-----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, V+oBbnpsEuDx7u6NdpVjFioMqv4BYbu0lFw4eKlFKSqGexeVhSd/F5z374eIHeXw yE5CH2A33Y0y714LY6sbVw== 0001104659-03-018728.txt : 20030814 0001104659-03-018728.hdr.sgml : 20030814 20030814163615 ACCESSION NUMBER: 0001104659-03-018728 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20030630 FILED AS OF DATE: 20030814 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: 1934 Act SEC FILE NUMBER: 001-10521 FILM NUMBER: 03848236 BUSINESS ADDRESS: STREET 1: 400 N ROXBURY DR CITY: BEVERLY HILLS STATE: CA ZIP: 90210 BUSINESS PHONE: 3108886000 MAIL ADDRESS: STREET 1: 400 N ROXBURY DR CITY: BEVERLY HILLS STATE: CA ZIP: 90210 10-Q 1 a03-2176_110q.htm 10-Q

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

 


 

FORM 10-Q

 

(Mark One)

ý  QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended June 30, 2003

 

or

 

o  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from           to           

 

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
incorporation or organization)

 

(I.R.S. Employer
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 ý                                                                                   NO  o

 

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).

 

YES ý                                                                                   NO  o

 

Number of shares of common stock outstanding at July 31, 2003:  48,482,668

 

 



 

PART 1 - FINANCIAL INFORMATON

ITEM 1. FINANCIAL STATEMENTS

 

CITY NATIONAL CORPORATION

CONSOLIDATED BALANCE SHEET

(Unaudited)

 

Dollars in thousands, except per share amounts

 

June 30,
2003

 

December 31,
2002

 

June 30,
2002

 

Assets

 

 

 

 

 

 

 

Cash and due from banks

 

$

451,291

 

$

497,273

 

$

442,343

 

Federal funds sold

 

650,000

 

460,000

 

165,000

 

Securities available-for-sale - cost $2,935,401; $2,169,444 and $1,886,817 at June 30, 2003, December 31, 2002 and June 30, 2002, respectively

 

2,992,686

 

2,226,656

 

1,919,985

 

Trading account securities

 

88,035

 

172,211

 

68,832

 

Loans

 

7,590,226

 

7,999,470

 

7,854,530

 

Less allowance for credit losses

 

170,927

 

164,502

 

157,647

 

Net loans

 

7,419,299

 

7,834,968

 

7,696,883

 

 

 

 

 

 

 

 

 

Premises and equipment, net

 

64,966

 

61,208

 

60,016

 

Deferred tax asset

 

50,488

 

36,578

 

39,186

 

Goodwill

 

254,627

 

229,834

 

230,161

 

Intangibles

 

48,597

 

27,007

 

30,959

 

Bank owned life insurance

 

61,554

 

60,119

 

60,505

 

Affordable housing investments

 

66,532

 

68,848

 

55,761

 

Other assets

 

200,613

 

186,766

 

201,393

 

Customers’ acceptance liability

 

6,145

 

8,924

 

11,396

 

Total assets

 

$

12,354,833

 

$

11,870,392

 

$

10,982,420

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

Demand deposits

 

$

4,916,678

 

$

4,764,234

 

$

3,973,435

 

Interest checking deposits

 

689,658

 

692,261

 

610,217

 

Money market deposits

 

3,140,203

 

2,929,501

 

2,472,224

 

Savings deposits

 

211,010

 

198,288

 

222,241

 

Time deposits-under $100,000

 

210,333

 

218,447

 

226,116

 

Time deposits-$100,000 and over

 

998,924

 

1,036,967

 

1,292,934

 

Total deposits

 

10,166,806

 

9,839,698

 

8,797,167

 

Federal funds purchased and securities sold under repurchase agreements

 

167,084

 

266,727

 

110,665

 

Other short-term borrowings

 

115,125

 

125,125

 

421,125

 

Subordinated debt

 

318,282

 

303,795

 

282,043

 

Long-term debt

 

283,954

 

68,682

 

169,144

 

Other liabilities

 

126,703

 

126,303

 

110,804

 

Acceptances outstanding

 

6,145

 

8,924

 

11,396

 

 

 

 

 

 

 

 

 

Total liabilities

 

11,184,099

 

10,739,254

 

9,902,344

 

 

 

 

 

 

 

 

 

Minority interest in consolidated subsidiaries

 

26,044

 

21,179

 

6,738

 

 

 

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shareholders’ Equity

 

 

 

 

 

 

 

Preferred Stock authorized - 5,000,000 : none outstanding

 

 

 

 

Common Stock-par value-$1.00; authorized - 75,000,000; Issued - 50,455,363; 50,282,743 and 50,122,921 shares at June 30, 2003, December 31, 2002 and June 30, 2002, respectively

 

50,455

 

50,283

 

50,123

 

Additional paid-in capital

 

404,741

 

400,866

 

396,058

 

Accumulated other comprehensive income

 

39,781

 

40,400

 

25,673

 

Retained earnings

 

745,017

 

675,195

 

601,484

 

Deferred equity compensation

 

(7,595

)

 

 

Treasury shares, at cost - 2,027,574; 1,299,312; and 0 shares at June 30, 2003, December, 31, 2002 and June 30, 2002, respectively

 

(87,709

)

(56,785

)

 

 

 

 

 

 

 

 

 

Total shareholders’ equity

 

1,144,690

 

1,109,959

 

1,073,338

 

 

 

 

 

 

 

 

 

Total liabilities and shareholders’ equity

 

$

12,354,833

 

$

11,870,392

 

$

10,982,420

 

 

See accompanying Notes to the Unaudited Consolidated Financial Statements.

 

2



 

CITY NATIONAL CORPORATION

CONSOLIDATED STATEMENT OF INCOME AND COMPREHENSIVE INCOME

(Unaudited)

 

 

 

For the three months ended
June 30,

 

For the six months ended
June 30,

 

In thousands, except per share amounts

 

2003

 

2002

 

2003

 

2002

 

 

 

 

 

 

 

 

 

 

 

Interest  Income

 

 

 

 

 

 

 

 

 

Loans

 

$

111,176

 

$

126,704

 

$

226,912

 

$

247,322

 

Securities available-for-sale

 

32,292

 

27,923

 

61,723

 

54,951

 

Federal funds sold and securities purchased under resale agreements

 

771

 

704

 

1,182

 

1,211

 

Trading account

 

94

 

180

 

192

 

385

 

Total interest income

 

144,333

 

155,511

 

290,009

 

303,869

 

Interest  Expense

 

 

 

 

 

 

 

 

 

Deposits

 

12,548

 

18,168

 

26,022

 

37,111

 

Subordinated debt

 

1,349

 

1,732

 

2,763

 

3,927

 

Other long-term debt

 

2,342

 

1,080

 

3,694

 

2,221

 

Federal funds purchased and securities sold under repurchase agreements

 

414

 

805

 

1,039

 

1,585

 

Other short-term borrowings

 

556

 

3,152

 

1,150

 

6,756

 

Total interest expense

 

17,209

 

24,937

 

34,668

 

51,600

 

Net interest income

 

127,124

 

130,574

 

255,341

 

252,269

 

Provision for credit losses

 

11,500

 

18,000

 

29,000

 

29,000

 

Net interest income after provision for credit losses

 

115,624

 

112,574

 

226,341

 

223,269

 

Noninterest  Income

 

 

 

 

 

 

 

 

 

Trust fees and investment fee revenue

 

21,505

 

15,736

 

36,985

 

30,010

 

Cash management and deposit transaction charges

 

10,660

 

10,025

 

21,577

 

20,394

 

International services

 

5,019

 

4,719

 

9,347

 

8,510

 

Bank owned life insurance

 

731

 

719

 

1,445

 

1,392

 

Gain on sale of loans and assets

 

 

1,320

 

102

 

2,999

 

Gain on sale of securities

 

1,272

 

184

 

2,502

 

872

 

Other

 

5,865

 

6,035

 

12,070

 

10,504

 

Total noninterest income

 

45,052

 

38,738

 

84,028

 

74,681

 

Noninterest  Expense

 

 

 

 

 

 

 

 

 

Salaries and employee benefits

 

54,516

 

49,642

 

106,321

 

97,112

 

Net occupancy of premises

 

7,862

 

6,495

 

14,831

 

12,675

 

Professional

 

6,769

 

5,182

 

13,205

 

10,411

 

Information services

 

4,302

 

4,661

 

8,555

 

9,021

 

Depreciation

 

3,019

 

