-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, oORUPb0hWTtmeRjkxHBBj0fFsPnHWDhex0P4tcIO/ETr7GNQ1uclTDeKeEMB6UdY Nfn6GiG9p6nHSa6C8U555Q== 0000950148-94-000336.txt : 19940802 0000950148-94-000336.hdr.sgml : 19940802 ACCESSION NUMBER: 0000950148-94-000336 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19940331 FILED AS OF DATE: 19940729 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CITY NATIONAL CORP CENTRAL INDEX KEY: 0000201461 STANDARD INDUSTRIAL CLASSIFICATION: 6021 IRS NUMBER: 952568550 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-10521 FILM NUMBER: 94540878 BUSINESS ADDRESS: STREET 1: 400 N ROXBURY DR CITY: BEVERLY HILLS STATE: CA ZIP: 90210 BUSINESS PHONE: 3108584270 MAIL ADDRESS: STREET 1: 400 N ROXBURY DR CITY: BEVERLY HILLS STATE: CA ZIP: 90210 10-Q 1 FOR THE QUARTER ENDED MARCH 31, 1994 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarter ended March 31, 1994 Commission File Number 1-10521 CITY NATIONAL CORPORATION - - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 95-2568550 - - -------------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 400 North Roxbury Drive, Beverly Hills, California 90210 - - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (213) 550-5400 -------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO ------ ------ Number of shares of common stock outstanding at April 30, 1994: 45,070,979 This Form 10-Q contains 26 pages. 2 CITY NATIONAL CORPORATION Consolidated Balance Sheet (Unaudited) ASSETS
March 31 December 31 March 31 1994 1993 1993 -------- ----------- --------- (Dollars in thousands) Cash and due from banks ....................................... $ 238,255 $ 234,504 $ 293,364 Interest-bearing deposits in other banks ...................... 637 649 606 Federal funds sold and securities purchased under resale agreements ........................................... 215,000 265,000 275,000 Investment securities (market values $765,593, $902,738 and $364,213 at March 31, 1994, December 31, 1993 and March 31, 1993, respectively) ............................... 781,356 902,481 357,995 Securities available for sale (cost $92,814 and $2,000 at March 31, 1994 and December 31, 1993, respectively, and market value of $27,467 at March 31, 1993)................... 92,186 2,000 26,915 Trading account securities .................................... 15,881 39,765 26,405 Loans.......................................................... 1,524,853 1,620,556 1,871,588 Less allowance for credit losses .............................. 111,461 110,499 130,067 ---------- ---------- ---------- Net loans ................................................... 1,413,392 1,510,057 1,741,521 Leveraged leases .............................................. 10,059 13,852 13,735 Premises and equipment, net ................................... 18,947 20,359 22,590 Customers' acceptance liability ............................... 4,279 5,150 4,191 Other real estate ............................................. 3,677 5,559 7,324 Deferred tax asset ............................................ 21,345 18,050 35,720 Assets held for accelerated disposition ....................... 2,779 17,450 70,225 Other assets .................................................. 57,890 65,750 53,599 ---------- ---------- ---------- Total assets ................................................ $2,875,683 $3,100,626 $2,929,190 ========== ========== ========== LIABILITIES Demand deposits ............................................... $ 935,604 $1,088,026 $ 927,692 Interest checking deposits .................................... 287,508 324,034 272,440 Money market accounts ......................................... 745,298 742,381 732,661 Savings deposits .............................................. 101,079 107,221 106,646 Time deposits - under $100,000 ................................ 92,824 96,672 112,643 Time deposits - $100,000 and over ............................. 152,369 168,433 215,675 ---------- ---------- ---------- Total deposits .............................................. 2,314,682 2,526,767 2,367,757 Federal funds purchased and securities sold under repurchase agreements ................................. 194,248 202,459 327,972 Other short-term borrowings ................................... 15,000 15,000 15,000 Mortgages payable ............................................. 7,284 26,319 - Other liabilities ............................................. 33,614 26,857 11,702 Acceptances outstanding ....................................... 4,279 5,150 4,191 ---------- ---------- ---------- Total liabilities ........................................... 2,569,107 2,802,552 2,726,622 ---------- ---------- ---------- Commitments and contingencies SHAREHOLDERS' EQUITY Preferred Stock, authorized-5,000,000 shares since April 1993 none outstanding Common stock- par value- $1.00 Authorized-75,000,000 shares since April 1993 Outstanding-45,065,730, 45,027,417 and 32,302,041 at March 31, 1994, December 31, 1993 and March 31, 1993, respectively ................................ 45,066 45,027 32,302 Additional paid in capital .................................... 262,681 262,471 198,638 Unrealized losses on securities available for sale............. (407) - - Accumulated deficit............................................ (764) (9,424) (28,372) ---------- ---------- ---------- Total shareholders' equity .................................. 306,576 298,074 202,568 ---------- ---------- ---------- Total liabilities and shareholders' equity .................. $2,875,683 $3,100,626 $2,929,190 ========== ========== ==========
See accompanying Notes to the Unaudited Consolidated Financial Statements - 2 - 3 City National Corporation Consolidated Statement of Operations (Unaudited)
For the quarter ended March 31, ------------------------------- 1994 1993 --------------- -------------- (Dollars in thousands) Interest income: Interest and fees on loans ...................... $29,499 $36,118 Interest on federal funds sold and securities purchased under resale agreements ............ 1,653 1,612 Interest on investment securities: U.S. Treasury and federal agency securities... 8,841 5,907 Municipal securities ......................... 158 - Other securities ............................. 243 203 Interest on securities available for sale........ 130 453 Interest on trading account securities........... 214 276 ------- -------- Total ........................................ 40,738 44,569 ------- -------- Interest expense: Interest on deposits ............................ 7,167 9,369 Interest on federal funds purchased and securities sold under repurchase agreements... 1,479 2,634 Interest on other short-term borrowings ......... 103 119 ------- -------- Total ........................................ 8,749 12,122 ------- -------- Net interest income ............................. 31,989 32,447 Provision for credit losses ..................... 3,000 11,500 ------- -------- Net interest income after provision for credit losses ............................ 28,989 20,947 ------- -------- Noninterest income: Service charges on deposit accounts ............. 2,771 2,704 Trust fees ...................................... 1,810 2,030 Customer trading account income ................. 1,459 1,709 All other income ................................ 2,950 3,386 Gain on sale of leverage leases ................. 1,331 - Gain on sale of merchant draft business ......... - 1,850 ------- -------- Total noninterest income...................... 10,321 11,679 ------- -------- Noninterest expense: Salaries and other employee benefits ............ 16,733 18,380 Net occupancy of premises ....................... 2,641 2,696 Data processing ................................. 1,744 1,995 Professional .................................... 1,586 1,644 FDIC insurance .................................. 1,500 2,091 Office supplies ................................. 1,196 1,292 Depreciation .................................... 1,061 1,116 Promotion ....................................... 811 387 Equipment ....................................... 536 472 Other operating ................................. 2,826 2,354 Other real estate expense (income)............... (4,526) 40,336 ------- -------- Total noninterest expense..................... 26,108 72,763 ------- -------- Income (loss) before taxes 13,202 (40,137) Income taxes (benefit) ............................ 4,542 (14,283) ------- -------- Net income (loss) ................................. $ 8,660 $(25,854) ======= ======== Income (loss) per share ........................... $0.19 $(0.80) ===== ====== Shares used to compute earnings (loss) per share... 45,292,079 32,302,041 ========== ==========
