-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MTBIzvkSXRdZjo17VvEWamXSETptbsYVUsaF3dEF/z8ZoIDrzGnF54upN6bfYr39 EzOt1a28Y+ayuoFLaF0eiw== 0001047469-98-020072.txt : 19980515 0001047469-98-020072.hdr.sgml : 19980515 ACCESSION NUMBER: 0001047469-98-020072 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980514 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CITY NATIONAL CORP CENTRAL INDEX KEY: 0000201461 STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021] IRS NUMBER: 952568550 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-10521 FILM NUMBER: 98619880 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 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-Q QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarter ended March 31, 1998 Commission File Number 1-10521 CITY NATIONAL CORPORATION - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 95-2568550 - -------------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) City National Center 400 North Roxbury Drive, Beverly Hills, California 90210 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (310) 888-6000 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO ---------------- ----------------- Number of shares of common stock outstanding at April 30, 1998: 46,742,882 PART 1 - FINANCIAL INFORMATON ITEM 1. FINANCIAL STATEMENTS CITY NATIONAL CORPORATION CONSOLIDATED BALANCE SHEET (Unaudited)
March 31, December 31, March 31, Dollars in thousands, except share amounts 1998 1997 1997 - ------------------------------------------ ----------- ----------- ----------- Assets Cash and due from banks ................................................. $ 374,309 $ 327,398 $ 268,911 Interest-bearing deposits in other banks ................................ 275 301 1,160 Federal funds sold ...................................................... 280,000 150,000 60,000 Investment securities (fair value $220,785; $227,465 and $212,117 at March 31, 1998, December 31, 1997 and March 31, 1997, respectively) ... 219,395 225,934 214,820 Securities available-for-sale (cost $595,603; $597,910 and $611,254 at March 31, 1998, December 31, 1997 and March 31, 1997, respectively) ... 606,313 607,188 602,631 Trading account securities .............................................. 29,484 30,279 39,639 Loans ................................................................... 4,052,046 3,825,224 3,302,001 Less allowance for credit losses ........................................ 137,043 137,761 137,614 ----------- ----------- ----------- Net loans ............................................................. 3,915,003 3,687,463 3,164,387 Premises and equipment, net ............................................. 44,839 43,402 32,798 Customers' acceptance liability ......................................... 2,110 1,553 1,988 Other real estate ....................................................... 2,900 2,126 18,958 Deferred tax asset ...................................................... 54,109 58,815 51,834 Goodwill and core deposit intangibles ................................... 73,012 54,921 63,207 Bank owned life insurance ............................................... 40,457 -- -- Other assets ............................................................ 59,916 62,652 63,312 ----------- ----------- ----------- Total assets .......................................................... $ 5,702,122 $ 5,252,032 $ 4,583,645 ----------- ----------- ----------- ----------- ----------- ----------- Liabilities Demand deposits ......................................................... $ 1,999,820 $ 2,027,014 $ 1,547,850 Interest checking deposits .............................................. 384,642 439,071 375,186 Money market deposits ................................................... 851,413 773,291 813,155 Savings deposits ........................................................ 167,592 171,100 174,072 Time deposits-under $100,000 ............................................ 210,971 204,744 240,054 Time deposits-$100,000 and over ......................................... 755,645 613,128 489,680 ----------- ----------- ----------- Total deposits ........................................................ 4,370,083 4,228,348 3,639,997 Federal funds purchased and securities sold under repurchase agreements . 374,275 206,427 130,131 Other short-term borrowings ............................................. 162,969 212,575 262,339 Subordinated debt ....................................................... 124,004 -- -- Other long-term debt .................................................... 75,000 50,000 34,800 Other liabilities ....................................................... 55,642 44,459 49,115 Acceptances outstanding ................................................. 2,110 1,553 1,988 ----------- ----------- ----------- Total liabilities ..................................................... 5,164,083 4,743,362 4,118,370 ----------- ----------- ----------- Commitments and contingencies Subsequent events Shareholders' Equity Preferred Stock authorized - 5,000,000, none outstanding ................ -- -- -- Common Stock-par value-$1.00; authorized - 75,000,000 Issued- 46,831,840; 46,700,891 and 46,694,668 shares at March 31, 1998, December 31, 1997 and March 31, 1997, respectively) ................... 46,832 46,701 46,695 Additional paid-in capital .............................................. 296,067 297,654 300,102 Other comprehensive income (loss) ....................................... 6,143 5,349 (4,973) Retained earnings ....................................................... 189,000 173,089 126,163 Treasury shares, at cost - 1,305; 563,928 and 135,475 shares at March 31, 1998, December 31, 1997 and March 31, 1997, respectively) ............. (3) (14,123) (2,712) ----------- ----------- ----------- Total shareholders' equity ............................................ 538,039 508,670 465,275 ----------- ----------- ----------- Total liabilities and shareholders' equity ............................ $ 5,702,122 $ 5,252,032 $ 4,583,645 ----------- ----------- ----------- ----------- ----------- -----------
See accompanying Notes to the Unaudited Consolidated Financial Statements 2 CITY NATIONAL CORPORATION CONSOLIDATED STATEMENT OF INCOME AND COMPREHENSIVE INCOME (Unaudited)
For the quarter ended March 31, ------------------------------- In thousands, except per share amounts 1998 1997 - -------------------------------------- -------- -------- Interest Income Loans ............................................... $ 90,074 $ 70,011 Federal funds sold and securities purchased under resale agreements ................................. 510 312 Investment securities ............................... 3,085 3,028 Securities available-for-sale ....................... 9,181 9,517 Trading account ..................................... 598 439 -------- -------- Total ............................................. 103,448 83,307 -------- -------- Interest Expense Deposits ............................................ 20,832 16,494 Federal funds purchased and securities sold under repurchase agreements ............................. 4,892 5,361 Other short-term borrowings ......................... 1,999 1,171 Subordinated debt ................................... 1,749 -- Other long-term debt ................................ 1,152 509 -------- -------- Total ............................................. 30,624 23,535 -------- -------- Net interest income ................................. 72,824 59,772 Provision for credit losses ........................... -- -- -------- -------- Net interest income after provision for credit losses 72,824 59,772 -------- -------- Noninterest Income Service charges on deposit accounts ................. 5,032 3,304 Investment services ................................. 3,691 3,051 Trust fees .......................................... 2,242 2,016 International services .............................. 1,686 1,526 Bank owned life insurance ........................... 457 -- Gain on sale of assets .............................. 13 1,039 Gain (loss) on sale of securities ................... 974 (277) Other ............................................... 2,270 1,966 -------- -------- Total noninterest income .......................... 16,365 12,625 -------- -------- Noninterest Expense Salaries and other employee benefits ................ 29,742 23,496 Professional ........................................ 7,315 4,582 Net occupancy of premises ........................... 2,464 2,362 Data processing ..................................... 1,203 2,152 Promotion ........................................... 2,437 1,722 Depreciation ........................................ 2,030 1,357 Office services ..................................... 2,111 1,556 Equipment ........................................... 508 581 Amortization of goodwill and core deposit intangibles 1,869 1,381 Other operating ..................................... 4,642 4,358 Other real estate ................................... 45 378 -------- -------- Total noninterest expense ......................... 54,366 43,925 -------- -------- Income before income taxes .......................... 34,823 28,472 Income taxes ........................................ 12,354 10,469 -------- -------- Net income .......................................... 22,469 18,003 -------- -------- Other comprehensive income Unrealized net gains (losses) on securities available-for-sale .............................. 1,432 (4,096) Income taxes (benefit) ............................ 638 (1,272) -------- -------- Other comprehensive income (loss) ................... 794 (2,824) -------- -------- Comprehensive income ................................ $ 23,263 $ 15,179 -------- -------- -------- -------- Net income per share, basic ......................... $ 0.48 $ 0.39 -------- -------- -------- -------- Net income per share, diluted ....................... $ 0.46 $ 0.38 -------- -------- -------- -------- Shares used to compute income per share, basic ...... 46,677 45,936 -------- -------- -------- -------- Shares used to compute income per share, diluted .... 48,841 47,608 -------- -------- -------- -------- Dividends per share ................................. $ 0.14 $ 0.11 -------- -------- -------- --------