3,336

 

6,138

 

6,728

 

Marketing and advertising

 

3,553

 

3,311

 

6,665

 

6,099

 

Office services

 

2,398

 

2,731

 

4,968

 

4,829

 

Amortization of intangibles

 

2,227

 

2,056

 

4,203

 

3,571

 

Equipment

 

638

 

789

 

1,304

 

1,271

 

Other operating

 

6,032

 

4,671

 

10,538

 

9,858

 

Total noninterest expense

 

91,316

 

82,874

 

176,728

 

161,575

 

Minority interest in net income of consolidated subisidiaries

 

1,065

 

85

 

1,540

 

157

 

Income before income taxes

 

68,295

 

68,353

 

132,101

 

136,218

 

Income taxes

 

22,214

 

22,593

 

42,365

 

46,222

 

Net income

 

46,081

 

45,760

 

89,736

 

89,996

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

Unrealized gain (loss) on securities available-for-sale

 

414

 

38,496

 

(2,434

)

28,244

 

Unrealized gain (loss) on cash flow hedges

 

(43

)

1,342

 

485

 

(1,935

)

Less reclassification adjustment for (gain) loss included in net income

 

(3,341

)

232

 

(886

)

425

 

Income taxes (benefit)

 

1,562

 

16,652

 

(444

)

10,885

 

Other comprehensive gain (loss)

 

2,150

 

22,954

 

(619

)

14,999

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income

 

$

48,231

 

$

68,714

 

$

89,117

 

$

104,995

 

 

 

 

 

 

 

 

 

 

 

Net income per share, basic

 

$

0.95

 

$

0.92

 

$

1.85

 

$

1.82

 

 

 

 

 

 

 

 

 

 

 

Net income per share, diluted

 

$

0.93

 

$

0.88

 

$

1.80

 

$

1.75

 

 

 

 

 

 

 

 

 

 

 

Shares used to compute income per share, basic

 

48,308

 

49,963

 

48,543

 

49,327

 

 

 

 

 

 

 

 

 

 

 

Shares used to compute income per share, diluted

 

49,524

 

52,083

 

49,824

 

51,443

 

 

 

 

 

 

 

 

 

 

 

Dividends per share

 

$

0.205

 

$

0.195

 

$

0.410

 

$

0.390

 

 

See accompanying Notes to the Unaudited Consolidated Financial Statements.

 

3



 

CITY NATIONAL CORPORATION

CONSOLIDATED STATEMENT OF CASH FLOWS

(Unaudited)

 

 

 

For the six months ended
June 30,

 

Dollars in thousands

 

2003

 

2002

 

 

 

 

 

 

 

Cash Flows From Operating Activities

 

 

 

 

 

Net income

 

$

89,736

 

$

89,996

 

Adjustments to net income:

 

 

 

 

 

Provision for credit losses

 

29,000

 

29,000

 

Amortization of intangibles

 

4,203

 

3,571

 

Depreciation

 

6,138

 

6,728

 

Deferred income tax benefit

 

(13,434

)

(7,929

)

Gain on sales of loans and assets

 

(102

)

(2,999

)

Gain on sales of securities

 

(2,502

)

(872

)

Net decrease (increase) in other assets

 

10,399

 

(24,889

)

Net decrease in trading securities

 

84,176

 

9,434

 

Other, net

 

9,108

 

(893

)

 

 

 

 

 

 

Net cash provided by operating activities

 

216,722

 

101,147

 

 

 

 

 

 

 

Cash Flows From Investing Activities

 

 

 

 

 

Purchase of securities

 

(1,602,880

)

(450,710

)

Sales of securities available-for-sale

 

111,240

 

88,529

 

Maturities and paydowns of securities

 

722,869

 

318,116

 

Loan principal collections (originations), net

 

380,151

 

(353,518

)

Purchase of premises and equipment

 

(10,906

)

(2,455

)

Net cash from (for) acquisitions

 

(39,907

)

35,633

 

Other, net

 

(3

)

3

 

 

 

 

 

 

 

Net cash used by investing activities

 

(439,436

)

(364,402

)

 

 

 

 

 

 

Cash Flows From Financing Activities

 

 

 

 

 

Net increase in deposits

 

327,108

 

227,502

 

Net decrease in federal funds purchased and securities sold under repurchase agreements

 

(99,643

)

(60,866

)

Net decrease in short-term borrowings, net of transfers from long-term debt

 

(25,000

)

(19,000

)

Repayment of long-term debt

 

(1,367

)

 

Net proceeds of issuance of senior debt

 

221,749

 

 

Proceeds from exercise of stock options

 

9,016

 

19,187

 

Stock repurchases

 

(45,217

)

 

Cash dividends paid

 

(19,914

)

(19,243

)

 

 

 

 

 

 

Net cash provided by financing activities

 

366,732

 

147,580

 

 

 

 

 

 

 

Net increase (decrease) in cash and cash equivalents

 

144,018

 

(115,675

)

Cash and cash equivalents at beginning of year

 

957,273

 

723,018

 

Cash and cash equivalents at end of period

 

$

1,101,291

 

$

607,343

 

 

 

 

 

 

 

Supplemental Disclosures of Cash Flow Information:

 

 

 

 

 

Cash paid during the period for:

 

 

 

 

 

Interest

 

$

31,309

 

$

51,029

 

Income taxes

 

44,000

 

28,500

 

 

 

 

 

 

 

Non-cash investing activities:

 

 

 

 

 

Transfer from loans to foreclosed assets

 

$

 

$

530

 

Transfer from long-term debt to short-term borrowings

 

15,000

 

25,000

 

 

See accompanying Notes to the Unaudited Consolidated Financial Statements.

 

4



 

CITY NATIONAL CORPORATION

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY

(Unaudited)

 

 

 

For the six months ended
June 30,

 

Dollars in thousands

 

2003

 

2002

 

 

 

 

 

 

 

Common Stock

 

 

 

 

 

Balance, beginning of period

 

$

50,283

 

$

48,150

 

Stock issued for acquisitions

 

 

1,208

 

Stock options exercised

 

2

 

765

 

Restricted stock and units issued

 

170

 

 

Balance, end of period

 

50,455

 

50,123

 

 

 

 

 

 

 

Additional paid-in capital

 

 

 

 

 

Balance, beginning of period

 

400,866

 

301,022

 

Tax benefit from stock options

 

1,601

 

7,836

 

Stock options exercised

 

(5,279

)

18,422

 

Restricted stock and units issued

 

7,553

 

 

Excess of market value of shares issued for acquisitions over historical cost

 

 

68,778

 

Balance, end of period

 

404,741

 

396,058

 

 

 

 

 

 

 

Accumulated other comprehensive income

 

 

 

 

 

Balance, beginning of period

 

40,400

 

10,674

 

Other comprehensive income (loss) net of income taxes

 

(619

)

14,999

 

Balance, end of period

 

39,781

 

25,673

 

 

 

 

 

 

 

Retained earnings

 

 

 

 

 

Balance, beginning of period

 

675,195

 

530,731

 

Net income

 

89,736

 

89,996

 

Dividends paid

 

(19,914

)

(19,243

)

Balance, end of period

 

745,017

 

601,484

 

 

 

 

 

 

 

Deferred equity compensation

 

 

 

 

 

Balance, beginning of period

 

 

 

Unamortized cost of restricted stock and units

 

(7,595

)

 

Balance, end of period

 

(7,595

)

 

 

 

 

 

 

 

Treasury shares

 

 

 

 

 

Balance, beginning of period

 

(56,785

)

 

Purchase of shares

 

(45,217

)

 

Issuance of shares for stock options

 

14,293

 

 

Balance, end of period

 

(87,709

)

 

 

 

 

 

 

 

Total shareholders’ equity

 

$

1,144,690

 

$

1,073,338

 

 

See accompanying Notes to the Unaudited Consolidated Financial Statements.

 

5



 

CITY NATIONAL CORPORATION

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

1.               City National Corporation (the “Corporation”) is the holding company for City National Bank (the “Bank”).  In light of the fact that the Bank comprises substantially all of the business of the Corporation, references to the “Company” mean the Corporation and the Bank together.

 

2.               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 the interim period presented.  These unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements included in the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2002.  The results for the 2003 interim periods are not necessarily indicative of the results expected for the full year.

 

3.               Trading account securities are stated at market value.  Investments not classified as trading securities are classified as securities available-for-sale and recorded at fair value.  Unrealized holding gains or losses for securities available-for-sale, net of taxes are excluded from net income and are reported as other comprehensive income included as a separate component of shareholders’ equity.