See accompanying Notes to the Unaudited Consolidated Financial Statements - 3 - 4 City National Corporation Consolidated Statement of Cash Flows (Unaudited)
For the three months ended March 31 ----------------------- 1994 1993 ----------- ---------- (Dollars in thousands) Operating Activities Net income (loss) ...................................................... $ 8,660 $ (25,854) Adjustment to net income (loss): Provision for credit losses ......................................... 3,000 11,500 Writedowns on ORE ................................................... - 39,620 Gain on sales of ORE and Disposition Program assets.................. (4,591) - Depreciation ........................................................ 1,061 1,116 Net (increase) decrease in trading securities ....................... 23,884 (16,147) Net (increase) decrease in deferred tax benefits .................... (3,295) 1,400 Other, net .......................................................... 7,510 9,246 --------- --------- Net cash provided by operating activities......................... 36,229 20,881 --------- --------- Investing Activities Net decrease in short-term investments ................................. 12 14,350 Maturities of securities available for sale............................. - 3,240 Purchases of securities available for sale ............................. (90,813) - Maturities of investment securities .................................... 308,562 62,394 Purchases of investment securities...................................... (187,752) (6,850) Loans originations and principal collections, net ...................... 86,824 175,427 Proceeds from sales of ORE and Disposition Program assets .............. 7,368 2,628 Other, net ............................................................. 13,368 (9,260) --------- --------- Net cash provided by investing activities ........................... 137,569 241,929 --------- --------- Financing Activities Net decrease in federal funds purchased and securities sold under repurchase agreements ......................................... (8,211) (11,177) Net decrease in deposits ............................................... (212,085) (543,519) Proceeds from issuance of stock......................................... 229 433 Other, net ............................................................. 20 - --------- --------- Net cash used in financing activities ............................... (220,047) (554,263) --------- --------- Net decrease in cash and cash equivalents ............................. (46,249) (291,453) Cash and cash equivalents at beginning of period ....................... 499,504 859,817 --------- --------- Cash and cash equivalents at end of period ............................. $ 453,255 $ 568,364 ========= ========= Supplemental disclosures of cash flow information Cash paid (received) during the period for: Interest.......................................................... $ 8,852 $ 12,475 Income taxes...................................................... - (30,023) Non-cash investing activities: Transfer from loans to ORE and Disposition Program................ - 70,225
See accompanying Notes to the Unaudited Consolidated Financial Statements -4- 5 CITY NATIONAL CORPORATION STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (Unaudited)
For the three months ended March 31 -------------------------- 1994 1993 ---------- ----------- (Dollars in thousands) Common Stock Balance, beginning of period ......... $ 45,027 $ 32,240 Stock options exercised ............... 39 62 -------- -------- Balance, end of period ................ 45,066 32,302 -------- -------- Additional paid in capital Balance, beginning of period ......... 262,471 198,222 Stock options exercised ............... 190 371 Tax benefit from stock options ........ 20 45 -------- -------- Balance, end of period ................ 262,681 198,638 -------- -------- Unrealized losses on securities held for sale Balance, beginning of period ......... - - Change during period .................. (407) - -------- -------- Balance, end of period ................ (407) - -------- -------- Accumulated deficit Balance, beginning of period ........ (9,424) (2,518) Net income (loss) ..................... 8,660 (25,854) -------- -------- Balance, end of period ................ (764) (28,372) -------- -------- Total shareholders' equity ..................... $306,576 $202,568 ======== ========
See accompanying Notes to the Unaudited Consolidated Financial Statements -5- 6 NOTES TO THE FINANCIAL STATEMENTS OF THE REGISTRANT 1. The results of operations reflect the interim adjustments, all of which are of a normal recurring nature and which, in the opinion of management, are necessary for a fair presentation of the results for such interim periods. These unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 1993. 2. In March of 1993, the Company adopted a program (Disposition Program) to accelerate the disposition of certain assets, consisting of other real estate owned (ORE), including in-substance foreclosures, and certain nonaccrual loans. The assets included in this program are segregated as "assets held for accelerated disposition" on the consolidated balance sheet. The book value of these assets prior to the adoption of the disposition program was $88.9 million of ORE and $30.6 million of nonaccrual loans. A credit loss provision of $4.0 million and additional ORE writedowns and expense accruals of $36.5 million and certain charge offs in the amount of $12.4 million were recorded during the first quarter of 1993 to record the assets at their estimated liquidation values. The Bank signed a definitive agreement to sell, as of November 1, 1993, all six asset pools in the Disposition Program. The sale of the loans contained in the Disposition Program for $48.3 million closed concurrently with the signing of the definitive agreement and a gain of $12.8 million was recognized at that time. During the first quarter of 1994, the Company closed the sale of substantially all of the ORE contained in the Disposition Program and recorded a gain of $3.5 million. 3. Securities held for investment are classified as investment securities. Because the Company has the ability and management has the intent to hold investment securities until maturity, investment securities are stated at cost, adjusted for amortization of premiums and accretion of discounts. Trading account securities are stated at market value. Investments not classified as trading securities nor as investment securities are classified as securities available for sale and recorded at fair value. Unrealized holding gains or losses for securities available for sale are excluded from earnings -6- 7 and reported as a net amount after taxes, in a separate component of shareholders' equity, until realized. 