See accompanying Notes to the Unaudited Consolidated Financial Statements 3 CITY NATIONAL CORPORATION CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)
For the three months ended March 31, ------------------------- Dollars in thousands 1998 1997 - -------------------- --------- --------- Cash Flows From Operating Activities Net income ...................................................... $ 22,469 $ 18,003 Adjustments to net income: Gain on sales of ORE .......................................... 58 115 Depreciation .................................................. 2,030 1,357 Amortization of goodwill and core deposit intangibles ......... 1,869 1,381 Net (increase) decrease in trading securities ................. 795 (7,510) Deferred income tax expense (benefit) ......................... (6,177) 13,457 Net increase in other liabilities ............................. 10,165 3,181 Other, net .................................................... 14,344 (15,830) --------- --------- Net cash provided by operating activites .................... 45,553 14,154 --------- --------- Cash Flows From Investing Activities Net decrease in short-term investments .......................... 26 9,818 Purchase of securities available-for-sale ....................... (88,993) (134,694) Sales of securities available-for-sale .......................... 80,341 186,565 Maturities of securities available-for-sale ..................... 21,017 11,781 Maturities of investment securities ............................. 9,429 2,988 Purchase of investment securities ............................... (2,528) (21,851) Purchase of residential mortgage loans .......................... (32,396) (74,681) Sale of residential mortgage loans .............................. -- 47,513 (Loan originations) and principal collections, net .............. (51,442) (83,751) Proceeds from sales of ORE ...................................... 647 5,411 Purchase of premises and equipment .............................. (1,143) (2,305) Net cash from acquisitions ...................................... 43,622 42,876 Bank owned life insurance premium paid .......................... (40,000) -- Gain (loss) on sale of securities ............................... 974 (277) Other, net ...................................................... 171 (6,151) --------- --------- Net cash used by investing activities ....................... (60,275) (16,758) --------- --------- Cash Flows From Financing Activities Net increase in federal funds purchased and securities sold under repurchase agreements ......................................... 17,848 80,582 Net decrease in deposits ........................................ (63,865) (197,705) Net increase (decrease) in short-term borrowings ............... 100,394 (31,303) Net increase from issuance of other long-term debt .............. 25,000 -- Net proceeds of subordinated debt ............................... 124,004 -- Proceeds from excercise of stock options ........................ 6,034 5,312 Stock repurchases ............................................... (13,025) (1,072) Cash dividends paid ............................................. (6,558) (5,106) Other, net ...................................................... 1,801 (1,439) --------- --------- Net cash provided by financing activities ................... 191,633 (150,731) --------- --------- Net increase (decrease) in cash and cash equivalents ............ 176,911 (153,335) Cash and cash equivalents at beginning of year .................. 477,398 482,246 --------- --------- Cash and cash equivalents at end of period ...................... $ 654,309 $ 328,911 --------- --------- --------- --------- Supplemental Disclosures of Cash Flow Information: Cash paid during the period for: Interest .................................................... $ 28,686 $ 21,878 Income taxes ................................................ -- 2 Non-cash investing activities: Transfer from loans to foreclosed assets .................... 1,436 9,652
See accompanying Notes to the Unaudited Consolidated Financial Statements 4 CITY NATIONAL CORPORATION STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (Unaudited)
For the three months ended March 31, -------------------------- Dollars in thousands 1998 1997 - -------------------- --------- --------- Common Stock Balance, beginning of period ..................... $ 46,701 $ 46,303 Stock issued for acquisitions .................... 131 -- Stock options exercised .......................... -- 392 --------- --------- Balance, end of period ........................... 46,832 46,695 --------- --------- Additional paid-in capital Balance, beginning of period ..................... 297,654 275,610 Stock options exercised .......................... -- 4,920 Tax benefit from stock options ................... 1,801 1,385 Excess of cost of treasury shares reissued over stock option excercise amounts ............ (10,295) -- Excess of market value of shares issued for acquisitions over historical cost .......... 6,907 18,187 --------- --------- Balance, end of period ........................... 296,067 300,102 --------- --------- Treasury shares Balance, beginning of period ..................... (14,123) (32,283) Purchase of shares ............................... (13,026) (1,072) Issuance of shares for acquisitions .............. 10,817 30,643 Issuance of shares for stock options ............. 16,329 -- --------- --------- Balance, end of period ........................... (3) (2,712) --------- --------- Other comprehensive income (loss) Balance, beginning of period ..................... 5,349 (2,149) Unrealized net gains (losses) on securities available-for-sale net of income taxes (benefit) 794 (2,824) --------- --------- Balance, end of period ........................... 6,143 (4,973) --------- --------- Retained earnings Balance, beginning of period ..................... 173,089 113,266 Net income ....................................... 22,469 18,003 Dividends paid ................................... (6,558) (5,106) --------- --------- Balance, end of period ........................... 189,000 126,163 --------- --------- Total shareholders' equity ......................... $ 538,039 $ 465,275 --------- --------- --------- ---------
See accompanying Notes to the Unaudited Consolidated Financial Statements 5 CITY NATIONAL CORPORATION NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. The results of operations reflect the interim adjustments, all of which are of a normal recurring nature and which, in the opinion of management, are necessary for a fair presentation of the results for such interim periods. These unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 1997. 2. In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures about Pensions and Other Postretirement Benefits" ("SFAS 132"). This Statement standardizes the disclosure requirements for defined benefit plans and recommends a parallel format for presenting information about pensions and other postretirement benefits. This Statement is effective for fiscal years beginning after December 15, 1997. At this time the Company has determined that this Statement will have no significant impact, since it has no defined benefit plans. In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information" ("SFAS 131"). SFAS 131 establishes standards for the way that public enterprises report information about operating segments in annual financial statements and requires that selected information about those operating segments be reported in interim financial statements. This statement supersedes SFAS 14 "Financial Reporting for Segments of a Business Enterprise". SFAS No. 131 requires that all public enterprises report financial and descriptive information about its reportable operating segments. Operating segments are defined as components regularly evaluated by the chief operating decision maker in deciding how to allocate resources and in assessing performance. This statement is effective for fiscal year beginning after December 15, 1997. In the initial year of application, comparative information for earlier years should be restated. Management is in the process of determining the impact, if any, this statement will have on the Company. 3. Securities held-for-investment are classified as investment securities. Because the Company has the ability and management has the intent to hold investment securities until maturity, investment securities are stated at cost, adjusted for amortization of premiums and accretion of discounts, Trading account securities are stated at market value. Investments not classified as trading securities nor as investment securities are classified as securities available-for-sale and recorded at fair value. Unrealized holding gains or losses for securities available-for-sale are excluded from net income and are reported as comprehensive income included as a separate component of shareholders' equity net of taxes. 4. On January 9, 1998, the Company completed its acquisition of Harbor Bancorp (HB), a one-bank holding company with six branches, one of which was subsequently closed. The total purchase price was approximately $34.5 million. The Company issued approximately 540,000 shares, primarily from treasury, with an aggregate market value of $17.9 million and paid the remainder in cash. This acquisition was accounted for under the purchase method of accounting and resulted in the recording of goodwill and intangibles of approximately $24.0 million. The results of HB's operations are included in those reported by the Company beginning on January 10, 1998. On February 27, 1998, the Company sold its Wilmington branch which had been acquired as part of the acquisition of Ventura County National Bancorp to Banco Popular, N.A. (California). With the sale the purchaser received approximately $40 million of deposits. 