 

4.               Certain prior periods’ data have been reclassified to conform to current period presentation.

 

5.               Reserves established as a purchase price adjustment for the February 29, 2000 acquisition of The Pacific Bank N.A. of $0.9 million for exit costs relating to surplus space remain as of June 30, 2003.  Reserves established as a purchase price adjustment for the February 28, 2002 acquisition of Civic BanCorp of $0.8 million for exit costs relating to surplus space remain as of June 30, 2003.

 

6.               On February 13, 2003, the Corporation issued $225 million of 5.125 percent Senior Notes due 2013 in a private placement.  A like amount of exchange notes were subsequently registered pursuant to the Securities Act of 1933 in April 2003 and 100 percent of the Senior Notes were exchanged for the registered notes in an exchange offering with the Senior Notes which closed on May 29, 2003.

 

7.               On January 22, 2003, the Board of Directors authorized a 1 million-share stock buyback program.  During the second quarter of 2003, 537,300 shares were repurchased under this program at an average price of $41.64 per share.  A total number of 750,100 shares have been repurchased under this program at an average price of $42.47 per share leaving 249,900 shares available for repurchase.  Shares will be repurchased on a selective basis from time to time in open market transactions.  The shares purchased under the buyback programs may be reissued for acquisitions, upon the exercise of stock options, or for other general corporate purposes. There were 2,027,574 treasury shares at June 30, 2003.

 

On July 15, 2003, the Board of Directors authorized the repurchase of 500,000 additional shares of City National Corporation stock, following completion of the Company’s current buyback initiative.

 

Basic earnings per share is based on the weighted average shares of common stock outstanding less unvested restricted shares and units.  Diluted earnings per share gives effect to all dilutive potential common shares which consists of stock options and restricted shares and units that were outstanding during the period.  At June 30, 2003, 1,189,835 stock options were antidilutive.

 

8.               The Company applies APB Opinion No. 25 in accounting for stock option plans and, accordingly, no compensation cost has been recognized for its plans in the financial statements.  As a practice, the Corporation’s stock option grants are such that the exercise price equals the current market price of the common stock.  Had the Company determined compensation cost based on the fair value at the grant date for its stock options under SFAS No. 123 using the Black Scholes option-pricing model, the Company’s proforma net income would have been reduced to the proforma amounts indicated below:

 

6



 

 

 

For the three months ended
June 30,

 

For the six months ended
June 30,

 

Dollars in thousands, except for per share amounts

 

2003

 

2002

 

2003

 

2002

 

Net income, as reported

 

$

46,081

 

$

45,760

 

$

89,736

 

$

89,996

 

Proforma net income

 

44,529

 

43,219

 

86,717

 

84,914

 

Net income per share, basic, as reported

 

0.95

 

0.92

 

1.85

 

1.82

 

Proforma net income per share, basic

 

0.92

 

0.86

 

1.79

 

1.72

 

Net income per share, diluted, as reported

 

0.93

 

0.88

 

1.80

 

1.75

 

Proforma net income per share, diluted

 

0.90

 

0.83

 

1.74

 

1.65

 

Percentage reduction in net income per share, diluted

 

3.32

%

5.68

%

3.33

%

5.71

%

 

During the latter part of the quarter, stock-based compensation performance awards for 2002 were granted to colleagues of the Company.  These performance awards for the first time included restricted stock grants with fewer stock options, which reduced the total number of shares awarded but better aligned the interests of shareholders and colleagues.  The Company recorded $129,000 in expense for restricted stock awards in the second quarter, and going forward expects to expense $387,000 quarterly for this stock award.

 

9.               In January 2003, the FASB issued Interpretation No. 46, “Consolidation of Variable Interest Entities.”  Interpretation 46 clarifies the application of Accounting Research Bulletin No. 51, “Consolidated Financial Statements,” to certain entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties.  The recognition and measurement provisions of Interpretation 46 are effective for newly created variable interest entities formed after January 31, 2003, and for existing variable interest entities, on the first interim or annual reporting period beginning after June 15, 2003.  The Company will adopt the provisions of Interpretation 46 for existing variable interest entities on July 1, 2003, which are not expected to have a material effect on the Company’s financial statements.

 

In April 2003, the FASB issued Statement No. 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities”.  Statement 149 amends and clarifies accounting for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities under Statement 133.  In particular, this Statement clarifies under what circumstances a contract with an initial net investment meets the characteristic of a derivative and when a derivative contains a financing component that warrants special reporting in the statement of cash flows.  This Statement is generally effective for contracts entered into or modified after June 30, 2003 and is not expected to have a material impact on the Company’s financial statements.

 

In May 2003, the FASB issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity” (SFAS No. 150).  SFAS No. 150 requires issuers to classify as liabilities (or assets in some circumstances) three classes of freestanding financial instruments that embody obligations for the issuer.  Generally, SFAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003.  SFAS No. 150 is to be implemented by reporting the cumulative effect of a change in an accounting principle for financial instruments created before May 15, 2003 and still existing at the beginning of the interim period of adoption.  The adoption of SFAS No. 150 is not expected to have a material effect on the Company’s financial statements, as the preferred securities of our subsidiary trusts will continue to be reported as a liability on the consolidated statements of financial condition.

 

10.         On April 1, 2003, the Corporation acquired Convergent Capital Management LLC, a privately held Chicago-based company, and substantially all of its asset management holdings, including its majority ownership interests in eight asset management firms and minority interests in two additional firms.  Combined, these 10 firms manage assets of approximately $6.9 billion as of June 30, 2003.  The purchase price was $49.0 million, comprised of cash and the assumption of approximately $7.5 million of debt.  The acquisition preliminarily resulted in $25.8 million in customer contract intangibles, which is being amortized over 20 years, and  $25.1 million in goodwill.

 

11.         On July 15, 2003, the Board of Directors approved a 37 percent increase in the Company’s quarterly common stock cash dividend.  The new quarterly dividend of $0.28 per share is up from the $0.205 per share previously paid.

 

7



 

CITY NATIONAL CORPORATION

FINANCIAL HIGHLIGHTS

(Unaudited)

 

 

 

At or for the three months ended

 

Percentage change
June 30, 2003 from

 

Dollars in thousands, except per share amounts

 

June 30,
2003

 

March 31,
2003

 

June 30,
2002

 

March 31,
2003

 

June 30,
2002

 

 

 

 

 

 

 

 

 

 

 

 

 

For The Quarter

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

46,081

 

$

43,655

 

$

45,760

 

6

%

1

%

Net income per common share, basic

 

0.95

 

0.89

 

0.92

 

7

 

3

 

Net income per common share, diluted

 

0.93

 

0.87

 

0.88

 

7

 

6

 

Dividends, per common share

 

0.205

 

0.205

 

0.195

 

0

 

5

 

 

 

 

 

 

 

 

 

 

 

 

 

At Quarter End

 

 

 

 

 

 

 

 

 

 

 

Assets

 

$

12,354,833

 

$

12,012,472

 

$

10,982,420

 

3

 

12

 

Deposits

 

10,166,806

 

9,863,846

 

8,797,167

 

3

 

16

 

Loans

 

7,590,226

 

7,832,823

 

7,854,530

 

(3

)

(3

)

Securities

 

2,992,686

 

2,531,809

 

1,919,985

 

18

 

56

 

Shareholders’ equity

 

1,144,690

 

1,121,689

 

1,073,338

 

2

 

7

 

Book value per share

 

23.77

 

23.09

 

21.41

 

3

 

11

 

 

 

 

 

 

 

 

 

 

 

 

 

Average Balances

 

 

 

 

 

 

 

 

 

 

 

Assets

 

$

11,914,869

 

$

11,480,626

 

$

10,934,265

 

4

 

9

 

Deposits

 

9,774,905

 

9,373,839

 

8,551,230

 

4

 

14

 

Loans

 

7,793,863

 

7,964,338

 

7,889,005

 

(2

)

(1

)

Securities

 

2,900,785

 

2,441,796

 

2,029,742

 

19

 

43

 

Shareholders’ equity

 

1,131,682

 

1,117,573

 

1,047,042

 

1

 

8

 

 

 

 

 

 

 

 

 

 

 

 

 

Selected Ratios

 

 

 

 

 

 

 

 

 

 

 

Return on average assets

 

1.55

%

1.54

%

1.68

%

1

 

(8

)

Return on average shareholders’ equity

 

16.33

 

15.84

 

17.53

 

3

 

