accordance with Paragraph 5 hereof and the
reference in clause (iii) of Section 5(c) of the Amended Employment Agreement
shall be deemed a reference to Section 3 hereof; and (v) termination of
employment on account of the death or disability of Goldsmith as provided in
subparagraphs 10(c) and 10(d) hereof, respectively, shall remain in full
force and effect and the provisions of the Amended Employment Agreement
dealing with termination of employment on account of Goldsmith's death or
disability and the effects thereof shall be of no force and effect. In all
other respects the terms of the Amended Employment Agreement will thereafter
govern the employment of Goldsmith, and subparagraphs 10(a), 10(b), 10(c) and
10(f) hereof shall be of no further force or effect (except to the extent
subparagraph 10(b), is incorporated into subparagraph 10(c) and 10(d) for
determining amounts payable or benefits to be provided pursuant to
subparagraph 10(c) and 10(d)).
(f) TERMINATION UPON EXPIRATION. At least six (6) months prior to
the end of the term hereof, a person designated by the Board of Directors of
Parent Corporation shall meet with Goldsmith for purposes of negotiating an
extension of the term of this Agreement. If by the ninetieth (90th) day prior
to the end
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<PAGE>
of the term hereof Employer and Goldsmith have not agreed in writing to an
extension of the term hereof or renewal of this Agreement and during such
negotiations Employer offered Goldsmith an extension of this Agreement with a
term of at least three years and compensation at least equivalent to the
eightieth percentile for chief executive officers of Employer's peer group,
Goldsmith's employment shall terminate as of the end of the term hereof and
Employer shall be obligated to pay and provide Goldsmith with, from and after
the expiration of the term hereof, (i) the Annual Base Compensation as in
effect under Paragraph 5 of this Agreement immediately prior to the
expiration of the term hereof (increased as of the end of the term hereof as
if the term of this agreement were extended for twelve months) for a period
of twelve (12) months from the end of the term of this Agreement, (ii) the
Annual Bonus he would have been paid hereunder if the term of this Agreement
was extended for twelve months, provided that (x) the Annual Bonus shall be
computed by multiplying Goldsmith's Annual Compensation (in case of an Annual
Bonus for a partial year, the amount which the Annual Base Compensation would
have been as of the following December 31 had his employment continued
through such December 31) by (in lieu of the percentage of Annual
Compensation set forth in paragraph 6) the highest percentage of Annual Base
Compensation previously used in determining any prior Annual Bonus paid to
Goldsmith, (y) the Annual Bonus applicable to any portion of a fiscal year of
less than twelve months shall be an amount determined as provided in the
preceding subclause (x) multiplied by a fraction, the numerator of which is
the number of months of the fiscal year with respect to which Goldsmith is
entitled to the Annual Bonus pursuant to this subparagraph (with each partial
month being deemed a whole month) and the denominator of which is 12, (z) and
the penultimate sentence of paragraph 6 shall be disregarded and have no
force or effect, and (iii) all other employee benefits he would have received
hereunder if the term of this Agreement and Goldsmith's employment had been
extended twelve months, including reimbursement of Goldsmith for all expenses
and costs incurred by him during such twelve (12) month period in obtaining
and maintaining medical and health insurance (through COBRA or otherwise) for
him, his spouse and dependents for such twelve (12) month period which is
equivalent to that provided to him by Employer at the time of termination of
his employment. If by the ninetieth (90th) day prior to the end of the term
hereof Employer and Goldsmith have not agreed in writing to an extension of
this Agreement with the term hereof or a renewal of this agreement and during
such negotiations the Employer did not offer Goldsmith an extension of the
term hereof of at least three years and compensation at least equivalent to
the eightieth percentile for chief executive officers of Employee's peer
group, Goldsmith's employment shall terminate as of the end of the term
hereof and Employer shall pay Goldsmith from and after the expiration of the
term hereof, the same amounts and provide him with the same benefits for the
same period it would have paid and provided him pursuant to subparagraph
10(b) had his employment been terminated without cause immediately prior to
the end of the term hereof. For purposes of this subparagraph 10(f), the
"Employer's peer
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group" shall consist of ten banks comparable to CNB as to size and
performance and as agreed to by Employer and Goldsmith and the compensation
which shall be employed in determining whether the compensation offered
Goldsmith was at least equivalent to the eightieth percentile for chief
executive officers of Employer's peer group compensation shall mean the total
compensation (all forms of pay disclosed in the proxy statements). If
Goldsmith and Employer shall be unable to agree by the ninetieth (90th) day
prior to the end of the term hereof as to the identity of the banks
constituting the "Employer's peer group", the ten companies constituting
Employer's peer group shall be determined by Sibson and Company or any
similar firm agreed to by Employer and Goldsmith.