4. For purposes of reporting cash flows, cash and cash equivalents include cash on hand, amounts due from banks, federal funds sold and securities purchased under resale agreements, and do not include items with original maturities of over 90 days. 5. On April 20, 1993, the shareholders of the Company authorized an additional 25 million shares of common stock and 5 million shares of preferred stock, $1.00 par value. The rights and preferences of the preferred stock will be determined by the Company's Board of Directors at such time, if any, as the issuance of the preferred stock is authorized. -7- 8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW The following discussion summarizes some of the developments significant to City National Corporation during the first quarter of 1994. However, the Company's consolidated financial statements for the quarter and the entire Management's Discussion and Analysis of Financial Condition and Results of Operations included in this Quarterly Report should be reviewed for a more complete understanding of the Company's financial position and its results of operations. City National Corporation (the Corporation) is the holding company for City National Bank (the Bank). Because the Bank constitutes substantially all of the business of the Company, references to the Company in this Item 2 reflect the consolidated activities of the Company and the Bank. The Company recorded consolidated net income of $8.7 million, or $.19 per share, in the first quarter of 1994, compared to a loss of $25.9 million, or $.80 per share, in the first quarter of 1993, and net income of $4.6 million, or $.10 per share, in the fourth quarter of 1993. The change between first quarters primarily was the result of a decrease in net ORE results of $44.9 million, a decrease in the credit loss provision of $8.5 million and a $1.8 million decrease in noninterest expense other than ORE expense. These factors were partially offset by a decrease in noninterest income of $1.4 million due to lower volumes. Return on average assets for the first quarters of 1994 and 1993 was 1.23% and (3.41%), respectively. Return on average equity for the first quarters of 1994 and 1993 was 11.65% and (46.1%), respectively. The allowance for credit losses at March 31, 1994 was $111.5 million, or 7.31% of loans outstanding, up from 6.82% at December 31, 1993 and 6.95% at March 31, 1993. Net charge offs totaled $2.0 million in the first quarter of 1994, or .51% of average loans, down from $18.4 million, or 4.63% of average loans, in the fourth quarter of 1993, and less than the $17.5 million, or 3.53% of average loans, in the first quarter of 1993. Based on existing economic indicators and independent economic forecasts, management believes that a recovery in the Southern California economy is likely to begin in the later part of 1994, but the strength, timing and consistency of any such recovery is not -8- 9 yet determinable. Based on its review of the loan portfolio, management anticipates that net charge offs and provisions for credit losses for 1994 will decrease from 1993 levels. Nonaccrual loans totaled $65.1 million at March 31, 1994, or 4.3% of total loans, down from $71.1 million, or 4.4%, at December 31, 1993, and $113.8 million, or 6.1%, a year earlier. ORE totaled $3.7 million at March 31, 1994, down from $5.6 million at December 31, 1993, and $7.3 million at March 31, 1993. The reduction in nonaccrual loans between first quarters was principally attributable to payments, restoration of loans to accrual status and charge offs. During the first quarter of 1994, the Bank completed the sale of substantially all of the ORE contained in its accelerated asset disposition program (Disposition Program) and recognized a pretax gain of $3.5 million, which was included in net ORE results. In April, 1994, the Bank completed a consolidation plan to improve efficiency and operational productivity in its branch network. The streamlining reduced the Bank's total number of branches from 22 to 16, while designating four of the remaining locations as regional commercial lending centers. In addition to providing a full array of regular banking services, the centers house teams of lenders specializing in serving mid-size businesses, as well as the Bank's larger, more complex relationships. Completion of the branch restructuring is expected to result in an expense savings of approximately $8.0 million per year, before the effect of inflation and other factors. However, this will be partially offset by decreased income resulting from reductions in loans and deposits caused by the consolidation. On January 21, 1994, the Office of the Comptroller of the Currency (OCC) terminated the written agreement with the Bank (Agreement) that had been in effect since November 18, 1992. In February 1994, the Federal Reserve Bank of San Francisco notified the Corporation that the Memorandum of Understanding (MOU), which it had entered into with the Corporation in February 1993, was also terminated. On January 17, 1994 and during the days thereafter, Los Angeles was struck by a series of strong earthquakes. Based on the information currently available, the Bank does not believe that earthquake-related losses, including those related to its facilities, will be material to the Bank's financial position. -9- 10 NET INTEREST INCOME Taxable equivalent net interest income was $32.2 million in the first quarter of 1994, down 2.3% from the year-ago quarter. The decline resulted primarily from a $67 million (2.5%) decrease in average interest earning assets for the first quarter from the year ago quarter. The net interest margin increased slightly from 5.03% in 1993 to 5.04% in 1994. Management expects interest earning assets to increase from the $2.590 billion average level for the first quarter of 1994, primarily due to increased purchases of securities. The increases in interest earning assets and the recent increases in the prime interest rate, if sustained, are expected to result in higher net interest income for the remainder of 1994, compared to the first quarter of 1994. Average loans declined $410.1 million (20.7%) between first quarters to $1.572 billion at March 31, 1994. The majority of this decrease reflected lower average commercial loans outstanding, down $210.3 million (18.9%). This decline resulted from decreased loan demand because of the recession in Southern California. Average construction loans decreased $86.1 million (87.6%) from the first quarter of 1993, primarily because the Bank significantly curtailed new construction loan commitments beginning in late 1990. Average real estate mortgage loans decreased $98.4 million (13.8%) between first quarters, primarily because of the sale of $73.7 million of equity line of credit (ELC) loans in April 1993. Average taxable investment securities increased $372.2 million (93.0%) between first quarters, as a result of the investment of the Bank's excess liquidity in government and agency securities during the last twelve months. Average state and municipal securities decreased $17.0 million (60.5%) between first quarters due to maturities. The Bank's interest bearing deposits decreased between first quarters partly as a result of the low interest rates paid to depositors, while total deposits decreased due to the weak economy and the uncertainty caused by the Bank's losses and the Agreement. Average non-interest bearing deposits decreased $20.8 million (2.2%), while average interest bearing core deposits decreased $53.8 million (4.2%) between first quarters. Average time deposits of $100,000 and over decreased $78.2 million, or 33.1%. Average federal funds purchased and securities sold under repurchase agreements decreased $169.4 million (46.0%) between first quarters due to the Company's improved liquidity. -10- 11 NET INTEREST INCOME SUMMARY The following table presents the components of net interest income for the quarters ended March 31, 1994 and 1993.