6 The Bank has received regulatory approval from the Office of the Comptroller of the Currency to close on May 15, 1998 its Magnolia branch which was acquired in the Company's acquisition of Riverside National Bank. 5. On January 12, 1998, the Company issued $125 million of 6 3/8% Subordinated Notes Due 2008. The net proceeds from the sale are being used for general corporate purposes in the ordinary course of its banking business. 6. For purposes of reporting cash flows, cash and cash equivalents include cash on hand, amounts due from banks, and overnight federal funds sold. 7. Certain prior periods' data have been reclassified to conform with current period presentation. 8. On April 29, 1998, the Company reported it had completed its share repurchase program announced in March 1997 of 1.5 million shares of its common stock at a total cost of $42.7 million, or an average price of $28.46 per share. A new share repurchase program of up to 1.0 million shares of the Company's common stock from time to time in open market transactions was also announced at the same time. 7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS City National Corporation (the Corporation) is the holding Company for City National Bank (the Bank). Because the Bank comprises substantially all of the business of the Corporation, references to the "Company" in this Item 2 reflect the consolidated activities of the Corporation and the Bank. RESULTS OF OPERATIONS Overview The Company recorded consolidated net income of $22.5 million, or $.46 per diluted common share, in the first quarter of 1998, compared to $18.0 million, or $.38 per diluted common share, in the first quarter of 1997. Increased net income was primarily due to $13.1 million higher net interest income, and $3.7 million higher noninterest income, partially offset by $10.4 million in higher noninterest expense. Return on average assets for the first quarter of 1998 was 1.70% compared with 1.65% for the corresponding quarter of 1997. Return on average equity for the first quarter of 1998 increased to 17.19% from 16.25% in 1997 as a result of the increase in average equity resulting from the issuance of approximately 540,000 shares for the acquisition of Harbor Bancorp (HB) completed in January 1998. Earnings before the amortization of goodwill and core deposit intangibles (net of applicable taxes) ("cash" earnings) for the quarter ended March 31, 1998 were $24.0 million or $0.49 per diluted common share, compared with $ 18.9 million, or $0.40 per diluted common share for the quarter ended March 31, 1997. On the same basis, the return on average assets was 1.84% and the return on average common equity was 20.87% in the first quarter of 1998 compared with 1.76% and 20.68%, respectively in the year ago quarter. "Cash" earnings are presented because they measure the Company's ability to support growth, pay dividends and repurchase stock. The Company's "cash" earnings per share and other ratios are not necessarily comparable to similarly titled measures reported by other companies. Taxable equivalent net interest income was $75.6 million in the first quarter of 1998, up 22.4% from the year ago quarter. The increase resulted from the 21.7% increase in average interest earning assets between quarters and $1.5 million in higher interest recoveries on problem loans in the first quarter of 1998 compared to the first quarter of 1997. The net interest spread decreased to 4,67% from 4,68% and the net interest margin of 6.11% was the same as in the year ago quarter. Management expects modest growth in quarterly net interest income for the remainder of 1998 from first quarter 1998 levels, assuming, among other things, that interest rates will essentially remain constant but that loan balances will continue to grow. Actual results may vary if the assumptions prove to be incorrect. See "Cautionary Statement for Purposes of the 'Safe Harbor` Provisions of the Private Securities Litigation Reform Act of 1995", below. Average loans increased $888.5 million (28.5%) between first quarters to $4,011.0 million at March 31, 1998. This increase reflected higher average commercial, real estate commercial mortgage and residential first mortgage loans outstanding, up $560.7 million (38.2%), $176.7 million (29.8%) and $104.5 million (11.6%), respectively. The increase in commercial loans resulted from the Bank's internal loan generation, the acquisition of HB in January 1998 and purchases of corporate syndicated loans. The increase in real estate mortgage loans was primarily from the acquisition of HB. The increase in residential first mortgage loans resulted from the Bank's internal loan generation. Average construction loans increased $44.1 million (40.4%) from the first quarter of 1997. 8 Total average investment and available-for-sale securities decreased by $23.7 million between first quarters due to strong loan demand, which has absorbed any excess liquidity. Total average deposits increased $678.3 million (20.0%) between first quarters due primarily to the acquisition of HB as well as increased deposit levels generated by the Bank's title and escrow department and existing branches. The provision for credit losses was zero for the quarters ended March 31, 1998 and 1997. Loans charged off in the first quarter of 1998 were $7.8 million, compared to $3.7 million in the first quarter of 1997. Recoveries were $4.3 million in both quarters. The allowance for credit losses was 3.38% of total loans at March 31, 1998 compared to 4.17% at March 31, 1997 and 3.60% at December 31, 1997. The provision for credit losses is expected to remain at reduced levels for the remainder of 1998. This assumes that general economic conditions in Southern California will not deteriorate materially during the balance of 1998, and if this assumption proves to be inaccurate, an increased provision for credit losses may be required. See "Cautionary Statement for Purposes of the `Safe Harbor' Provisions of the Private Securities Litigation Reform Act of 1995", below. Noninterest income excluding gains and losses on the sale of securities and assets totaled $16.4 million for the first quarter of 1998, up $3.7 million (29.6%) from a year earlier. Service charges on deposit accounts increased $1.7 million (52.3%) for the quarter ended March 31, 1998 compared to the year ago quarter due primarily to increases in service charge fee schedules effective during the fourth quarter of 1997 and the acquisition of HB. Investment services income increased $0.6 million (21.0%) for the quarter ended March 31, 1998 compared to the same period a year ago due to new customers and new investment products offered to customers. During the quarter, the company invested in bank owned life insurance that generated $0.5 million of income. Management expects modest growth in noninterest income for the remainder of 1998. See "Cautionary Statement for Purposes of the `Safe Harbor' Provisions of the Private Securities Litigation Reform Act of 1995", below. Noninterest expense totaled $54.4 million in the first quarter of 1998, an increase of $10.4 million (23.8%) from the first quarter of 1997. Salaries and other employee benefits increased $6.2 million (26.6%) for the quarter ended March 31, 1998 from the first quarter of 1997 due primarily to the additional personnel added as a result of the acquisition of HB, from the hiring of additional personnel to pursue other opportunities, and because of moving to a more performance based compensation structure. The expense categories other than staff increased $4.2 million (20.5%) for the quarter ended March 31, 1998 from the comparable period in 1997. The increase in professional expenses resulted primarily from higher customer service expense due to increased volumes and higher consulting fees. Higher promotion expense resulted from the Company's increased advertising program. Amortization of goodwill and core deposit intangibles increased to $1.9 million in the first quarter of 1998 from $1.4 million in the first quarter of 1997 reflecting primarily the acquisition of HB. Lower data processing expense is attributable to savings from the conversion of core operating systems to a new data processing provider. Other increases are attributable primarily to the acquisition of HB. Noninterest expense levels for the remainder of 1998 are expected to be higher than in 1997 reflecting the growth of the Company and the acquisition of HB. See "Cautionary Statement for Purposes of the `Safe Harbor' Provisions of the Private Securities Litigation Reform Act of 1995", below. During the first quarter, efforts continued to address Year 2000 matters. A detailed plan was completed. All information and environmental systems have been identified and inventoried. A business impact analysis and a risk assessment and renovation decision was made for each of the Bank's systems. In the first quarter, $0.2 million was spent on Year 2000 matters. 9 The Company's effective tax rate decreased to 35.5% in the first quarter of 1998 from 36.8% in the first quarter of 1997. The Company expects the effective tax rate for the remainder of 1998 to remain near 1998 first quarter levels. See "Cautionary Statement for Purposes of the `Safe Harbor' Provisions of the Private Securities Litigation Reform Act of 1995", below. 10 Net Interest Income Summary The following table presents the components of net interest income on a fully taxable equivalent basis for the quarters ended March 31, 1998 and 1997.