(g) OFFICE SPACE AND SECRETARIAL SUPPORT. From and after the
expiration of the term of this Agreement or the Amended Employment Agreement
or if Goldsmith's employment is terminated other than pursuant to
subparagraph 10(a) (or section 5(a) of the Amended Employment Agreement if
it is then in effect) for cause or other than pursuant to subparagraph 10(d)
on account of his death, Employer shall provide Goldsmith (at no cost or
expense to Goldsmith) for a period of three years with an office in his
current office site or nearby of size, furnishings and other appointments and
exclusive personal secretarial support comparable to that provided Goldsmith
at any time during the one hundred twenty (120) day period prior to the
expiration of the term or termination of his employment.
11. ENTIRE AGREEMENT; MODIFICATION; WAIVER. This Agreement constitutes
the entire agreement between the parties pertaining to the subject matter
contained therein and supersedes all prior and contemporaneous agreements,
representations and understandings of the parties. No supplement,
modification or amendment of this Agreement shall be binding unless executed
in writing by both parties. No waiver of any of the provisions of this
Agreement shall be deemed, or shall constitute, a waiver of any other
provisions, whether or not similar, nor shall any waiver constitute a
continuing waiver. No waiver shall be binding unless executed in writing by
the party making the waiver.
12. SEPARABILITY CLAUSE. The invalidity or unenforceability of any
provision hereof shall in no way affect the validity or enforceability of any
other provision hereof.
13. BENEFIT. Except as herein and otherwise specifically provided, this
Agreement shall be binding upon and inure to the benefit of the parties, their
personal representatives, heirs, administrators, executors, successors, and
permitted assigns.
14. NOTICES. Any notice, request, or other communication required to
be given pursuant to the provisions of this Agreement shall be in writing and
shall be deemed to be duly given if delivered in person or mailed by
registered or certified United
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States mail, postage prepaid, and mailed to the parties at the following
addresses:
EMPLOYER RUSSELL GOLDSMITH
-------- -----------------
City National Bank Mr. Russell Goldsmith
400 No. Roxbury Drive 400 N. Roxbury Drive
Beverly Hills, CA 90210 Beverly Hills, CA
Attn: Richard H. Sheehan, Jr.
General Counsel with copy to:
Irwin G. Barnet
Sanders, Barnet, Goldman,
Simons & Mosk
Suite 850
1901 Avenue of the Stars
Los Angeles, CA 90067
The parties hereto may change the above addresses from time to time by
giving notice thereof to each other in conformity with this Paragraph 14.
15. CONFIDENTIALITY. Goldsmith covenants and agrees with Employer that
Goldsmith shall not, during or after the term of this Agreement, disclose to
anyone any confidential information concerning the business or operations of
Employer which Goldsmith may acquire in the course of or incident to the
performance of his duties hereunder, including, without limitation,
processes, customer lists, business or trade secrets, or methods or
techniques used by Employer in its business or operations.
16. CONSTRUCTION. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of California.
17. CAPTIONS. The paragraph headings and captions contained herein are
for reference purposes and convenience only and shall not in any way affect
the meaning or interpretation of this Agreement.
18. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
19. AMENDMENTS. This Agreement shall not be modified, amended, or in
any way altered except by an instrument in writing and signed by both of the
parties hereto.