3-31-94 3-31-93 --------------------------------- --------------------------------- Interest Average Interest Average Average income/ interest Average income/ interest Dollars in thousands-fully taxable equivalent basis(1) Balance expense rate Balance expense rate - - ------------------------------------------------------------------------------------------------------------------------------------ ASSETS(2) Earning assets Loans:(3) Commercial loans $ 902,365 $16,360 7.41% $1,112,705 $19,872 7.34% Real estate - construction 12,154 247 8.24 98,214 1,762 7.28 Real estate - mortgage 614,367 11,884 7.84 712,720 13,014 7.41 Installment loans 43,047 1,008 9.50 58,428 1,470 10.20 ---------- ------- ---- ---------- ------- ----- Total loans 1,571,933 29,499 7.64 1,982,067 36,118 7.44 ---------- ------- ---- ---------- ------- ----- Due from banks - interest bearing 650 5 3.12 1,503 10 3.11 State and municipal securities 11,117 158 8.97 28,149 453 9.52 Other securities 772,361 9,214 4.84 400,165 6,110 6.19 Federal funds sold and securities purchased under resale agreements 208,419 1,648 3.21 214,455 1,602 3.03 Trading account securities 26,160 214 3.55 31,096 276 4.25 ---------- ------- ---- ---------- ------- ----- Total earning assets 2,590,640 40,738 6.41 2,657,435 44,569 6.88 ---------- ------- ---- ---------- ------- ----- Reserve for credit losses (113,508) (139,258) Cash and due from banks 252,889 313,630 Other nonearning assets 126,092 239,942 ---------- ---------- Total assets $2,856,113 $3,071,749 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Noninterest-bearing deposits $ 907,342 - - $ 928,132 - - Interest-bearing deposits: Interest checking accounts 292,246 696 0.97 289,262 1,018 1.43 Money market accounts 733,504 3,930 2.17 766,184 4,751 2.51 Savings deposits 102,350 493 1.95 105,554 634 2.44 Time deposits - under $100,000 95,372 847 3.60 116,238 1,110 3.87 Time deposits - $100,000 and over 158,052 1,201 3.08 236,275 1,856 3.19 ---------- ------- ---- ---------- ------- ----- Total interest-bearing deposits 1,381,524 7,167 2.10 1,513,513 9,369 2.51 ---------- ------- ---- ---------- ------- ----- Total deposits 2,288,866 2,441,645 Federal funds purchased and securities sold under repurchase agreements 198,955 1,479 3.01 368,322 2,634 2.90 Other short-term borrowings 14,245 103 2.93 14,515 119 3.32 ---------- ------- ---- ---------- ------- ----- Total interest-bearing liabilities 1,594,724 8,749 2.22 1,896,350 12,122 2.59 Other liabilities 52,509 ------- ---- 19,781 ------- Shareholders' equity 301,538 227,486 ---------- ---------- Total liabilities and shareholders' equity $2,856,113 $3,071,749 ========== ========== Net interest income/spread 31,989 4.19 32,447 4.29 ======= ==== ======= ==== Fully taxable equivalent net interest income $32,215 $32,959 ======= ======= Net interest margin(4) 5.04% 5.03%
(1) The interest income and average rate data in this table are presented on a taxable equivalent basis. Interest income exempt from federal income taxes, or income taxed at a rate less than the statutory tax rates, has been adjusted to a taxable equivalent basis using the federal income tax rates in effect during the years presented. (2) Includes average nonaccrual loans of $65,452 and $134,149 for 1994 and 1993, respectively. (3) Loan income includes loan fees of $1,085 and $1,182 for 1994 and 1993, respectively. (4) Fully taxable net interest income divided by interest-earning assets. -11- 12 The following tables set forth, for the periods indicated, the changes in interest earned and interest paid resulting from changes in volume and changes in rates. Average balances in all categories in each reported period were used in the volume computations. Average yields and rates in each reported period were used in rate computations.
Quarter Ended March 31 Quarter Ended March 31 1994 vs 1993 1993 vs 1992 --------------------------------- -------------------------------- Increase Increase Dollars in thousands - (decrease) (decrease) Fully taxable equivalent basis (1) due to (2): Net due to (2): Net ----------------- increase ----------------- increase Volume Rate (decrease) Volume Rate (decrease) ------ ---- ---------- ------ ---- ---------- Interest earned on: Interest-bearing deposits in other banks $ (7) $ 2 $ (5) $ 9 $ (1) $ 8 Loans (7,708) 952 (6,756) (10,228) (3,384) (13,612) Taxable securities 4,579 (1,479) 3,100 (2,323) (1,237) (3,560) Non-taxable securities (438) (64) (502) (1,755) 44 (1,711) Federal funds sold and securities purchased under resale agreements (46) 92 46 (2,365) (1,029) (3,394) ------- ------- ------- -------- ------- -------- Total interest-earning assets (3,620) (497) (4,117) (16,662) (5,607) (22,269) ------- ------- ------- -------- ------- -------- Interest paid on: Interest checking 11 (333) (322) (262) (599) (861) Money market deposits (196) (625) (821) (2,242) (2,309) (4,551) Savings deposits (18) (123) (141) 39 (220) (181) Other time deposits (808) (110) (918) (4,155) (2,028) (6,183) Short-term borrowings (1,253) 82 (1,171) (1,283) (1,038) (2,321) ------- ------- ------- -------- ------- -------- Total interest-bearing liabilities (2,264) (1,109) (3,373) (7,903) (6,194) (14,097) ------- ------- ------- -------- ------- -------- $(1,356) $ 612 $ (744) $ (8,759) $ 587 $ (8,172) ======= ======= ======= ======== ======= ========
(1) The changes in interest income in this table are presented on a fully taxable equivalent basis. Interest income exempt from federal income taxes, or income taxed at a rate less than the statutory tax rates, has been adjusted to a fully taxable equivalent basis using the federal income tax rates in effect in the periods presented. (2) The change in interest due to both rate and volume has been allocated to change due to volume and rate in proportion to the relationship of the absolute dollar amounts of the change in each. -12- 13 PROVISION FOR CREDIT LOSSES The provision for credit losses was $3.0 million in the first quarter of 1994, compared to $11.5 million, $7.5 million, $5.5 million and $5.5 million for the first through fourth quarters of 1993. The provision for credit losses in the first quarter of 1993 included $4.0 million resulting from the Bank's Disposition Program (see "Accelerated Asset Disposition Program," below). Loans charged off in the first quarter of 1994 were $8.9 million, compared to $24.3 million in the first quarter of 1993, including $12.4 million resulting from the adoption of the Disposition Program. Recoveries were $6.9 million in the first quarter of 1994, compared to $6.8 million in the first quarter of 1993. The provision for credit losses charged to operations reflects management's judgment of the adequacy of the allowance for credit losses and is determined through periodic analysis of the loan portfolio. This analysis includes a detailed review of the classification and categorization of problem and potential problem loans and loans to be charged off; an assessment of the overall quality and collectability of the portfolio; and consideration of the loan loss experience, trends in problem loans and concentrations of credit risk, as well as current and expected future economic conditions (particularly in Southern California). The Bank has an internal risk analysis and review staff that reports to the Board of Directors and continuously reviews loan quality. Such reviews also assist management in establishing the level of the allowance for credit losses. Unless there is significant deterioration in economic conditions, management