Net Interest Income Summary March 31, 1998 March 31, 1997 --------------------------------------- ------------------------------------- Interest Average Interest Average Average income/ interest Average income/ interest Dollars in thousands Balance expense rate Balance expense rate --------------------------------------- ------------------------------------- Assets Earning assets (1) Loans: Commercial ............................ $ 2,029,445 $ 47,816 9.56% $ 1,468,793 $ 34,115 9.14% Residential first mortgages ........... 1,007,686 19,317 7.77 903,224 17,728 7.96 Real estate - construction ............ 153,352 4,123 10.90 109,243 3,089 11.47 Real estate - commercial mortgage ..... 770,175 18,471 9.73 593,469 14,577 9.96 Installment ........................... 50,330 1,434 11.56 47,725 1,164 9.89 --------- ------ --------- ------ Total loans (2) ....................... 4,010,988 91,161 9.22 3,122,454 70,673 9.18 Due from banks-interest bearing ......... 425 7 6.68 7,730 96 5.04 State and municipal investment securities 106,799 1,872 7.11 98,714 1,724 7.08 Taxable investment securities ........... 116,686 1,876 6.52 112,684 1,825 6.57 Securities available for sale ........... 590,688 10,118 6.95 626,430 10,218 6.62 Federal funds sold and securities purchased under resale agreements ..... 39,370 510 5.25 25,081 312 5.04 Trading account securities .............. 43,373 666 6.23 39,775 437 4.46 --------- ------ --------- ------ Total earning assets .................. 4,908,329 106,210 8.78 4,032,868 85,285 8.47 ------ ------ Allowance for credit losses ............. (140,789) (136,644) Cash and due from banks ................. 312,983 318,480 Other nonearning assets ................. 270,086 210,385 --------- --------- Total assets .......................... $ 5,350,609 $ 4,425,089 --------- --------- --------- --------- Liabilities and Shareholders' Equity Interest-bearing deposits: Interest checking accounts .............. $ 386,152 949 1.00 $ 367,322 908 1.00 Money market accounts ................... 832,527 6,164 3.00 776,539 5,755 3.01 Savings deposits ........................ 176,323 1,511 3.48 167,001 1,367 3.32 Time deposits - under $100,000 .......... 230,187 2,789 4.91 218,718 2,738 5.08 Time deposits - $100,000 and over ....... 708,469 9,419 5.39 449,025 5,726 5.17 --------- ------ ----- --------- ------ Total interest - bearing deposits ..... 2,333,658 20,832 3.62 1,978,605 16,494 3.38 ----- Federal funds purchased and securities sold under repurchase agreements ...... 363,954 4,892 5.45 233,214 2,922 5.08 Other borrowings ........................ 327,799 4,900 6.06 305,508 4,119 5.47 --------- ------ --------- ------ Total interest - bearing liabilities .. 3,025,411 30,624 4.11 2,517,327 23,535 3.79 ------ ------ Noninterest - bearing deposits ............ 1,732,799 1,409,595 Other liabilities ......................... 62,305 48,754 Shareholders' equity ...................... 530,094 449,413 --------- --------- Total liabilities and shareholders' equity ...................... $ 5,350,609 $ 4,425,089 --------- --------- --------- --------- Net interest spread ......................... 4.67% 4.68% ----- ---- ----- ---- Fully taxable equivalent net interest income $ 75,586 $ 61,750 -------- -------- -------- -------- Net interest margin ......................... 6.11% 6.11% ----- ---- ----- ----
(1) Includes average nonaccrual loans of $35,621 and $42,723 for 1998 and 1997, respectively. (2) Loan income includes loan fees of $2,519 and $1,762 for 1998 and 1997, respectively. 11 The following table sets forth the change in net interest income on a fully taxable equivalent basis broken down by volume and rates. The change in interest due to both rate and volume has been allocated to change due to volume and rate in proportion to the relationship of the absolute dollar amounts of the change in each.
Changes In Net Interest Income Quarter Ended March 31, Quarter Ended March 31, 1998 vs 1997 1997 vs 1996 --------------------------------- ----------------------------------- Increase Increase (decrease) (decrease) due to Net due to Net --------------------- increase --------------------- increase Dollars in thousands Volume Rate (decrease) Volume Rate (decrease) -------- -------- -------- -------- -------- -------- Interest earned on: Interest-bearing deposits in other banks ........ $ (113) $ 23 $ (90) $ (246) $ (50) $ (296) Loans ................... 20,179 309 20,488 17,357 (295) 17,062 Investment securities ... 206 (7) 199 1,319 (34) 1,285 Securities available- for-sale .............. (598) 498 (100) (1,297) 661 (636) Trading account securities ............ 43 186 229 103 (153) (50) Federal funds sold and securities purchased under resale agreements ..... 185 14 199 (964) (131) (1,095) -------- -------- -------- -------- -------- -------- Total interest- earning assets ...... 19,902 1,023 20,925 16,272 (2) 16,270 -------- -------- -------- -------- -------- -------- Interest paid on: Interest checking ....... 41 -- 41 92 -- 92 Money market deposits ... 427 (18) 409 287 112 399 Savings deposits ........ 77 67 144 268 92 360 Other time deposits ..... 3,525 219 3,744 2,370 (160) 2,210 Other borrowings ........ 2,129 622 2,751 1,391 (78) 1,313 -------- -------- -------- -------- -------- -------- Total interest-bearing liabilities ........... 6,199 890 7,089 4,408 (34) 4,374 -------- -------- -------- -------- -------- -------- $ 13,703 $ 133 $ 13,836 11,864 $ 32 $ 11,896 -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
12 BALANCE SHEET ANALYSIS Security Portfolio Comparative period-end security portfolio balances are presented below.
Investment Securities March 31, December 31, March 31, 1998 1997 1997 --------------------- --------------------- --------------------- Dollars in thousands Cost Fair Value Cost Fair Value Cost Fair Value -------- ---------- -------- ---------- -------- ---------- Mortgage-backed ....... $102,324 $102,569 $107,386 $107,728 $104,726 $102,725 State and Municipal ... 105,126 106,271 107,567 108,756 100,240 99,538 Other debt ............ 3,154 3,141 3,216 3,201 3,337 3,337 -------- -------- -------- -------- -------- -------- Total debt securities 210,604 211,981 218,169 219,685 208,303 205,600 Equity ................ 8,791 8,804 7,765 7,780 6,517 6,517 -------- -------- -------- -------- -------- -------- Total securities .... $219,395 $220,785 $225,934 $227,465 $214,820 $212,117 -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Available-for-Sale Securities March 31, December 31, March 31, 1998 1997 1997 --------------------- --------------------- --------------------- Dollars in thousands Cost Fair Value Cost Fair Value Cost Fair Value -------- ---------- -------- ---------- -------- ---------- U.S. Gov. and federal agency $271,680 $273,067 $178,078 $179,903 $244,868 $242,239 Mortgage-backed ............ 129,339 130,156 248,913 249,229 240,267 232,357 State and Municipal ........ 2,180 2,183 5,911 5,997 13,961 13,895 Other debt ................. 43,345 44,882 23,928 25,920 -- -- -------- -------- -------- -------- -------- -------- Total debt securities .... 446,544 450,288 456,830 461,049 499,096 488,491 Marketable equity securities 149,059 156,025 141,080 146,139 112,158 114,140 -------- -------- -------- -------- -------- -------- Total securities ......... $595,603 $606,313 $597,910 $607,188 $611,254 $602,631 -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
The following tables provide the expected remaining maturities and yields (taxable-equivalent basis) of debt securities within the securities portfolios.
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 --------- -------- --------- ------- --------- ------- --------- ------- --------- ------ Mortgage-backed ....... $ -- --% $ 2,800 7.03% $ 19,661 5.96% $ 79,863 6.71% $102,324 6.57% State and Municipal ... 18,128 6.66 61,306 6.65 21,851 7.05 3,841 6.46 105,126 6.73 Other debt ............ 1,000 7.75 2,154 7.23 -- -- -- -- 3,154 7.39 ------- ---- ------- ---- ------- ---- ------- ---- ------- ---- Total debt securities $ 19,128 6.72% $ 66,260 6.68% $ 41,512 6.53% $ 83,704 6.70% $210,604 6.66% ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Fair value .......... $ 19,193 $ 67,028 $ 41,839 $ 83,921 $211,981 ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
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 -------- ----- -------- ----- -------- ----- -------- ----- -------- ----- U.S. Gov. and federal agency $ 25,049 5.88% $226,780 6.11% $ 21,238 5.89% $ -- --% $273,067 6.07% Mortgage-backed ............ -- -- -- -- -- -- 130,156 6.76 130,156 6.76 State and Municipal ........ -- -- 2,183 6.07 -- -- -- -- 2,183 6.07 Other debt ................. -- -- -- -- -- -- 44,882 8.03 44,882 8.03 -------- ---- -------- ---- -------- ---- -------- ---- -------- ---- Total debt securities .... $ 25,049 5.88% $228,963 6.11% $ 21,238 5.89% $175,038 7.09% $450,288 6.47% -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- Amortized cost ........... $ 24,991 $227,672 $ 21,197 $172,684 $446,544 -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Dividend income included in interest income on securities in the Consolidated Statement of Income and Comprehensive Income in the first quarters of 1998 and 1997 was $2.4 million and $1.8 million, respectively. 13 BALANCE SHEET ANALYSIS LOAN PORTFOLIO A comparative period-end loan table is presented below.