(7

)

Corporation’s tier 1 leverage

 

7.17

 

7.65

 

7.44

 

(6

)

(4

)

Corporation’s tier 1 risk-based capital

 

10.21

 

10.30

 

9.74

 

(1

)

5

 

Corporation’s total risk-based capital

 

14.45

 

14.46

 

14.24

 

0

 

1

 

Dividend payout ratio, per share

 

21.51

 

22.91

 

21.34

 

(6

)

1

 

Net interest margin

 

4.79

 

5.07

 

5.35

 

(6

)

(10

)

Efficiency ratio *

 

52.53

 

50.28

 

47.95

 

4

 

10

 

 

 

 

 

 

 

 

 

 

 

 

 

Asset Quality Ratios

 

 

 

 

 

 

 

 

 

 

 

Nonaccrual loans to total loans

 

0.91

%

1.27

%

0.82

%

(28

)

11

 

Nonaccrual loans and ORE to toal loans and ORE

 

0.92

 

1.28

 

0.83

 

(28

)

11

 

Allowance for credit losses to total loans

 

2.25

 

2.16

 

2.01

 

4

 

12

 

Allowance for credit losses to non accrual loans

 

246.37

 

169.93

 

244.67

 

45

 

1

 

Net charge-offs to average loans - annualized

 

(0.52

)

(0.64

)

(0.81

)

(19

)

(36

)

 


*   The efficiency ratio is defined as noninterest expense excluding ORE expense divided by total revenue (net interest income on a tax-equivalent basis and noninterest income).

 

8



 

ITEM 2.                  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

See “Cautionary Statement for Purposes of the ‘Safe Harbor’ Provisions of the Private Securities Litigation Reform Act of 1995”, below relating to “forward-looking” statements included in this report.

 

 

RESULTS OF OPERATIONS

 

Critical Accounting Policies

 

The Company’s accounting policies are fundamental to understanding management’s discussion and analysis of results of operations and financial condition.  The Company has identified four policies as being critical because they require management to make particularly difficult, subjective and/or complex judgments about matters that are inherently uncertain and because of the likelihood that materially different amounts would be reported under different conditions or using different assumptions.  These policies relate to the accounting for securities, the allowance for credit losses, derivatives and hedging activities and stock based performance plans.  The Company, in consultation with the Audit Committee, has reviewed and approved these critical accounting policies, which are further described in Management’s Discussion and Analysis and Note 1 (Summary of Significant Accounting Policies) to Financial Statements in the Company’s 2002 Form 10-K.

 

 Overview

 

The Corporation recorded net income of $46.1 million, or $0.93 per common share, for the second quarter of 2003, compared with net income of $45.8 million, or $0.88 per share, for the second quarter of 2002 on fewer common shares outstanding this year.

 

For the first half of 2003, City National Corporation recorded net income of $89.7 million, or $1.80 per share, compared with net income of $90.0 million, or $1.75 per share, reported for the first half of 2002.

 

HIGHLIGHTS

 

                  Average core deposits for the second quarter were up 21 percent from a year ago, up 5 percent from the prior quarter and up 23 percent for the first six months from the same period last year.

 

                  Average loans for the first six months were up 3 percent from the same period last year.  However, average loans for the second quarter declined 1 percent from a year ago and were 2 percent lower than the prior quarter.  These declines reflect the continued slow demand for commercial loans and the Company’s continuing attention to credit quality.

 

                  Net interest income for the first half of 2003 increased 1 percent over the first half of 2002 but fell 3 percent in the second quarter compared with the year ago quarter. This decline is consistent with the compression in the net interest margin to 4.79 percent during the period.

 

                  Nonaccrual loans fell by $30.4 million, or 30 percent, from March 31, 2003 to $69.4 million, contributing to a lower provision for credit losses of $11.5 million for the second quarter of 2003.

 

                  Exposure to syndicated non-relationship commercial and purchased media and telecommunication loans declined 40 percent from March 31, 2003 to $52.2 million at June 30, 2003.

 

                  Fueled by the acquisition of Convergent Capital Management (“CCM”) in April 2003, noninterest income continued to increase. It rose 16 percent over both the second quarter of 2002 and the first quarter of this year.  For the first six months, noninterest income was up 13 percent from the same period last year.

 

9



 

$ in millions,
except per share

 

For the three months ended
June 30,

 

%
Change

 

For the three
months ended
March 31, 2003

 

For the six months ended
June 30,

 

%
Change

 

 

2003

 

2002

 

 

 

2003

 

2002

 

 

Earnings Per Share

 

$

0.93

 

$

0.88

 

6

 

$

0.87

 

$

1.80

 

$

1.75

 

3

 

Net Income

 

46.1

 

45.8

 

1

 

43.7

 

89.7

 

90.0

 

(0

)

Average Assets

 

11,914.9

 

10,934.3

 

9

 

11,480.6

 

11,698.9

 

10,640.8

 

10

 

Return on Average Assets

 

1.55

%

1.68

%

(8

)

1.54

%

1.55

%

1.71

%

(9

)

Return on Average Equity

 

16.33

 

17.53

 

(7

)

15.84

 

16.09

 

18.21

 

(12

)

 

Return on average assets for the second quarter and the first six months of 2003 declined due to an increase in average assets, primarily lower-yielding securities.  The lower return on average shareholders’ equity was due primarily to a higher level of shareholders’ equity from retained net income, issuance of restricted shares to colleagues, and from the exercise of stock options, net of treasury share repurchases.

 

Outlook

 

Consistent with its July 15, 2003 second quarter earnings release, management currently expects net income per diluted common share for 2003 to be approximately 4 to 6 percent higher than net income per diluted common share for 2002 based on the business indicators below:

 

                  Average loan growth flat to 2 percent

                  Average deposit growth 10 to 13 percent

                  Net interest margin 4.75 to 4.90 percent

                  Provision for credit losses $50 million to $65 million

                  Noninterest income growth 18 to 21 percent

                  Noninterest expense growth 9 to 12 percent

                  Effective tax rate 31 to 33 percent

 

Revenues

 

Revenues (net interest income plus noninterest income) increased 2 percent to $172.2 million in the second quarter of 2003 from $169.3 million in the second quarter of 2002 and increased 3 percent from the first quarter of 2003 due in part to the acquisition of CCM in April 2003.  For the first half of 2003, revenues increased 4 percent to $339.4 million compared with $327.0 million for the first half of 2002.

 

 

Net Interest Income

 

Net interest income for the second quarter of 2003 was $130.8 million on a fully taxable-equivalent basis, a 3 percent decrease from $134.3 million in the second quarter of 2002 due to lower interest rates and lower commercial loan demand. Fully taxable-equivalent net interest income for the first six months of 2003 was $262.6 million compared with $259.7 million for the first six months of 2002.

 

 

 

For the three months ended
June 30,

 

%
Change

 

For the three
months ended
March 31, 2003

 

For the six months ended
June 30,

 

%
Change

 

$ in millions

 

2003

 

2002

 

 

 

2003

 

2002

 

 

Average Loans

 

$

 7,793.9

 

$

 7,889.0

 

(1

)

$

 7,964.3

 

$

 7,878.6

 

$

 7,678.4

 

3

 

Average Securities

 

2,900.8

 

2,029.7

 

43

 

2,441.8

 

2,672.6

 

1,977.4

 

35

 

Average Deposits

 

9,774.9

 

8,551.2

 

14

 

9,373.8

 

9,575.5

 

8,244.1

 

16

 

Average Core Deposits

 

8,763.1

 

7,238.8

 

21

 

8,326.5

 

8,546.0

 

6,921.5

 

23

 

Fully Taxable-Equivalent Net Interest Income

 

130.8

 

134.3

 

(3

)

131.9

 

262.6

 

259.7

 

1

 

Net Interest Margin

 

4.79

%

5.35

%

(10

)

5.07

%

4.93

%

5.35

%

(8

)

 

 

Second-quarter and year-to-date 2003 average deposits continued to increase over the prior-year periods as well as from the prior quarter.

 

Average loans for the second quarter of 2003 declined compared with the same period last year and the prior quarter due to economic uncertainties and the emphasis on credit quality.  However, average loans for the first six months of 2003 increased over the same period last year.

 

The net interest margin narrowed due to a flattening yield curve, mortgage prepayment activity and low interest rates.