anticipates, based on its review of the loan portfolio, that net charge offs and provisions for credit losses for 1994 will continue to decrease from 1993 levels. However, no assurance can be given that the Bank will not in any particular period sustain credit losses that are sizable in relation to the allowance for credit losses, or that subsequent evaluations of the loan portfolio, in light of the factors then prevailing, including economic conditions and further declines in property values, will not require significant increases in the allowance for credit losses. NONINTEREST INCOME Noninterest income for the first quarter of 1994 totaled $10.3 million, down $1.4 million (11.6%) from a year earlier. Service charges on deposit accounts increased slightly, -13- 14 $0.1 million (2.5%), between first quarters. Due to the effect of recent increases in interest rates utilized for purposes of account analysis, service charges on deposit accounts may be less than first quarter 1994 levels in future quarters. Customer trading account income decreased $0.2 million (14.6%) between first quarters, due primarily to lower volumes and reduced spreads on trading account transactions with customers. Trust fees decreased $0.2 million (10.8%) between first quarters due to lower volumes. Other income in the first quarter of 1994 included pre-tax gain of $1.3 million from sale of two leveraged leases, and other income in the first quarter of 1993 included $1.9 million from sale of the Bank's merchant credit card business. All other income decreased $0.4 million (12.9%) between first quarters because of lower escrow, foreign exchange, letter of credit and proof of deposit fees. Management does not expect a significant increase in noninterest income from first quarter 1994 levels during the remainder of 1994. NONINTEREST EXPENSE Excluding net ORE results, noninterest expense totaled $30.6 million in the first quarter of 1994, a decrease of $1.8 million (5.5%) from the first quarter of 1993. Salaries and other employee benefits decreased $1.6 million (9.0%) between first quarters. This decrease was due primarily to decreases in staff levels, which have declined from approximately 1,650 at December 31, 1992 to 1,280 at March 31, 1994. The remaining expense categories besides staff decreased $.1 million (1.0%) between first quarters. Decreases of $.6 million in FDIC insurance and $.3 million in data processing expenses were mostly offset by increases of $.4 million in promotion expense due to the increased level of the Bank's advertising program and a $.5 million increase in other operating expenses due to the Bank's share of losses in a real estate investment partnership. Management anticipates that non-interest expenses for the remainder of 1994 will decrease from first quarter 1994 levels due to the completion of the branch consolidation program. Net ORE results in the first quarter of 1994 were a credit of $4.5 million resulting from the sale of Disposition Program ORE for a gain of $3.5 million and sales of other ORE for gains totalling $1.0 million, compared to an expense of $40.3 million ($36.5 million resulting from the Disposition Program) in the first quarter of 1993. -14- 15 INCOME TAXES The first quarter 1994 effective tax expense rate was 34.4%, compared to an effective tax benefit rate of 35.6% for the first quarter of 1993. The effective rates differed from the statutory federal tax rates of 34% for 1993 and 35% for 1994 due primarily to tax exempt income. The California franchise tax provision recorded for the first quarter of 1994 was $.1 million consisting of the Company's California alternative minimum tax liability. Due to the Company's net operating loss carry-forwards, no regular California franchise tax provision was recorded. At March 31, 1994, the Company had a California net operating loss carry-forward of $21.5 million, of which $10.7 million will expire in 1997 and $10.8 million will expire in 1998. BALANCE SHEET ANALYSIS LOAN PORTFOLIO A comparative period-end loan table is presented below:
March 31, December 31, March 31, 1994 1993 1993 ---------- ---------- ---------- (Dollars in thousands) Commercial and financial(1) $ 876,716 $ 939,719 $1,064,563 Real estate - construction 12,651 11,699 87,960 Real estate - mortgage 593,380 623,653 662,193 Installment 42,106 45,485 56,872 ---------- ---------- ---------- Total loans, gross 1,524,853 1,620,556 1,871,588 Less: Allowance for credit losses (111,461) (110,499) (130,067) ---------- ---------- ---------- Total loans, net $1,413,392 $1,510,057 $1,741,521 ========== ========== ==========
(1) Commercial and financial loans include unsecured loans to real estate developers and customers involved in real estate investments and commercial loans where real estate partially secures the borrowing. Gross loans at March 31, 1994 amounted to $1,525 million, down $347 million (18.5%) from March 31, 1993. The decrease in loans resulted from decreased loan demand because of the recession and the sale of $73.7 million of the Bank's ELC loans in April 1993. Commercial loans continue to constitute the major portion of the Bank's lending activity, 57.5% at March 31, 1994 and 56.9% at March 31, 1993. Real estate construction loans decreased $75.3 million, or 85.6%, between March 31, 1993 and March 31, 1994, -15- 16 because new construction lending was curtailed beginning in late 1990, and certain construction loans were transferred to the real estate mortgage category after completion of construction. Real estate mortgage loans decreased $68.8 million, or 10.4%, between March 31, 1993 and 1994, primarily due to pay downs and the sale of $73.7 million of ELC loans. Substantially all of the Bank's loans are in Southern California. At March 31, 1994, real estate construction and mortgage loans constituted 39.7% of the Bank's loan portfolio. No other industry comprised 10% or more of the portfolio. REAL ESTATE CONSTRUCTION LOANS BY TYPE
March 31, December 31, March 31, 1994 1993 1993 --------- ----------- --------- (Dollars in thousands) Condominium and apartment $ - $ - $ 19,559 Shopping center - - 15,456 1-4 family 832 594 11,597 Office building 7,517 7,282 24,380 Industrial - - 6,571 Other 4,302 3,823 10,397 -------- -------- -------- $ 12,651 $ 11,699 $ 87,960 ======= ======= =======
REAL ESTATE MORTGAGE LOANS BY TYPE
March 31, December 31, March 31, 1994 1993 1993 --------- ------------ --------- (Dollars in thousands) Equity lines of credit $ 31,878 $ 47,279 $144,395(1) Industrial 118,849 123,594 141,637 Office building 104,142 110,183 107,528 Shopping center 62,309 68,236 65,590 Other 1-4 family(2) 40,021 37,347 34,491 Condominium and apartment 45,010 54,040 41,549 Land, non-residential 32,242 32,885 27,411 Other 158,928 150,089 99,592 -------- -------- --------- $ 593,380 $ 623,653 $ 662,193 ======== ======== ========
(1) Equity lines of credit are carried as loans held for sale at March 31, 1993. At June 30, 1993, due to the Bank's improved liquidity and management's decision to hold the remaining portfolio of equity lines of credit until maturity, the remaining loans were reclassified from loans held for sale to real estate mortgage loans. (2) Does not include condominium and apartment loans or equity lines of credit. -16- 17 RISK ELEMENTS NONACCRUAL, PAST DUE AND RESTRUCTURED LOANS The following table presents information concerning nonaccrual loans, ORE, accruing loans which are contractually past due 90 days or more as to interest or principal payments and still accruing, and restructured loans.