Loans March 31, December 31, March 31, Dollars in thousands 1998 1997 1997 ----------- ----------- ----------- Commercial ...................... $ 2,076,271 $ 1,972,232 $ 1,561,797 Residential first mortgage ...... 1,008,592 980,040 929,205 Real estate - construction ...... 149,886 144,558 121,746 Real estate - commercial mortgage 765,198 686,188 640,866 Installment ..................... 52,099 42,206 48,387 ----------- ----------- ----------- Total loans, gross ............ 4,052,046 3,825,224 3,302,001 Less: Allowance for credit losses (137,043) (137,761) (137,614) ----------- ----------- ----------- Total loans, net .............. $ 3,915,003 $ 3,687,463 $ 3,164,387 ----------- ----------- ----------- ----------- ----------- -----------
Gross loans at March 31, 1998 amounted to $4,052.0 million, up $750.0 million (22.7%) from March 31, 1997 and up $226.8 million (5.9%) from December 31, 1997. Approximately $152.2 million of the increase was due to the acquisition of HB. Also contributing to the $514.5 million increase in commercial loans from March 31, 1997 were loan originations and the purchase of syndicated corporate loans. The $79.4 million increase in residential first mortgage loans from the year ago quarter resulted from the Bank's own originations. Construction loans also increased by $ 28.1 million from March 31, 1997 as the Company continued to expand its lending for residential construction development. The Company expects that the Bank's loan portfolio will continue to increase from first quaarter 1998 levels due primarily to to its own internal generation activities. See "Cautionary Statement for Purposes of the `Safe Harbor' Provisions of the Private Securities Litigation Reform Act of 1995", below. The following table presents information concerning nonaccrual loans, ORE, and restructured loans.
Nonaccrual Loans, ORE and Restructured Loans March 31, December 31, March 31, Dollars in thousands 1998 1997 1997 --------- ------------ --------- Nonaccrual loans: Commercial ............................. $13,894 $ 6,589 $19,211 Real estate ............................ 22,881 19,243 21,464 Installment ............................ 0 1,734 0 ------- ------- ------- Total ................................ 36,775 27,564 40,675 ORE ...................................... 2,900 2,126 18,958 ------- ------- ------- Total nonaccrual loans and ORE ....... $39,675 $29,692 $59,633 ------- ------- ------- ------- ------- ------- Restructured loans, accruing ............. $ 2,899 $ 2,813 $ 5,744 ------- ------- ------- ------- ------- ------- Total nonaccrual loans as a percentage of total loans .............. 0.91% 0.72% 1.23% Total nonaccrual loans and ORE as a percentage of total loans and ORE ...... 0.98 0.78 1.80 Allowance for credit losses to total loans 3.38 3.60 4.17 Allowance for credit losses to nonaccrual loans .................... 372.65 499.75 338.33
14 The table below summarizes the approximate changes in nonaccrual loans for the quarters ended March 31, 1998 and March 31, 1997.
Changes in Nonaccrual Loans For the three months ended March 31, --------------------------- Dollars in millions 1998 1997 ------- ------- Balance, beginning of period ....................... $ 27.6 $ 41.5 Additions from acquisitions ........................ 3.1 2.4 Loans placed on nonaccrual ......................... 20.4 9.1 Charge offs ........................................ (5.3) (2.9) Loans returned to accrual status ................... 0.0 (0.7) Repayments (including interest applied to principal) (9.0) (6.0) Transfer to ORE .................................... (0.0) (2.7) ------- ------- Balance, end of period ............................. $ 36.8 $ 40.7 ------- ------- ------- -------
At March 31, 1998, in addition to loans disclosed above as nonaccrual or restructured, management had also identified $10.4 million of problem loans about which the ability of the borrowers to comply with the present loan repayment terms in the future is questionable. ALLOWANCE FOR CREDIT LOSSES The following table summarizes average loans outstanding and changes in the allowance for credit losses for the periods presented.
Changes in Allowance for Credit Losses For the three months ended March 31, -------------------------- (Dollars in millions) 1998 1997 ----------- ----------- Average amount of loans outstanding ............... $ 4,011.0 $ 3,122.5 ----------- ----------- ----------- ----------- Balance of allowance for credit losses, beginning of period ............................. $ 137.8 $ 130.1 Loans charged off: Commercial ...................................... 7.4 1.4 Real estate ..................................... 0.4 2.3 ----------- ----------- Total loans charged off ....................... 7.8 3.7 ----------- ----------- Less recoveries of loans previously charged off: Commercial ..................................... 4.3 4.2 Real estate .................................... 0.0 0.1 ----------- ----------- Total recoveries .............................. 4.3 4.3 ----------- ----------- Net loans (charged off) recovered ................. (3.5) 0.6 Additions to allowance charged to operating expense 0.0 0.0 Additions to allowance from acquisitions .......... 2.7 6.9 ----------- ----------- Balance, end of period ............................ $ 137.0 $ 137.6 ----------- ----------- ----------- ----------- Ratio of net charge-offs to average loans ................................ 0.09% * ----------- ----------- ----------- ----------- Ratio of allowance for credit losses to total period end loans ....................... 3.38% 4.17% ----------- ----------- ----------- -----------
* Not meaningful 15 CAPITAL ADEQUACY REQUIREMENT The following table presents the regulatory standards for well capitalized institutions and the capital ratios for the Company and the Bank at March 31, 1998, December 31, 1997 and March 31, 1997.
Regulatory Well Capitalized March 31, December 31, March 31, Standards 1998 1997 1997 ---------------- --------- ------------ --------- City National Corporation - ------------------------- Tier 1 leverage 5.00% 8.79% 9.19% 9.48% Tier I risk-based capital 6.00 10.54 10.99 12.18 Total risk-based capital 10.00 14.63 12.27 13.46 City National Bank - ------------------ Tier I leverage ......... 5.00 7.70 7.93 8.48 Tier 1 risk-based capital 6.00 9.26 9.50 10.85 Total risk-based capital 10.00 13.38 10.78 12.13
On March 17, 1997, the Company announced a program for repurchase of up to 1.5 million shares of its common stock which was completed on April 28, 1998. The Company repurchased these shares at a total cost of $42.7 million. A new repurchase program of up to 1.0 million shares was announced on April 29, 1998. Shares purchased under the buyback program will be reissued upon the exercise of stock options and for other general purposes. On April 22, 1998, the Company declared a regular quarterly dividend of $.14 per share, payable May 14, 1998 to shareholders of record as of May 4, 1998. ASSET/LIABILITY MANAGEMENT The principal objectives of asset/liability management are to maximize net interest margin subject to margin volatility and liquidity constraints. Margin volatility results when the rate reset (or repricing) characterstics of assets are materially different from those of the Company's liabilities. Liquidity risk results from the mismatching of asset and liability cash flows. Management chooses asset/liability strategies that promote stable earnings and reliable funding. Interest rate risk and funding positions are kept within limits established by the Company's board of directors to ensure that risk-taking is not excessive and that liquidity is properly managed. The Company has established three measurement process to quantify and manage exposure to interest rate risk: net interest income simulation modeling, gap analysis, and present value of equity analysis. Net interest income simulations are used to identify the direction and severity of interest rate risk exposure across a twelve month forecast horizon. Gap analysis provides insight into structural mismatches of assets and liability repricing characteristics. Present value of equity calculations are used to estimate the theoretical price sensitivity of shareholder equity to changes in interest rates. Generally, an asset sensitive gap indicates that net interest income will improve during a period of rising interest rates. The gap report is based on the contractual cash flows of all asset and liability balances on the Company's books. The contractual life of these balances may differ substantially from their expected lives however. For example, checking accounts are all subject to immediate withdrawal. Experience suggests that these accounts will have an average life of several years. Also, certain loans (such as first mortgages) are subject to prepayment. The cash flows shown in the gap report are adjusted to reflect these behaviors. The gap report also shows the effects that interest rate swaps have had on the repricing profile of the Company. 16 The use of interest rate swaps to manage interest rate exposure involves the risk of dealing with counterparties and their ability to meet contractual terms. These counterparties must receive appropriate credit approval before the Company enters into an interest rate contract. Notional principal amounts express the volume of these transactions, although the amounts potentially subject to credit and market risks are much smaller. At March 31, 1998, almost all of the Company's interest rate swaps were entered into as hedges against a decrease in interest income generated from prime based loans if the prime decreased. The Company has not entered into transactions involving any other interest rate derivative financial instruments, such as interest rate floors, caps and interest rate futures contracts, At March 31, 1998, the under-one-year cumulative gap was a $456 million (8% of total assets) net asset position compared with a net asset position of $132 million (3% of total assets) at December 31, 1997. The increase resulted from the Company's funding of asset growth with equity, subordinate debt and seasonal rate stable deposits. As of March 31, 1998, the Company has $565 million of notional principal in receive fixed-pay LIBOR interest rate swaps, of which $210 million have maturities greater than one year. The Company's interest-rate risk-management instruments had a fair value of $2.2 million and $1.7 million and an exposure to credit risk of $2.2 million and $1.8 million at March 31, 1998 and December 31, 1997, respectively. The credit exposure represents the cost to replace, on a present value basis and at current market rates, all profitable contracts outstanding at the end of the period. The Company's swaps agreements require the deposit of collateral to mitigate the amount of credit risk if certain thresholds are exceeded. No amounts were required to be deposited by the Company or its counterparties