 

10



 

Compared with the prior-year second-quarter averages, commercial loans declined 8 percent, residential first mortgage loans rose 1 percent, real estate mortgage loans rose 6 percent, and real estate construction loans rose 9 percent.  Compared with the prior quarter, average real estate construction loans increased while all other loan categories fell.  Compared with the first six months of 2002, commercial loans decreased 2 percent, residential first mortgage loans rose 4 percent, real estate mortgage loans rose 9 percent, and real estate construction loans rose 9 percent.

 

Average securities, principally with lower yields and shorter durations, continued to increase as deposits grew strongly.  As of June 30, 2003 unrealized gains on securities available-for-sale were $57.3 million.

 

During the second quarter of 2003, average core deposits ¾ which include all deposits except time deposits of $100,000 or more ¾ rose to $8.8 billion, an increase of 21 percent over the $7.2 billion reported for the second quarter of 2002. They rose 5 percent over the first quarter of 2003.  For the first half of 2003, average core deposits increased 23 percent over the same period last year.  Average core deposits represented 90 percent of the total average deposit base for the second quarter of 2003, compared with 85 percent for the second quarter of 2002 and 89 percent for the first quarter of 2003.  For the first half of 2003, average core deposits were 89 percent of total average deposits compared with 84 percent for the first half of 2002.  New clients, additional trust and escrow deposits and higher client balances maintained as deposits to pay for services contributed to the continued growth of deposits.

 

The Bank’s prime rate was 4.00 percent as of June 30, 2003 compared with 4.75 percent a year earlier.

 

As part of the Company’s long-standing asset liability management strategy, its “plain vanilla” interest rate swaps hedging loans, deposits and borrowings, with a notional value of $976.4 million, added $7.5 million to net interest income in the second quarter of 2003. That compared with $8.5 million in the second quarter of 2002 and $7.5 million for the first quarter of 2003.  These amounts included $5.2 million, $3.7 million and $4.5 million, respectively, for interest swaps qualifying as fair-value hedges.  Income from swaps qualifying as cash-flow hedges was $2.3 million for the second quarter of 2003, compared with $4.8 million for the second quarter of 2002 and $3.0 million for the first quarter of 2003.  For the first half of 2003, interest rate swaps added $15.0 million to net interest income, compared with $16.4 million for the first half of 2002.  These amounts include $9.7 million and $6.9 million, respectively, for interest swaps qualifying as fair value hedges.  Income from existing swaps qualifying as cash flow hedges of loans expected to be recorded in net interest income within the next 12 months is $8.5 million.

 

Interest income recovered on nonaccrual and charged-off loans included above was $0.4 million for the second quarter of 2003, compared with $0.6 million for the second quarter of 2002 and $0.6 million for the first quarter of 2003, respectively.

 

The following tables present the components of net interest income on a fully taxable-equivalent basis for the three and six months ended June 30, 2003 and 2002.  To compare the tax-exempt asset yields to taxable yields, amounts are adjusted to pre-tax equivalents based on the marginal corporate federal tax rate of 35 percent.

 

11



 

Net Interest Income Summary

 

 

 

For the three months ended
June 30, 2003

 

For the three months ended
June 30, 2002

 

Dollars in thousands

 

Average
Balance

 

Interest
income/
expense (2)

 

Average
interest
rate

 

Average
Balance

 

Interest
income/
expense (2)

 

Average
interest
rate

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-earning assets

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

$

3,402,342

 

$

44,309

 

5.22

%

$

3,687,873

 

$

55,856

 

6.07

%

Real estate mortgages

 

1,906,995

 

31,297

 

6.58

 

1,791,314

 

32,651

 

7.31

 

Residential first mortgages

 

1,733,015

 

26,737

 

6.19

 

1,718,680

 

29,468

 

6.88

 

Real estate construction

 

679,541

 

8,903

 

5.25

 

622,223

 

8,780

 

5.66

 

Installment

 

71,970

 

1,409

 

7.85

 

68,915

 

1,558

 

9.07

 

Total loans (1)

 

7,793,863

 

112,655

 

5.80

 

7,889,005

 

128,313

 

6.52

 

Securities available-for-sale

 

2,844,001

 

34,440

 

4.86

 

1,980,089

 

30,079

 

6.09

 

Federal funds sold and securities purchased under resale agreements

 

246,559

 

771

 

1.25

 

149,255

 

704

 

1.89

 

Trading account securities

 

56,784

 

97

 

0.69

 

49,653

 

184

 

1.49

 

Total interest-earning assets

 

10,941,207

 

147,963

 

5.42

 

10,068,002

 

159,280

 

6.35

 

Allowance for credit losses

 

(174,270

)

 

 

 

 

(160,779

)

 

 

 

 

Cash and due from banks

 

429,788

 

 

 

 

 

414,851

 

 

 

 

 

Other nonearning assets

 

718,144

 

 

 

 

 

612,191

 

 

 

 

 

Total assets

 

$

11,914,869

 

 

 

 

 

$

10,934,265

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities and Shareholders’ Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-bearing deposits

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest checking accounts

 

$

711,609

 

304

 

0.17

 

$

627,118

 

405

 

0.26

 

Money market accounts

 

3,097,697

 

7,257

 

0.94

 

2,388,757

 

8,512

 

1.43

 

Savings deposits

 

205,378

 

239

 

0.47

 

229,726

 

504

 

0.88

 

Time deposits - under $100,000

 

212,060

 

931

 

1.76

 

226,137

 

1,339

 

2.37

 

Time deposits - $100,000 and over

 

1,011,850

 

3,817

 

1.51

 

1,312,423

 

7,408

 

2.26

 

Total interest - bearing deposits

 

5,238,594

 

12,548

 

0.96

 

4,784,161

 

18,168

 

1.52

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Federal funds purchased and securities sold under repurchase agreements

 

146,000

 

414

 

1.14

 

201,489

 

805

 

1.60

 

Other borrowings

 

709,391

 

4,247

 

2.40

 

1,021,421

 

5,964

 

2.34

 

Total interest - bearing liabilities

 

6,093,985

 

17,209

 

1.13

 

6,007,071

 

24,937

 

1.67

 

Noninterest - bearing deposits

 

4,536,311

 

 

 

 

 

3,767,069

 

 

 

 

 

Other liabilities

 

152,891

 

 

 

 

 

113,083

 

 

 

 

 

Shareholders’ equity

 

1,131,682

 

 

 

 

 

1,047,042

 

 

 

 

 

Total liabilities and shareholders’ equity

 

$

11,914,869

 

 

 

 

 

$

10,934,265

 

 

 

 

 

Net interest spread

 

 

 

 

 

4.29

%

 

 

 

 

4.68

%

Fully taxable-equivalent net interest income

 

 

 

$

130,754

 

 

 

 

 

$

134,343

 

 

 

Net interest margin

 

 

 

 

 

4.79

%

 

 

 

 

5.35

%

 


(1)  Includes average nonaccrual loans of $79,818 and $58,210 for 2003 and 2002, respectively.

(2)  Loan income includes loan fees of $5,620 and $5,574 for 2003 and 2002, respectively.

 

12



 

Net Interest Income Summary

 

 

 

For the six months ended
June 30, 2003

 

For the six months ended
June 30, 2002

 

Dollars in thousands

 

Average
Balance

 

Interest
income/
expense (2)

 

Average
interest
rate

 

Average
Balance

 

Interest
income/
expense (2)

 

Average
interest
rate

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-earning assets

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

$

3,480,938

 

$

91,499

 

5.30

%

$

3,560,880

 

$

108,865

 

6.17

%

Real estate mortgages

 

1,907,770

 

62,949

 

6.65

 

1,754,779

 

63,548

 

7.30

 

Residential first mortgages

 

1,744,861

 

54,901

 

6.35

 

1,676,088

 

57,747

 

6.95

 

Real estate construction

 

671,791

 

17,743

 

5.33

 

616,582

 

17,174

 

5.62

 

Installment

 

73,267

 

2,909

 

8.01

 

70,059

 

3,165

 

9.11

 

Total loans (1)

 

7,878,627

 

230,001

 

5.89

 

7,678,388

 

250,499

 

6.58

 

Securities available-for-sale

 

2,616,060

 

65,900

 

5.08

 

1,922,114

 

59,233

 

6.21

 

Federal funds sold and securities purchased under resale agreements

 

190,088

 

1,182

 

1.25

 

139,530

 

1,211

 

1.75

 

Trading account securities

 

56,501

 

198

 

0.71

 

55,319

 

392

 

1.43

 

Total interest-earning assets

 

10,741,276

 

297,281

 

5.58

 

9,795,351

 

311,335

 

6.41

 

Allowance for credit losses

 

(171,860

)

 