March 31, December 31, March 31, 1994 1993 1993 -------- ---------- -------- (Dollars in thousands) Nonaccrual loans: Real estate - construction $ - $ - $ 22,022 Real estate - mortgage 47,333 48,016 33,193 Commercial 17,807 23,040 58,123 Installment - - 505 ------- ------- ------- Total 65,140 71,056 113,843 ORE 3,677 5,559 7,324 ------- ------- ------- Total nonaccrual loans and ORE $ 68,817 $ 76,615 $121,167 ======= ======= ======= Assets held for accelerated disposition $ 2,779 $ 17,450 $ 70,225 ======= ======= ======= In-substance foreclosures - intangible assets $ 4,530 $ 4,740 $ 5,677 ======= ======= ======= Ratio of nonaccrual loans to total loans 4.27% 4.38% 6.08% Ratio of nonaccrual loans and ORE to total loans and ORE 4.50 4.71 6.45 Ratio of allowance for credit losses to nonaccrual loans 171.11 155.51 114.25 Accruing loans past due 90 days or more: Real estate $ 18,046 $ 17,412 $ 17,979 Commercial 10,453 11,382 3,568 Installment 138 155 33 ------- ------- ------- Total $ 28,637 $ 28,949 $ 21,580 ======= ======= ======= Restructured loans; all on accrual status $ 1,907 $ 958 $ 1,103 ======= ======= =======
-17- 18 NONACCRUAL LOANS The table below summarizes the approximate changes in nonaccrual loans for the quarters ended March 31, 1994, December 31, 1993, and March 31, 1993, and for the year ended December 31, 1993.
Quarter ended --------------------------------------------- Full March 31 December 31, March 31, year 1994 1993 1993 1993 -------- ---------- --------- ----- (Dollars in millions) Balance, beginning of period $ 71.1 $ 97.3 $160.3 $ 160.3 Loans placed on nonaccrual 19.0 19.5 40.3 105.7 Charge offs (6.5) (19.3) (22.3) (66.8) Loans returned to accrual (6.4) (12.5) (17.5) (43.1) Repayments (including interest applied to principal) (12.1) (11.8) (18.7) (56.4) Transfers to ORE - (2.1) (7.0) (13.9) Transfer from (to) Disposition Program, net - - (21.3) (14.7) ------- ------- ------ ------ Balance, end of period $ 65.1 $ 71.1 $113.8 $ 71.1 ====== ====== ===== ======
The additional interest income that would have been recorded from nonaccrual loans (including restructured loans on nonaccrual status), if the loans had not been on nonaccrual status, was $.4 million and $2.9 million for the quarters ended March 31, 1994 and 1993, respectively. Interest payments received on nonaccrual loans are applied to principal, unless there is no doubt as to ultimate full repayment of principal, in which case the interest payment is recognized as interest income. Interest income included $1.4 million and $.8 million for the quarters ended March 31, 1994 and 1993, respectively, from the collection of interest related to nonaccrual loans, including loans paid off during the quarter. Interest income not recognized on nonaccrual loans reduced the net interest margin by 7 and 45 basis points for the quarters ended March 31, 1994 and 1993, respectively. POTENTIAL PROBLEM LOANS At March 31, 1994, in addition to loans disclosed above as past due, nonaccrual or restructured, management had also identified $46.0 million of loans about which it had serious doubts as to the ability of the borrowers to comply with the present loan payment terms in the future. This amount was determined based on analysis of information known to management about the borrower's financial condition and current and expected economic -18- 19 conditions. Unfunded loan commitments pertaining to these potential problem loans totaled $1.2 million. If economic conditions change, or if additional information relating to borrowers' financial condition come to light, then the amount of such potential problem loans may change significantly. Currently estimated potential losses from these potential problem loans have been considered in determining the adequacy of the allowance for credit losses. OTHER REAL ESTATE The following tables summarize the changes in the Company's ORE balances and ORE by type:
CHANGES IN ORE BALANCES Quarter ended ------------------------------------------------------------------ March 31, December 31, March 31, 1994 1993 1993 ---------- ----------- ---------- (Dollars in thousands) Balance, beginning of period $ 5,559 $ 5,114 $ 94,065 Additions - 1,359 6,952 Sales (1,817) (824) (2,628) Writedowns - - (39,620) Payments and other reductions (65) (90) (2,556) Transfer to Disposition Program - - (48,889) -------- -------- -------- Balance, end of period $ 3,677 $ 5,559 $ 7,324 ======= ======= ========
-19- 20 ALLOWANCE FOR CREDIT LOSSES The following table summarizes average loans outstanding and changes in the allowance for credit losses for the periods presented:
Quarter ended Year ended ----------------------------------------------------------- ------------ March 31, December 31, March 31, December 31, 1994 1993 1993 1993 ---------- ---------- ---------- --------- (Dollars in millions) Average amount of loans outstanding $ 1,571.9 $ 1,589.1 $ 1,982.1 $ 1,737.4 ======== ======== ======== ======== Balance of allowance for credit losses, beginning of period $ 110.5 $ 123.4 $ 136.1 $ 136.1 -------- -------- -------- -------- Loans charged off: Commercial 5.3 24.3 8.0 56.0 Real estate loans - construction - - 2.4 3.2 Real estate loans - mortgage 3.4 0.7 13.4 23.1 Installment 0.2 - 0.5 0.6 ---------- ---------- ---------- ---------- Total loans charged off 8.9 25.0 24.3 82.9 ---------- --------- -------- --------- Less recoveries of loans previously charged off: Commercial 6.7 6.1 6.8 27.8 Real estate loans - construction 0.1 - - - Real estate loans - mortgage - 0.5 - .8 Installment 0.1 - - .2 ---------- ---------- ---------- --------- Total recoveries 6.9 6.6 6.8 28.8 ---------- --------- --------- --------- Net loans charged off 2.0 18.4 17.5 54.1 Provisions charged to operating expense 3.0 5.5 11.5 30.0 Other(1) - - - (1.5) ---------- ---------- --------- --------- Balance, end of period $ 111.5 $ 110.5 $ 130.1 $ 110.5 ======== ======== ======= ======== Ratio of net charge-offs to average loans .51% 4.63% 3.53% 3.12% ========= ========= ======== ========
(1) Credit loss allowance allocated to $73.7 million of equity line of credit loans sold in April 1993. The allowance for credit losses decreased from $130.1 million at March 31, 1993 to $111.5 million at March 31, 1994, primarily due to net charge offs in excess of provisions for credit losses during the twelve months ended March 31, 1994. At March 31, 1994, the allowance for credit losses was 7.31% of gross loans, compared to 6.95% at March 31, 1993. The allowance at March 31, 1994 was equal to 171.1% of total nonaccrual loans, as compared to 114.3% at March 31, 1993. -20- 21 The Company has not yet determined when it will implement SFAS No. 114, "Accounting by Creditors for Impairment of a Loan," which becomes effective January 1, 1995, but management believes that the adoption of SFAS No. 114 will not have a material impact on its results of operations or shareholder's equity. INVESTMENT SECURITIES A comparative period-end table is presented below:
March 31, December 31, March 31, 1994 1993 1993 ----------- ----------- ---------- (Dollars in thousands) Investment securities: Cost $ 781,356 $ 902,481 $ 357,995 ======== ========== ======== Market $ 765,593 $ 902,738 $ 364,213 ======== ========== ======== Market in excess of (below) cost $ (15,763) $ 257 $ 6,218 ======== =========== =========
The Company has the ability and management has the intent to hold its investment securities until maturity. Due to the rise in interest rates in the first quarter of 1994, the market value of the Company's investment securities portfolio is $15.8 million (2.0%) lower than its carrying value. SECURITIES AVAILABLE FOR SALE Securities available for sale amounted to $92.2 million at market (cost of $92.8 million) at March 31, 1994, compared to $2.0 million (both cost and market) at December 31, 1993 and $26.9 million (market value $27.5 million) at March 31, 1993. In order to provide flexibility with respect to future loan funding, the Company has designated certain securities purchased during the first quarter with its excess liquidity as securities available for sale. DEFERRED TAX BENEFITS Deferred tax benefits amounted to $21.3 million at March 31, 1994 and $35.7 million at March 31, 1993. These deferred tax benefits were primarily due to the inability of the Bank to take loan loss deductions with respect to anticipated loan losses for income tax -21- 22 purposes, but for which a reserve had been established on its financial accounting records. It is more likely than not that the reversing deductible temporary differences, net of the recorded valuation allowances, at March 31, 1994 will be realized by the availability of reversing taxable temporary differences, recovery of taxes paid in applicable carry-back years, and projected taxable income for 1994. ASSETS HELD FOR ACCELERATED DISPOSITION In March 1993, the Bank adopted an accelerated asset disposition program to aggressively dispose of ORE and certain problem loans with an aggregate book value before the Disposition Program of $119.5 million. The Bank signed a definitive agreement to sell, as of November 1, 1993, all six asset pools in its Accelerated Asset Disposition Program to WHC-THREE Investors, L.P. ("WHC-THREE"), a limited partnership. The sale of the loans contained in the Disposition Program for $48.3 million closed concurrently with the signing of the definitive agreement and a gain of $12.8 million was recognized at that time, net of disposition expenses and reserves. The sale of substantially all of the Disposition Program ORE closed in the first quarter of 1994, and a pretax gain of $3.5 million was recognized at that time. At March 31, 1994, the remaining Disposition Program assets were carried at $2.8 million, net of disposition expenses and reserves. No losses are anticipated upon final resolution of these assets. At March 31, 1994, the Bank had interim mortgages on certain Disposition Program ORE properties totalling $7.3 million which will be cancelled in exchange for title to the properties at the closing of the sale of these properties or upon repurchase of the properties by the Bank if valuation differences cannot be satisfactorily resolved with WHC-THREE. The Bank provided loans totaling $56.0 million (75% financing) for this sale at terms comparable with other real estate loans in its portfolio. The terms of the notes require annual pay downs and payment of the remaining principal in five years, in addition to payments when individual real estate assets securing the loans are sold or refinanced. CAPITAL ADEQUACY REQUIREMENTS As of March 31, 1994, the Company had a ratio of Tier 1 capital to risk-weighted assets (Tier 1 risk-based capital ratio) of 17.64%, a ratio of total capital to risk weighted -22- 23 assets (total risk-based capital ratio) of 18.96%, and a ratio of Tier 1 capital to average adjusted total assets (Tier 1 leverage ratio) of 10.75%, while the Bank had a Tier 1 risk-based capital ratio of 16.59%, a total risk-based capital ratio of 17.91% and a Tier 1 leverage ratio of 10.14%. Based on the availability of recovery of taxes paid in prior years and projected taxable income for the next twelve months, there is no limitation on the amount of recorded deferred tax assets includable in regulatory capital at March 31, 1994 under OCC guidelines. LIQUIDITY A fundamental aspect of the asset/liability management strategy of the Company is adequate liquidity -- the ability to meet the requirements of customers for loans and deposit withdrawals in the most timely and economical manner. For most financial institutions, the most manageable sources of liquidity are composed of liabilities, especially core deposits. Average core deposits increased to 85.2% of total funding in the first quarter of 1994, compared to 78.1% in the first quarter of 1993. Liquidity is also provided by assets such as federal funds sold, securities purchased under resale agreements and trading account securities which may be immediately converted into cash at a minimal cost. Liquidity may also be provided by maturing investment securities. At March 31, 1994, investment securities maturing within one year amounted to $188.6 million and securities available for sale amounted to $92.2 million. Maturing loans also provide liquidity, and $1.0 billion of the Bank's loans are scheduled to mature in the next twelve months. City National Corporation has no outstanding debt obligations and limited financial requirements. At March 31, 1994, it had repurchase agreements with the Bank of $2.0 million and securities of $16.1 million. Interest sensitivity is related to liquidity because both are affected by the interrelationships of maturing assets and liabilities. Interest rate sensitivity management, however, is concerned with the timing and magnitude of repricing assets compared to liabilities. It is the objective of interest rate-sensitivity management to control the risks associated with interest rate movement. -23- 24 INTEREST RATE SENSITIVITY MANAGEMENT At March 31, 1994 and 1993, the Company's distribution of rate-sensitive assets and liabilities was as follows:
Maturing or repricing in --------------------------------------------------------------- After 3 After 1 year 3 months months but but within After or less within 1 year 5 years 5 years Total -------- ------------- ------------ ------- -------- MARCH 31, 1994 (Dollars in millions) Rate-sensitive assets: Interest-bearing deposits in other banks .....................$ 0.6 $ - $ - $ - $ 0.6 Loans ........................................................ 1,194.6 92.6 149.3 23.4 1,459.9 Investment securities ........................................ 119.9 84.9 318.9 243.4 767.1 Securities available for sale ................................ - - 56.3 35.9 92.2 Trading account securities.................................... 15.9 - - - 15.9 Federal funds sold and securities purchased under resale agreements ......................... 215.0 - - - 215.0 -------- ------ ------ ------ -------- Total rate-sensitive assets ............................... 1,546.0 177.5 524.5 302.7 2,550.7 -------- ------ ------ ------ -------- Rate-sensitive liabilities:(1) Interest checking ............................................ 287.5 - - - 287.5 Money market deposits ........................................ 745.3 - - - 745.3 Savings deposits ............................................. 101.1 - - - 101.1 Other time deposits .......................................... 143.1 63.5 38.6 - 245.2 Short-term borrowings ........................................ 209.2 - - - 209.2 -------- ------ ------ ------ -------- Total rate-sensitive liabilities .......................... 1,486.2 63.5 38.6 - 1,588.3 -------- ------ ------ ------ -------- Interest rate sensitivity gap ...................................$ 59.8 $114.0 $485.9 $302.7 $ 962.4 ======== ====== ====== ====== ======== Cumulative interest rate sensitivity gap ........................$ 59.8 $173.8 $659.7 $962.4 ======== ====== ====== ====== Cumulative ratio of rate-sensitive assets to rate-sensitive liabilities.................................... 104% 111% 142% 161% 161% ======== ====== ====== ====== ========
Maturing or repricing in --------------------------------------------------------------- After 3 After 1 year 3 months months but but within After or less within 1 year 5 years 5 years Total -------- ------------- ----------- -------- -------- MARCH 31, 1993 (Dollars in millions) Rate-sensitive assets: Interest-bearing deposits in other banks .....................$ 0.6 $ - $ - $ - $ 0.6 Loans ........................................................ 1,520.8 69.5 131.5 36.0 1,757.8 Investment securities ........................................ 56.9 150.9 117.3 32.9 358.0 Securities available for sale ................................ 7.1 14.1 5.6 0.1 26.9 Trading account securities ................................... 26.4 - - - 26.4 Federal funds sold and securities purchased under resale agreements ......................... 275.0 - - - 275.0 -------- ------ ------ ------ -------- Total rate-sensitive assets ............................... 1,886.8 234.5 254.4 69.0 2,444.7 -------- ------ ------ ------ -------- Rate-sensitive liabilities:(1) Interest checking ............................................ 272.4 - - - 272.4 Money market deposits ........................................ 732.7 - - - 732.7 Savings deposits ............................................. 106.6 - - - 106.6 Other time deposits .......................................... 210.1 79.0 39.2 - 328.3 Short-term borrowings ........................................ 343.0 - - - 343.0 -------- ------ ------ ------ -------- Total rate-sensitive liabilities .......................... 1,664.8 79.0 39.2 - 1,783.0 -------- ------ ------ ------ -------- Interest rate sensitivity gap ...................................$ 222.0 $155.5 $215.2 $ 69.0 $ 661.7 ======== ====== ====== ====== ======== Cumulative interest rate sensitivity gap ........................$ 222.0 $377.5 $592.7 $661.7 ======== ====== ====== ====== Cumulative ratio of rate-sensitive assets to rate-sensitive liabilities ................................... 113% 122% 133% 137% 137% ======== ====== ====== ====== ========
(1) Customer deposits which are subject to immediate withdrawal are presented as repricing within 3 months or less. The distribution of other time deposits is based on scheduled maturities. -24- 25 The interest rate-sensitivity gap is defined as the difference between interest-earning assets and interest-bearing liabilities maturing or repricing within a given time period. A gap is considered positive when the amount of interest rate-sensitive assets exceeds the amount of interest rate-sensitive liabilities. A gap is considered negative when the amount of interest rate-sensitive liabilities exceeds interest rate-sensitive assets. During a period of rising interest rates, a negative gap would tend to adversely affect net interest income, while a positive gap would tend to result in an increase in net interest income. During a period of falling interest rates, a negative gap would tend to result in an increase in net interest income, while a positive gap would tend to affect net interest income adversely. The preceding table shows that the Company's positive interest rate sensitivity gap increased from $661.7 million at March 31, 1993 to $962.4 million at March 31, 1994. This increase was due primarily to a $194.7 million decline in rate sensitive liabilities, especially time deposits and short-term borrowings. Rate-sensitive assets increased $106.0 million, primarily as a result of the use of proceeds from the issuance of common stock and sale of assets in the Disposition Program to purchase securities. The Company's highly asset sensitive position in this period of rising interest rates will have a positive effect on net interest income. While the interest rate sensitivity gap is a useful measure and contributes towards effective asset and liability management, it is difficult to predict the net interest margin based solely on that measure. -25- 26 PART II. OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS. None ITEM 5. OTHER INFORMATION. None ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits None (b) Reports on Form 8-K None SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CITY NATIONAL CORPORATION ---------------------------- (REGISTRANT) DATE: May 16, 1994 /s/ Frank P. Pekny ------------ ---------------------------- FRANK P. PEKNY Executive Vice President and Treasurer -26- -----END PRIVACY-ENHANCED MESSAGE-----