as of March 31, 1998. Since interest rate changes do not affect all categories of assets and liabilities equally or simultaneously, a cumulative gap analysis alone cannot be used to evaluate the Company's interest rate sensitivity position. To supplement traditional gap analysis, the Company uses simulation modeling to estimate the potential effects of changing interest rates. This process allows the Company to fully explore the complex relationships within the gap over time and various interest rate scenarios. At March 31, 1998, the Company's outstanding foreign exchange contracts totaled $9.5 million. The Company enters into foreign exchange contracts with its customers and counterparty banks solely for the purpose of offsetting or hedging transaction and economic exposures arising out of commercial transactions. The Company's policies prohibit outright speculation by the Company and its employees. The Company actively manages its foreign exchange exposures within prescribed risk limits and controls. All foreign exchange contracts outstanding at March 31, 998 had remaining maturities of six months or less, with the exception of $0.4 million which had remaining maturities ranging between six months and 24 months. LIQUIDITY MANAGEMENT The Company continues to manage its liquidity through the combination of core deposits, federal funds purchased, repurchase agreements, collateralized borrowing lines at the Federal Reserve Bank and the Federal Home Loan Bank of San Francisco, and a portfolio of securities available-for-sale. Liquidity is also provided by maturing investment securities and loans. Average core deposits and shareholders' equity comprised 72.7% of total funding in the first quarter of 1998, compared to 76.6% in the first quarter of 1997. This decrease has required that the Company increase its use of more costly alternative funding sources. Despite the decrease in percentage of funding derived from core deposits and shareholders' equity, the Company has not faced any liquidity constraints. 17 CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 The Company wishes to take advantage of the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995 as to "forward looking" statements in this Quarterly Report which are not historical facts. The Company cautions readers that the following important factors could affect the Company's business and cause actual results to differ materially from those expressed in any forward looking statement made by, or on behalf of, the Company. --Economic conditions. The Company's results are strongly influenced by general economic conditions in its market area, Southern California, and a deterioration in these conditions could have a material adverse impact on the quality of the Bank's loan portfolio and the demand for its products and services. In particular, changes in economic conditions in the real estate and entertainment industries may affect the Company's performance. --Interest rates. Management anticipates that interest rate levels will remain generally constant, but there is some risk of Federal Reserve tightening. If interest rates vary substantially from present levels, this may cause the Company's results to differ materially. --Government regulation and monetary policy. All forward looking statements presume a continuation of the existing regulatory environment and U.S. Government policies. The banking industry is subject to extensive federal and state regulations, and significant new laws or changes in, or repeal of, existing laws may cause results to differ materially. Further, federal monetary policy, particularly as implemented through the Federal Reserve System, significantly affects credit conditions for the Bank, primarily through open market operations in U.S. government securities, the discount rate for member bank borrowing and bank reserve requirements, and a material change in these conditions would be likely to have an impact on results. --Competition. The Bank competes with numerous other domestic and foreign financial institutions and non-depository financial intermediaries. Results may differ if circumstances affecting the nature or level of competitive change, such as the merger of competing financial institutions or the acquisition of California institutions by out-of-state companies. --Credit quality. A significant source of risk arises from the possibility that losses will be sustained because borrowers, guarantors and related parties may fail to perform in accordance with the terms of their loans. The Bank has adopted underwriting and credit monitoring procedures and credit policies, including the establishment and review of the allowance for credit losses, that management believes are appropriate to minimize this risk by assessing the likelihood of nonperformance, tracking loan performance and diversifying the Bank's credit portfolio, but such policies and procedures may not prevent unexpected losses that could adversely affect the Company's results. --Other risks. From time to time, the Company details other risks to its businesses and/or its financial results in its filings with the Securities and Exchange Commission. While management believes that its assumptions regarding these and other factors on which forward looking statements are based arc reasonable, such assumptions are necessarily speculative in nature, and actual outcomes can be expected to differ to some degree. Consequently, there can be no assurance that the results described in such forward looking statements will, in fact, be achieved. 18 PART 11. OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS. None ITEM 5. OTHER INFORMATION None ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 10.29 Employment agreement (Change of Control Agreement) with members of the Bank's Executive Committee. (b) Reports on Form 8-K None SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CITY NATIONAL CORPORATION (Registrant) DATE: May 14,1998 /S/ FRANK P. PEKNY ---------------- --------------------------- FRANK P. PEKNY Executive Vice President And Chief Financial Officer 19 EX-10.29 2 EXHIBIT 10.29 EXHIBIT 10.29 EMPLOYMENT AGREEMENT AGREEMENT by and between City National Corporation, a Delaware corporation (the "Company") and (the "Executive"), dated as of the 31st day of March, 1997. The Board of Directors of the Company (the "Board"), has determined that it is in the best interest of the Company and its shareholders to assure that the Company will have the continued dedication of the Executive, notwithstanding the possibility, threat or occurrence of a Change of Control (as defined below) of the Company. The Board believes it is imperative to diminish the inevitable distraction of the Executive by virtue of the personal uncertainties and risks created by a pending or threatened Change of Control and to encourage the Executive's full attention and dedication to the Company currently and in the event of any threatened or pending Change of Control, and to provide the Executive with compensation and benefits arrangements upon a Change of Control which ensure that the compensation and benefits expectations of the Executive will be satisfied and which are competitive with those of other corporations. Therefore, in order to accomplish these objectives, the Board has caused the Company to enter into this Agreement. NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS: 1. CERTAIN DEFINITIONS. (a) The "Effective Date" shall mean the first date during the Change of Control Period (as defined in Section 1(b)) on which a Change of Control (as defined in Section 2) occurs. Anything in this Agreement to the contrary notwithstanding, if a Change of Control occurs and if the Executive's employment with the Company is terminated prior to the date on which the Change of Control occurs, and if it is reasonably demonstrated by the Executive that such termination of employment (i) was at the request of a third party who has taken steps reasonably calculated to effect a Change of Control or (ii) otherwise arose in connection with or anticipation of a Change of Control, then for all purposes of this Agreement the "Effective Date" shall mean the date immediately prior to the date of such termination of employment. (b) The "Change of Control Period" shall mean the period commencing on the date hereof and ending on the second anniversary of the date hereof; provided, however that commencing on the date one year after the hereof, and on each annual anniversary of such date (such date and each annual anniversary thereof shall be hereinafter referred to as the "Renewal Date"), unless previously terminated, the Change of Control Period shall be automatically extended so as to terminate two years from such Renewal Date, unless at least 60 days prior to the Renewal Date the Company shall give notice to the Executive that the Change of Control Period shall not be so extended. 2. CHANGE OF CONTROL. For the purpose of this Agreement, a "Change of Control" shall mean: (a) The acquisition by any individual, entity or group (within the meaning of Section 13(d) (3) or 14(d) (2) or the Securities Exchange Act of 1934, as amended (the "Exchange Act")) (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% of more of either (i) the then outstanding shares of common stock of the Company (the "Outstanding Company Common Stock") or (ii) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"); provided, however, that for purposes of this subsection (a), the following acquisitions shall not constitute a Change of Control: (i) any acquisition directly from the Company, (ii) any acquisition by the Company, (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company, (iv) any acquisition by any corporation pursuant to a transaction which complies with clauses (i), (ii) and (iii) of subsection (c) of this Section 2, or (v) any acquisition by the Goldsmith family or any trust or partnership for the benefit of any member of the Goldsmith family; or (b) Individuals who, as of the date hereof, constitute the Board (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Company's shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors of other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or (c) Consummation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company (a "Business Combination"), in each case, unless, following such Business Combination, (i) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns the Company of all or substantially all of the Company's assets either directly or through one or more 2 subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (ii) no Person (excluding any corporation resulting from such Business Combination or any employee benefit plan (or related trust) of the Company or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 20% or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such Business Combination or the combined voting power of the then outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Business Combination and (iii) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination; or (d) Approval by the shareholders of the Company of a complete liquidation or dissolution of the Company. 