 

 

 

(155,494

)

 

 

 

 

Cash and due from banks

 

435,402

 

 

 

 

 

419,075

 

 

 

 

 

Other nonearning assets

 

694,130

 

 

 

 

 

581,894

 

 

 

 

 

Total assets

 

$

11,698,948

 

 

 

 

 

$

10,640,826

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities and Shareholders’ Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-bearing deposits

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest checking accounts

 

$

693,311

 

641

 

0.19

 

$

596,087

 

758

 

0.26

 

Money market accounts

 

3,043,562

 

14,830

 

0.98

 

2,261,972

 

16,259

 

1.45

 

Savings deposits

 

201,856

 

501

 

0.50

 

236,291

 

1,231

 

1.05

 

Time deposits - under $100,000

 

213,865

 

1,941

 

1.83

 

230,197

 

2,937

 

2.57

 

Time deposits - $100,000 and over

 

1,029,504

 

8,109

 

1.59

 

1,322,541

 

15,926

 

2.43

 

Total interest - bearing deposits

 

5,182,098

 

26,022

 

1.01

 

4,647,088

 

37,111

 

1.61

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Federal funds purchased and securities sold under repurchase agreements

 

182,556

 

1,039

 

1.15

 

201,352

 

1,585

 

1.59

 

Other borrowings

 

662,676

 

7,607

 

2.31

 

1,088,880

 

12,904

 

2.39

 

Total interest - bearing liabilities

 

6,027,330

 

34,668

 

1.16

 

5,937,320

 

51,600

 

1.75

 

Noninterest - bearing deposits

 

4,393,383

 

 

 

 

 

3,596,974

 

 

 

 

 

Other liabilities

 

153,568

 

 

 

 

 

109,842

 

 

 

 

 

Shareholders’ equity

 

1,124,667

 

 

 

 

 

996,690

 

 

 

 

 

Total liabilities and shareholders’ equity

 

$

11,698,948

 

 

 

 

 

$

10,640,826

 

 

 

 

 

Net interest spread

 

 

 

 

 

4.42

%

 

 

 

 

4.66

%

Fully taxable-equivalent net interest income

 

 

 

$

262,613

 

 

 

 

 

$

259,735

 

 

 

Net interest margin

 

 

 

 

 

4.93

%

 

 

 

 

5.35

%

 


(1)  Includes average nonaccrual loans of $81,428 and $50,901 for 2003 and 2002, respectively.

(2)  Loan income includes loan fees of $11,048 and $11,891 for 2003 and 2002, respectively.

 

13



 

Net interest income is impacted by the volume, mix and rate of interest-earning assets and interest-bearing liabilities.  The following table shows changes in net interest income on a fully taxable-equivalent basis between the second quarter and the first six months of 2003 and the second quarter and the first six months of 2002, as well as between the second quarter and the first six months of 2002 and the second quarter and the first six months of 2001.

 

Changes In Net Interest Income

 

Dollars in thousands

 

For the three months ended June 30,
2003 vs 2002

 

For the three months ended June 30,
2002 vs 2001

 

 

 

Increase (decrease)
due to

 

Net
increase
(decrease)

 

Increase (decrease)
due to

 

Net
increase
(decrease)

 

 

 

Volume

 

Rate

 

 

Volume

 

Rate

 

 

Interest earned on:

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans

 

$

(1,542

)

$

(14,116

)

$

(15,658

)

$

24,465

 

$

(26,972

)

$

(2,507

)

Securities available-for-sale

 

11,282

 

(6,921

)

4,361

 

5,697

 

(3,114

)

2,583

 

Federal funds sold and securities pruchased under resale agreements

 

358

 

(291

)

67

 

494

 

(658

)

(164

)

Trading account securities

 

23

 

(110

)

(87

)

(164

)

(310

)

(474

)

Total interest-earning assets

 

10,121

 

(21,438

)

(11,317

)

30,492

 

(31,054

)

(562

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest paid on:

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest checking deposits

 

51

 

(152

)

(101

)

42

 

(122

)

(80

)

Money market deposits

 

2,126

 

(3,381

)

(1,255

)

5,234

 

(9,365

)

(4,131

)

Savings deposits

 

(49

)

(216

)

(265

)

(120

)

(1,382

)

(1,502

)

Other time deposits

 

(1,572

)

(2,427

)

(3,999

)

(2,002

)

(10,789

)

(12,791

)

Other borrowings

 

(2,018

)

(90

)

(2,108

)

(404

)

(7,596

)

(8,000

)

Total interest-bearing liabilities

 

(1,462

)

(6,266

)

(7,728

)

2,750

 

(29,254

)

(26,504

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

11,583

 

$

(15,172

)

$

(3,589

)

$

27,742

 

$

(1,800

)

$

25,942

 

 

 

Dollars in thousands

 

For the six months ended June 30,
2003 vs 2002

 

For the six months ended June 30,
2002 vs 2001

 

 

 

Increase (decrease)
due to

 

Net
increase
(decrease)

 

Increase (decrease)
due to

 

Net
increase
(decrease)

 

 

 

Volume

 

Rate

 

 

Volume

 

Rate

 

 

Interest earned on:

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans

 

$

6,383

 

$

(26,881

)

$

(20,498

)

$

43,159

 

$

(63,875

)

$

(20,716

)

Securities

 

18,756

 

(12,089

)

6,667

 

11,637

 

(5,611

)

6,026

 

Federal funds sold and securities purchased under resale agreements

 

371

 

(400

)

(29

)

1,120

 

(1,380

)

(260

)

Trading account securities

 

8

 

(202

)

(194

)

(220

)

(753

)

(973

)

Total interest-earning assets

 

25,518

 

(39,572

)

(14,054

)

55,696

 

(71,619

)

(15,923

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest paid on:

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest checking deposits

 

112

 

(229

)

(117

)

50

 

(474

)

(424

)

Money market deposits

 

4,703

 

(6,132

)

(1,429

)

10,236

 

(17,905

)

(7,669

)

Savings deposits

 

(159

)

(571

)

(730

)

(162

)

(2,758

)

(2,920

)

Other time deposits

 

(3,289

)

(5,524

)

(8,813

)

(6,171

)

(24,279

)

(30,450

)

Other borrowings

 

(4,650

)

(1,193

)

(5,843

)

1,308

 

(18,961

)

(17,653

)

Total interest-bearing liabilities

 

(3,283

)

(13,649

)

(16,932

)

5,261

 

(64,377

)

(59,116

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

28,801

 

$

(25,923

)

$

2,878

 

$

50,435

 

$

(7,242

)

$

43,193

 

 

14



 

The impact of interest rate swaps, which increases loan interest income and reduces deposit and borrowing interest expense, is included in rate changes.

 

Provision for Credit Losses

 

The Company recorded a provision for credit losses of $11.5 million for the second quarter of 2003, compared with $18.0 million for the same period in 2002.  The provision for credit losses in the first quarter of 2003 was $17.5 million. The provision for credit losses primarily reflects declining nonaccrual loan levels, charge-offs, management’s ongoing assessment of the credit quality of the portfolio and the economic environment, most notably in Northern California and in California’s dairy industry.  The Company's dairy portfolio contained $150 million in outstanding loan balances as of June 30, 2003.  All of these dairy loans are performing.  Management believes the allowance for credit losses is adequate to cover risks in the portfolio at June 30, 2003.  See “¾ Allowance for Credit Losses.”

 

Noninterest Income

 

The Company continues to emphasize growth in noninterest income through both the development of its existing business as well as from acquisitions.  Noninterest income increased 16 percent to $45.1 million for the second quarter of 2003, compared with $38.7 million for the second quarter of 2002, primarily attributable to the acquisition of CCM.  Noninterest income increased 16 percent over the first quarter of 2003.  For the first half of 2003, noninterest income increased 13 percent to $84.0 million compared with $74.7 million for the first half of 2002.

 

Noninterest income as a percentage of total revenues for the second quarter and first half of 2003 was 26 percent and 25 percent, respectively, compared with 23 percent for the second quarter and first half of 2002 and 23 percent for the first quarter of 2003.