20. MANDATORY ARBITRATION. At the request of Goldsmith or Employer, any
dispute, claim, controversy of any kind (whether in contract or tort,
statutory or common law, legal or equitable) now existing or hereafter
arising out of, pertaining to or in connection with this Agreement and/or any
renewals, extensions, or amendments thereto, shall be resolved through final
and binding arbitration conducted at a location determined by the
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arbitrator in Los Angeles or Beverly Hills, California, and administered by
the American Arbitration Association ("AAA") in accordance with the Federal
Arbitration Act, 9 U.S.C. SECTION 1, et seq., and the then existing
Commercial Arbitration Rules of the AAA. Judgment upon any award rendered by
the arbitrator(s) may be entered in any State or Federal courts having
jurisdiction thereof.
IN WITNESS WHEREOF, the parties hereto have executed this Employment
Agreement of the date first above written at Beverly Hills, California,
CITY NATIONAL BANK
/s/ RUSSELL GOLDSMITH By: /s/ RICHARD H. SHEEHAN, JR.
- --------------------- -------------------------------
RUSSELL GOLDSMITH
CITY NATIONAL CORPORATION
By: /s/ RICHARD H. SHEEHAN, JR.
-------------------------------
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ANNEX A
EMPLOYMENT AGREEMENT
AGREEMENT by and between City National Corporation, a Delaware
corporation (the "Company") and Russell Goldsmith (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 or 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 or 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 third
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 peer 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, 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.
5. TERMINATION OF EMPLOYMENT. (a) DEATH OR DISABILITY.
The Executive's employment shall terminated 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) three 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 three 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 three 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
10
<PAGE>
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 the Executive may qualify, nor, subject to
Section 12 (f), shall anything herein limit 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
11
<PAGE>
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 Executive that there has
been a Payment, or such earlier time as is requested by 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.
12
<PAGE>
(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;
provided, 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
13
<PAGE>
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 or certified mail, return receipt requested, postage prepaid,
addressed as follows:
IF TO THE EXECUTIVE: Russell Goldsmith
400 North Roxbury Drive
Beverly Hills, CA 90210
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 or 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>
(l)-(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 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.
/s/ RUSSELL GOLDSMITH
----------------------------
Russell Goldsmith
CITY NATIONAL CORPORATION
By /s/ RICHARD H. SHEEHAN, JR.
------------------------------
Richard H. Sheehan, Jr.
SVP and General Counsel
16
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 326,313
<INT-BEARING-DEPOSITS> 343
<FED-FUNDS-SOLD> 122,000
<TRADING-ASSETS> 48,712
<INVESTMENTS-HELD-FOR-SALE> 734,391
<INVESTMENTS-CARRYING> 192,771
<INVESTMENTS-MARKET> 195,844
<LOANS> 4,343,796
<ALLOWANCE> 135,486
<TOTAL-ASSETS> 5,907,308
<DEPOSITS> 4,448,672
<SHORT-TERM> 536,525
<LIABILITIES-OTHER> 57,261
<LONG-TERM> 323,217
0
0
<COMMON> 46,885
<OTHER-SE> 494,748
<TOTAL-LIABILITIES-AND-EQUITY> 5,907,308
<INTEREST-LOAN> 273,195
<INTEREST-INVEST> 37,140
<INTEREST-OTHER> 3,982
<INTEREST-TOTAL> 314,317
<INTEREST-DEPOSIT> 65,111
<INTEREST-EXPENSE> 95,540
<INTEREST-INCOME-NET> 218,777
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 2,329
<EXPENSE-OTHER> 158,198
<INCOME-PRETAX> 111,088
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 71,494
<EPS-PRIMARY> 1.54
<EPS-DILUTED> 1.48
<YIELD-ACTUAL> 5.99
<LOANS-NON> 32,506
<LOANS-PAST> 4,046
<LOANS-TROUBLED> 2,847
<LOANS-PROBLEM> 3,453
<ALLOWANCE-OPEN> 140,509<F1>
<CHARGE-OFFS> 15,000
<RECOVERIES> 9,977
<ALLOWANCE-CLOSE> 135,486
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
<FN>
<F1> Adjusted for acquisition of Harbor Bank
</FN>
</TABLE>