3. EMPLOYMENT PERIOD. The Company hereby agrees to continue the Executive in its employ, and the executive hereby agrees to remain in the employ of the Company subject to the terms and conditions of this Agreement, for the period commencing on the Effective Date and ending on the second anniversary of such date (the "Employment Period"). 4. TERMS OF EMPLOYMENT. (a) POSITION AND DUTIES. (i) During the Employment Period, (A) the Executive's position (including status, offices, titles and reporting requirements), authority, duties and responsibilities shall be at least commensurate in all material respects with the most significant of those held, exercised and assigned at any time during the 120-day period immediately preceding the Effective Date and (B) the Executive's services shall be performed at the location where the Executive was employed immediately preceding the Effective Date or any office or location less than 35 miles from such location. (ii) During the Employment Period, and excluding any periods of vacation and sick leave to which the Executive is entitled, the Executive agrees to devote reasonable attention and time during normal business hours to the business and affairs of the Company and, to the extent necessary to discharge the responsibilities assigned to the Executive hereunder, to use the Executive's reasonable best efforts to perform faithfully and efficiently such responsibilities. During the Employment Period it shall not be a violation of this Agreement for the Executive to (A) serve on corporate, civic or charitable boards or committees, (B) deliver lectures, fulfill speaking engagements or teach at educational institutions and (C) manage personal investments, so long as such activities do not significantly interfere with the performance of the Executive's responsibilities as an employee of the Company in accordance with this Agreement. 3 It is expressly understood and agreed that to the extent that any such activities have been conducted by the Executive prior to the Effective Date, the continued conduct of such activities (or the conduct of activities similar in nature and scope thereto) subsequent to the Effective Date shall not thereafter be deemed to interfere with the performance of the Executive's responsibilities to the Company. (b) COMPENSATION. (i) BASE SALARY. During the Employment Period, the Executive shall receive an annual base salary ("Annual Base Salary"), which shall be paid at a monthly rate, at least equal to twelve times the highest monthly base salary paid or payable, including any base salary which has been earned but deferred, to the Executive by the Company and its affiliated companies in respect of the twelve-month period immediately preceding the month in which the Effective Date occurs. During the Employment Period, the Annual Base Salary shall be reviewed no more than 12 months after the last salary increase awarded to the Executive prior to the Effective Date and thereafter at least annually. Any increase in Annual Base Salary shall not serve to limit or reduce any other obligation to the Executive under this Agreement. Annual Base Salary shall not be reduced after any such increase and the term Annual Base Salary as utilized in this Agreement shall refer to Annual Base Salary as so increased. As used in this Agreement, the term "affiliated companies" shall include any company controlled by, controlling or under common control with the Company. (ii) ANNUAL BONUS. In addition to Annual Base Salary, the Executive shall be awarded, for each fiscal year ending during the Employment Period, an annual bonus (the "Annual Bonus") in cash at least equal to the Executive's highest bonus under the Company's annual incentive plans for the last three full fiscal years prior to the Effective Date (annualized in the event that the Executive was not employed by the Company for the whole of such fiscal year) (the "Recent Annual Bonus"). Each such Annual Bonus shall be paid no later that the end of the third month of the fiscal year next following the fiscal year for which the Annual Bonus is awarded, unless the Executive shall elect to defer the receipt of such Annual Bonus. (iii) INCENTIVE, SAVINGS AND RETIREMENT PLANS. During the Employment Period, the Executive shall be entitled to participate in all incentive, savings and retirement plans, practices, policies and programs applicable generally to other executive of the Company and its affiliated companies, but in no event shall such plans, practice, policies and programs provide the Executive with incentive opportunities (measured with respect to both regular and special incentive opportunities, to the extent, if any, that such distinction is applicable), savings opportunities and retirement benefit opportunities, in each case, less favorable in the aggregate, than the most favorable of those provided by the Company and its affiliated companies for the Executive under such plans, practices, policies and programs as in effect at any time during the 120-day period immediately preceding the Effective Date or if more favorable to the Executive, those provided generally at 4 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. 5 (viii) VACATION. During the Employment Period, the Executive shall be entitled to paid vacation in accordance with the most favorable plans, policies, programs and practices of the Company and its affiliated companies as in effect for the Executive at any time during the 120-day period immediately preceding the Effective Date or, of more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies. 5. TERMINATION OF EMPLOYMENT. (a) DEATH OR DISABILITY. The Executive's employment shall terminate automatically upon the Executive's death during the Employment Period. If the Company determines in good faith that the Disability of the Executive has occurred during the Employment Period (pursuant to the definition of Disability set forth below), it may give to the Executive written notice in accordance with Section 12(b) of this Agreement of its intention to terminate the Executive's employment. In such event, the Executive's employment with the Company shall terminate effective on the 30th day after receipt of such notice by the Executive (the "Disability Effective Date"), provided that, within the 30 days after such receipt, the Executive shall not have returned to full-time performance of the Executive's duties. For purposes of this Agreement, "Disability" shall mean the absence of the Executive from the Executive's duties with the Company on a full-time basis for 180 consecutive business days as a result of incapacity due to mental or physical illness which is determined to be total and permanent by a physician selected by the Company of its insurers and acceptable to the Executive or the Executive's legal representative. (b) CAUSE. The Company may terminate the Executive's employment during the Employment Period for Cause. For purposes of this Agreement, "Cause" shall mean: (i) the willful and continued failure of the Executive to perform substantially the Executive's duties with the Company or one of its affiliated (other than any such failure resulting from incapacity due to physical or mental illness), after a written demand for substantial performance is delivered to the Executive by the Board or the Chief Executive Officer of the Company which specifically identifies the manner in which the Board or Chief Executive Officer believes that the Executive has not substantially performed the Executive's duties, or (ii) the willful engaging by the Executive in illegal conduct or gross misconduct which is materially and demonstrably injurious to the Company For purposes of this provision, no act or failure to act, on the part of the Executive, shall be considered "willful" unless it is done, or omitted to be done, by the Executive 6 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. 7 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 8 (i) the Recent Annual Bonus and (ii) the Annual Bonus paid or payable, including any bonus or portion thereof which has been earned but deferred (and annualized for any fiscal year consisting of less than twelve full months or during which the Executive was employed for less than twelve full months), for the most recently completed fiscal year during the Employment Period, if any (such higher amount being referred to as the "Highest Annual Bonus") and (y) a fraction, the numerator of which is the number of days in the current fiscal year through the Date of Termination, and the denominator of which is 365 and (3) any compensation previously deferred by the Executive (together with any accrued interest or earnings thereon) and any accrued vacation pay, in each case to the extent not theretofore paid (the sum of the amounts described in clauses (1), (2), and (3) shall be hereinafter referred to as the "Accrued Obligations"); and B. the amount equal to the product of (1) and (2) the sum of (x) the Executive's Annual Base Salary and (y) the Highest Annual Bonus; and C. an amount equal to the contributions to the Executive's account in the Company's Profit Sharing Plan which the Executive would receive if the Executive's employment continued for years after the Date of Termination assuming for this purpose that all such contributions are fully vested, and, and assuming that the Company's contribution to the Profit Sharing Plan in each such year is in an amount equal to the greatest amount contributed by the Company in any of the three years ending prior to the Effective Date. (ii) for years after the Executive's Date of Termination, or such longer period as may be provided by the terms of the appropriate plan, program, practice or policy, the Company shall continue benefits to the Executive and/or the Executive's family at least equal to those which would have been provided to them in accordance with the plans, programs, practices and policies described in Section 4 (b)(iv) of the Agreement if the Executive's employment has not been terminated or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies and their families, provided, however, that if the Executive becomes reemployed with another employer and is eligible to receive medical or other welfare benefits under another employer provided plan, the medical and other welfare benefits described herein shall be secondary to those provided under such other plan during such applicable period of eligibility. (iii) the Company shall, at its sole expense as incurred, provide the Executive with out placement services the scope and provider of which shall be selected by the Executive in his sole discretion; and (iv) to the extent not theretofore paid or provided, the Company shall timely pay or provide to the Executive any other amounts or benefits required to be 9 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 to the Executive (x) his Annual Base Salary through the Date of Termination, (y) the amount of any compensation previously deferred by the Executive, and (z) Other Benefits, in each case to the extent theretofore unpaid. If the Executive voluntarily terminates employment during the Employment Period, excluding a termination for Good Reason, this Agreement shall terminate without further obligations to the Executive, other than for Accrued Obligations and the timely payment or provision of Other Benefits. In such case, timely payment or provision of Other Benefits. In such case, all Accrued Obligations shall be paid to the Executive in a lump sum in cash within 30 days of the Date of Termination. 