 

Trust and Investment Fee Revenue

 

 

 

At or for the
three months ended
June 30,

 

%
Change

 

At or for the three
months ended
March 31, 2003

 

For the
six months ended
June 30,

 

%
Change

 

$ in millions

 

2003

 

2002

 

 

 

2003

 

2002

 

 

Trust and Investment Fee Revenue

 

$

21.5

 

$

15.7

 

37

 

$

15.5

 

$

37.0

 

$

30.0

 

23

 

Assets Under Administration

 

26,237.3

 

18,271.1

 

44

 

19,840.8

 

 

 

 

 

 

 

Assets Under Management (1)(2)

 

12,531.3

 

6,906.2

 

81

 

6,978.0

 

 

 

 

 

 

 

 


(1)          Included above in assets under administration

(2)          June 30, 2003 does not include an additional $1,896 million of assets under management for the CCM minority owned asset managers

 

Assets under management at June 30, 2003 increased primarily due to the CCM acquisition in April 2003.  New business in all other categories, aided by strong relative investment performance and higher market values, also contributed to the increase.  The year-over-prior-year revenue increase for both second quarter and first six months of 2003 was driven by higher balances under administration partially attributable to the acquisition of CCM.  Increases in market values are reflected in fee income primarily on a trailing quarter basis.

 

Other Noninterest Income

 

Cash management and deposit transaction fees for both the second quarter and first half of 2003 increased 6 percent over the same periods last year.  Strong growth in deposits and higher sales of cash management products contributed to this growth.  Cash management and deposit transaction fees for the second quarter of 2003 were slightly lower than they were in the first quarter when prior-year annual fees were recognized.

 

15



 

International services fees for the second quarter 2003 were up 6 percent over the same period last year and increased 16 percent from the first quarter of 2003.  For the first half of 2003, international services fees were 10 percent higher than the first half of 2002.  Higher foreign exchange fueled the year-over-year and prior quarter revenue growth while trade-finance revenue was down from 2002.

 

Gains on the sale of loans and other assets and gains on the sale of securities for the second quarter of 2003 amounted to $1.3 million compared with $1.5 million for the second quarter of 2002 and  $1.3 million for the first quarter of 2003.  For the first half of 2003, $2.6 million in gains were realized compared with $3.9 million in gains for the first half of 2002.

 

Noninterest Expense

 

Noninterest expense was $91.3 million in the second quarter of 2003, up 10 percent from $82.9 million for the second quarter of 2002 and 7 percent from $85.4 million for the first quarter of 2003. Expenses grew primarily because of the addition of CCM and to a lesser extent were due to the Company’s continued modest expansion, principally in New York.

 

During the quarter, stock-based compensation performance awards for 2002 were granted to colleagues of the Company.  These performance awards for the first time included restricted stock grants with fewer stock options, which reduced the total number of shares awarded but better aligned the interests of shareholders and colleagues.  The Company recorded $129,000 in expense for restricted stock awards in the second quarter, and going forward expects to expense $387,000 quarterly for this stock award.

 

Noninterest expense for the first half of 2003 increased 9 percent to $176.7 million compared with $161.6 million for the first half of 2002.

 

The Company’s efficiency ratio for the second quarter of 2003 was 52.53 percent, compared with 47.95 percent for the second quarter of 2002 and 50.28 percent for the first quarter of 2003.  The higher efficiency ratio is impacted by the acquisition of CCM.  For the first half of 2003, the efficiency ratio was 51.42 percent compared with 47.95 percent for the first half of 2002.

 

Minority Interest

 

                Minority interest consists of preferred stock dividends on the Bank’s trust subsidiaries and the minority ownership share of earnings of the Corporation’s majority owned asset management firms.

 

Income Taxes

 

The first-half 2003 effective tax rate was 32.1 percent, compared with 30.1 percent for all of 2002.  The higher effective tax rate over the prior year reflects the absence of certain tax benefits recorded in the second half of 2002.

 

The effective tax rates differ from the applicable statutory federal tax rate due to various factors, including state taxes and the impact of the Company’s real estate investment trust subsidiaries on state taxes, tax-exempt income including interest on bank-owned life insurance, and affordable housing investments.

 

The Company’s tax returns are being audited by the Internal Revenue Service back to 1998 and by the Franchise Tax Board of the State of California back to 1996.  From time to time, there may be differences in opinions with the respect to tax treatment accorded transactions.  When, and if, such differences occur and become probable and estimable, such amounts will be recognized.

 

16



 

BALANCE SHEET ANALYSIS

 

Average assets reached $11.9 billion for the second quarter of 2003, an increase of 9 percent over the $10.9 billion in average assets for the second quarter of 2002 and 4 percent over the $11.5 billion in average assets for the first quarter of 2003.  For the first half of 2003, average assets were $11.7 billion, 10 percent higher than the $10.6 billion in average assets for the first half of 2002.  Total assets at June 30, 2003 increased 12 percent to $12.4 billion from $11.0 billion at June 30, 2002.  Total assets at December 31, 2002 were $11.9 billion.

 

Total average interest-earning assets were $10.9 billion for the second quarter of 2003, an increase of 9 percent over the $10.1 billion in average interest-earning assets for the second quarter of 2002 and 4 percent higher than the $10.5 billion in average interest-earning assets for the first quarter of 2003.  For the first half of 2003, total average interest-earning assets were $10.7 billion, and increase of 10 percent over the $9.8 billion in total average interest-earning assets for the first half of 2002.

 

Securities

 

Comparative period-end security portfolio balances are presented below:

 

Securities Available-for-Sale

 

 

 

June 30,
2003

 

December 31,
2002

 

June 30,
2002

 

Dollars in thousands

 

Cost

 

Fair Value

 

Cost

 

Fair Value

 

Cost

 

Fair Value

 

U.S. Government and federal agency

 

$

238,343

 

$

242,288

 

$

317,183

 

$

324,223

 

$

320,348

 

$

326,968

 

Mortgage-backed

 

2,257,765

 

2,292,818

 

1,448,673

 

1,491,489

 

1,121,904

 

1,146,818

 

State and Municipal

 

246,751

 

263,121

 

224,013

 

236,591

 

218,921

 

227,204

 

Other

 

 

 

5,451

 

4,600

 

31,899

 

31,872

 

Total debt securities

 

2,742,859

 

2,798,227

 

1,995,320

 

2,056,903

 

1,693,072

 

1,732,862

 

Marketable equities securities

 

192,542

 

194,459

 

174,124

 

169,753

 

193,745

 

187,123

 

Total securities

 

$

2,935,401

 

$

2,992,686

 

$

2,169,444

 

$

2,226,656

 

$

1,886,817

 

$

1,919,985

 

 

Average securities available-for-sale continued to increase primarily due to strong deposit growth.  At June 30, 2003, securities available-for-sale totaled $3.0 billion, an increase of $1,072.7 million compared with holdings at June 30, 2002 and an increase of $766.0 million from December 31, 2002.  At June 30, 2003 the portfolio had an unrealized net gain of $57.3 million compared with $57.2 million and $33.2 million at December 31, 2002 and June 30, 2002, respectively.  The average duration of total available-for-sale securities at June 30, 2003 was 2.3 years.  Duration provides a measure of fair value sensitivity to changes in interest rates.  For example, a one percent increase in rates such as occurred in July would result in a decrease in fair value of total debt securities of about $65 million.  The 2.3 duration compares with 2.1 at December 31, 2002 and 2.9 at June 30, 2002.  This is within the investment guidelines set by ALCO and the interest rate risk guidelines set by the Board of Directors.  See “¾ Asset /Liability Management” for a discussion of the Company’s interest rate position.

 

The following table provides the contractual remaining maturities and yields (taxable-equivalent basis) of debt securities within the securities portfolio as of June 30, 2003.  Contractual maturities of mortgage-backed securities are substantially longer than their expected maturities due to scheduled and unscheduled principal payments.  To compare the tax-exempt asset yields to taxable yields, amounts are adjusted to pre-tax equivalents based on the marginal corporate federal tax rate of 35 percent.

 

17



 

 Debt Securities Available-for-Sale

 

 

 

One year
or less

 

Over 1 year
thru 5 years

 

Over 5 years
thru 10 years

 

Over 10 years

 

Total

 

Dollars in thousands

 

Amount

 

Yield
(%)

 

Amount

 

Yield
(%)

 

Amount

 

Yield
(%)

 

Amount

 

Yield
(%)

 

Amount

 

Yield
(%)

 

U.S. Government and federal agency

 

$

17,967

 

1.99

 

$

210,978

 

3.64

 

$

13,343

 

6.21

 

$

 

 

$

242,288

 

3.66

 

Mortgage-backed

 

 

 

 

 

4,462

 

6.83

 

2,288,356

 

4.83

 

2,292,818

 

4.83

 

State and Municipal

 

10,843

 

6.96

 

92,325

 

6.55

 

110,793

 

6.64

 

49,160

 

6.23

 

263,121

 

6.55

 

Total debt securities

 

$

28,810

 

3.86

 

$

303,303

 

4.52

 

$

128,598

 

6.60

 

$

2,337,516

 

4.86

 

$

2,798,227

 

4.89

 

Amortized cost

 

$

28,541

 

 

 

$

293,415

 

 

 

$

119,769

 

 

 

$

2,301,134

 

 

 

$

2,742,859

 

 

 

 

Dividend income included in interest income on securities in the Unaudited Consolidated Statement of Income and Comprehensive Income for the second quarters of 2003 and 2002 was $2.2 million and $2.4 million and $4.1 million and $5.1 million for the first half of 2003 and 2002, respectively.