7. NON-EXCLUSIVITY OF RIGHTS. Nothing in this Agreement shall prevent or limit the Executive's continuing or future participation in any plan, program, policy or practice provided by the Company or any of its affiliated companies and for which or otherwise affect such rights as the Executive may have under any contract or agreement with the Company or any of its affiliated companies. Amounts which are vested benefits or which the Executive is otherwise entitled to receive under any plan, policy, practice or program of or any contract or agreement with the Company or any of its affiliated companies at or subsequent to the Date of Termination shall be payable in accordance with such plan, policy, practice or program or contract or agreement except as explicitly modified by this Agreement. 8. FULL SETTLEMENT. The Company's obligation to make the payment provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against the Executive or others. In no event shall the Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Executive under any of the provisions of this Agreement and such amounts shall not be reduced whether or not the Executive obtains other employment. The Company agrees to pay as incurred, to the full extent permitted by law, all legal fees and expenses which the Executive may reasonably incur as a result of any contest (regardless of the outcome thereof) by the Company, the Executive or others of the validity or enforceability of, or liability under, any provision of this Agreement or any guarantee of performance thereof (including as a result of any contest by the Executive about the amount of any payment pursuant to this Agreement), plus in each case interest on any delayed payment at the applicable Federal rate provided for in Section 7872(f) (2) (A) of the Internal Revenue Code of 1986, as amended (the "Code"). 9. CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY. (a) Anything in this Agreement to the contrary notwithstanding and except as set forth below, in the event it shall be determined that any payment or distribution by the Company to or for the benefit of the Executive (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or 11 otherwise, but determined without regard to any additional payments required under this Section 9) (a "Payment") would be subject to the excise tax imposed by Section 4999 of the Code or any interest or penalties are incurred by the Executive with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the "Excise Tax"), then the Executive shall be entitled to receive an additional payment (a "Gross-Up Payment") in an amount such that after payment by the Executive of all taxes (including any interest or penalties imposed with respect to such taxes), including, without limitation, any income taxes (and any interest and penalties imposed with respect thereto) and Excise tax imposed upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. Notwithstanding the foregoing provisions of this Section 9(a), if it shall be determined that the Executive is entitled to a Gross-Up Payment, but that the Payments do not exceed 110% of the greatest amount (the "Reduced Amount") that could be paid to the Executive such that the receipt of Payments would not give rise to any Excise Tax, then no Gross-Up Payment shall be made to the Executive and the Payments, in the aggregate, shall be reduced to the Reduced Amount. (b) Subject to the provisions of Section 9(c), all determinations required to be made under this Section 9, including whether and when a Gross-Up Payment is required and the amount of such Gross-Up Payment and the assumptions to be utilized in arriving at such determination, shall be made by KPMG Peat Marwick or such other certified public accounting firm as may be designated by the Executive (the "Accounting Firm") which shall provide detailed supporting calculations both to the Company and the Executive within 15 business days of the receipt of notice from the Company. In the event that the Accounting Firm is serving as accountant or auditor for the individual, entity or group effecting the Change of Control, the Executive shall appoint another nationally recognized accounting firm to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment, as determined pursuant to this Section 9, shall be paid by the Company to the Executive within five days of the receipt of the Accounting Firm's determination. Any determination by the Accounting Firm shall be binding upon the Company and the Executive. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting firm hereunder, it is possible that Gross-Up Payments which will not have been made by the Company should have been made ("Underpayment"), consistent with the calculations required to be made hereunder. In the event that the Company exhausts its remedies pursuant to Section 9 (c) and the Executive thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to or for the benefit of the Executive. 12 (c) The Executive shall notify the Company in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Company of the Gross-Up Payment. Such notification shall be given as soon as practicable but no later than ten business days after the Executive is informed in writing of such claim and shall apprise the Company of the nature of such claim and the date on which such claim is requested to be paid. The Executive shall not pay such claim prior to the expiration of the 30-day period following the date on which it gives such notice to the Company (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Company notifies the Executive in writing prior to the expiration of such period that it desires to contest such claim, the Executive shall: (i) give the Company any information reasonably requested by the Company relating to such claim, (ii) take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Company. (iii) cooperate with the Company in good faith in order effectively to contest such claim, and (iv) permit the Company to participate in any proceedings relating to such claim; provide, however, that the Company shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold the Executive harmless, on an after-tax basis, for any Excise Tax or income tax (including interest and penalties with respect thereto) imposed as a result of such representation and payment of costs and expenses. Without limitation on the foregoing provisions of this Section 9(c), the Company shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forgo any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct the Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and the Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; provided, however, that if the Company directs the Executive to pay such claim and sue for a refund, the Company shall advance the amount of such payment to the Executive, on an interest-free basis and shall indemnify and hold the Executive harmless, on an after-tax basis, from any Excise Tax or income tax (including interest 13 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 (c) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. 12. MISCELLANEOUS. (a) This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, without reference to principles of conflict of laws. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. This Agreement may not be amended or modified otherwise than by a written agreement executed by the parties hereto or their respective successors and legal representatives. (b) All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered certified mail, return receipt requested, postage prepaid, addressed as follows: IF TO THE EXECUTIVE: IF TO THE COMPANY: City National Bank 400 North Roxbury Drive Beverly Hills, CA 90210 Attention: General Counsel or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notice and communications shall be effective when actually received by the addressee. (c) The invalidity of unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement. (d) The Company may withhold from any amounts payable under this Agreement such Federal, state, local or foreign taxes as shall be required to be withheld pursuant to any applicable law or regulation. (e) The Executive's or the Company's failure to insist upon strict compliance with any provision of this Agreement or the failure to assert any right the Executive or the Company may have hereunder, including, without limitation, the right of the Executive to terminate employment for Good Reason pursuant to Section 5(c) 15 (i) - (v) of this Agreement, shall not be deemed to be a waiver of such provision or right or any other provision or right of the Agreement. (f) The Executive and the Company acknowledge that, except as may otherwise be provided under any other written agreement between the Executive and the Company, the employment of the Executive by the Company is "at will" and, subject to Section 1(a) hereof, prior to the Effective Date, the Executive's employment and/or this Agreement may be terminated by either the Executive or the Company at any time prior to the Effective Date, in which case the Executive shall have no further rights under this Agreement. From and after the Effective Date of this Agreement shall supersede any other agreement between the parties with respect to the subject matter hereof. IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand and, pursuant to the authorization from its Board of Directors, the Company has caused these presents to be executed in its name on its behalf, all as of the day and year first above written. ----------------------------- CITY NATIONAL CORPORATION By /s/ RICHARD SHEEHAN, JR. --------------------------- Richard Sheehan, Jr. 16 EX-27 3 EXHIBIT 27
9 1,000 3-MOS DEC-31-1998 JAN-01-1998 MAR-31-1998 374,309 275 280,000 29,484 606,313 219,395 220,785 4,052,046 137,043 5,702,122 4,370,083 537,244 57,752 199,004 0 0 46,832 491,207 5,702,122 90,074 12,266 1,108 103,448 20,832 30,624 72,824 0 974 54,366 34,823 34,823 0 0 22,469 0.48 0.46 8.55 36,775 10,015 2,813 0 140,508 7,759 4,294 137,043 137,043 0 0 ADJUSTED FOR ACQUISITION OF HARBOR BANK
-----END PRIVACY-ENHANCED MESSAGE-----