 

Loan Portfolio

 

A comparative period-end loan table is presented below:

 

Loans

 

Dollars in thousands

 

June 30,
2003

 

December 31,
2002

 

June 30,
2002

 

 

 

 

 

 

 

 

 

Commercial

 

$

3,232,780

 

$

3,609,053

 

$

3,552,800

 

Residential first mortgages

 

1,736,442

 

1,738,909

 

1,730,589

 

Real estate mortgages

 

1,895,964

 

1,934,409

 

1,866,086

 

Real estate construction

 

653,063

 

640,861

 

635,218

 

Installment

 

71,977

 

76,238

 

69,837

 

  Total loans, gross

 

7,590,226

 

7,999,470

 

7,854,530

 

Less allowance for credit losses

 

170,927

 

164,502

 

157,647

 

Total loans, net

 

$

7,419,299

 

$

7,834,968

 

$

7,696,883

 

 

Total loans at June 30, 2003 were 3 percent lower than total loans at June 30, 2002 and March 31, 2003.  At June 30, 2003, the Company’s loan portfolio included approximately $1.0 billion of loans to borrowers located in Northern California, including approximately $600 million of loans managed in Northern California offices. In addition, the portfolio included $52.2 million of syndicated non-relationship commercial loans and purchased media and telecommunication loans, down from $87.1 million at March 31, 2003.

 

Following is a breakdown of the syndicated non-relationship commercial loans and purchased media and telecommunication loans as of June 30, 2003:

 

Dollars in thousands

 

Number

 

Commitments

 

Outstanding

 

Percentage

 

Commercial

 

10

 

$

37,341

 

$

27,224

 

52

%

Telecommunications

 

4

 

16,115

 

6,835

 

13

 

Publishing

 

2

 

11,932

 

4,947

 

9

 

Television Broadcasting

 

1

 

5,000

 

4,917

 

10

 

Wireless

 

2

 

14,064

 

8,309

 

16

 

 

 

19

 

$

84,452

 

$

52,232

 

100

%

 

The above loan portfolio balances exclude one available-for-sale loan which is carried in other assets.

 

18



 

The following table presents information concerning nonaccrual loans, ORE, and restructured loans.  Bank policy requires that a loan be placed on nonaccrual status if (1) either principal or interest payments are 90 days past due, unless the loan is both well secured and in process of collection, (2) full collection of interest or principal becomes uncertain, regardless of the time period involved or (3) regulators’ ratings of credits suggest that the loan be placed on nonaccrual.

 

Nonaccrual Loans, ORE and Restructured Loans

 

Dollars in thousands

 

June 30,
2003

 

December 31,
2002

 

June 30,
2002

 

 

 

 

 

 

 

 

 

Nonaccrual loans:

 

 

 

 

 

 

 

Commercial

 

$

55,638

 

$

52,890

 

$

49,249

 

Real estate

 

13,739

 

17,992

 

12,703

 

Installment

 

 

475

 

2,480

 

Total

 

69,377

(1)

71,357

 

64,432

 

ORE

 

173

 

670

 

460

 

Total nonaccrual loans and ORE

 

$

69,550

 

$

72,027

 

$

64,892

 

 

 

 

 

 

 

 

 

Total non accrual loans as a percentage of total loans

 

0.91

%

0.89

%

0.82

%

Total non accrual loans and ORE as a percentage of total loans and ORE

 

0.92

 

0.90

 

0.83

 

Allowance for credit losses to total loans

 

2.25

 

2.06

 

2.01

 

Allowance for credit losses to nonaccrual loans

 

246.37

 

230.53

 

244.67

 

 

 

 

 

 

 

 

 

Loans past due 90 days or more on accrual status:

 

 

 

 

 

 

 

Commercial

 

$

5,225

 

$

5,854

 

$

1,517

 

Real estate

 

628

 

104

 

589

 

Installment

 

 

198

 

1,151

 

Total

 

$

5,853

 

$

6,156

 

$

3,257

 

 


(1)                Balance does not include a $3,625 loan held-for-sale in other assets as of June 30, 2003 which would have been classified as nonperforming had it been included in loans.  The loan was sold on July 1, 2003 at its June 30, 2003 carrying value.

 

Nonaccrual loans fell this quarter from the $99.7 million at March 31, 2003 primarily due to payoffs and sales. Approximately 40 percent of the nonperforming assets were loans to Northern California clients as of June 30, 2003.  Approximately 20 percent were three syndicated non-relationship commercial and purchased media and telecommunication loans totaling $14.7 million, which compared with nine loans totaling $34.0 million at March 31, 2003. The remaining 40 percent were loans to other borrowers.

 

At June 30, 2003, nonaccrual loans included $68.6 million of impaired loans which had an allowance for credit losses of $10.7 million allocated to them.  At March 31, 2003, nonaccrual loans included $99.7 million of impaired loans which had an allowance of $22.3 million allocated to them.  The Company considers a loan to be impaired when it is probable that it will be unable to collect all amounts due according to the contractual terms of the loan agreement. Once a loan is determined to be impaired, the impairment is measured based on the present value of the expected future cash flows discounted at the loan’s effective interest rate, except that as a practical expedient, the impairment is measured by using the loan’s observable market price or the fair value of the collateral if the loan is collateral dependent. Impairment on loans less than $500,000 is measured using historical loss factors, which approximates the discounted cash flows method.

 

19



 

When the measurement of the impaired loan is less than the recorded amount of the loan, an impairment is recognized by creating a valuation allowance with a corresponding charge to the allowance for credit losses or by adjusting an existing valuation allowance for the impaired loan with a corresponding charge or credit to the allowance for credit losses.

 

The Company’s policy is to record cash receipts on impaired loans first as reductions in principal and then as interest income.

 

The following table summarizes the changes in nonaccrual loans for the three and six months ended June 30, 2003 and 2002.

 

Changes in Nonaccrual Loans

 

 

 

For the three months ended
 June 30,

 

For the six months ended
 June 30,

 

Dollars in thousands

 

2003

 

2002

 

2003

 

2002

 

 

 

 

 

 

 

 

 

 

 

Balance, beginning of period

 

$

99,738

 

$

50,136

 

$

71,357

 

$

38,563

 

Additions from acquisitions

 

 

 

 

3,510

 

Loans placed on nonaccrual

 

18,905

 

31,262

 

71,647

 

52,927

 

Charge-offs

 

(12,266

)

(11,444

)

(22,783

)

(19,646

)

Loans returned to accrual status

 

 

(60

)

 

(1,219

)

Repayments (including interest applied to principal)

 

(37,000

)

(5,462

)

(50,844

)

(9,172

)

Transferred to ORE

 

 

 

 

(531

)

Balance, end of period

 

$

69,377

 

$

64,432

 

$

69,377

 

$

64,432

 

 

In addition to loans disclosed above as nonaccrual or restructured, management has also identified $17.8 million of credits to 17 borrowers where the ability to comply with the present loan payment terms in the future is questionable.  However, the inability of the borrower to comply with repayment terms was not sufficiently probable to place the loan on nonaccrual status at June 30, 2003.  Estimated potential losses from these potential problem loans have been provided for in determining the adequacy of the allowance for credit losses at June 30, 2003.

 

Management’s classification of credits as nonaccrual, restructured or problems does not necessarily indicate that the principal is uncollectable in whole or in part.

 

Allowance for Credit Losses

 

The allowance for credit losses at June 30, 2003 totaled $170.9 million, or 2.25 percent of outstanding loans.  This compares with an allowance of $157.6 million, or 2.01 percent at June 30, 2002 and an allowance of $169.5 million, or 2.16 percent at March 31, 2003.  The allowance for credit losses as a percentage of nonaccrual loans was 246 percent at June 30, 2003, compared with 245 percent at June 30, 2002 and 170 percent at March 31, 2003.  Management believes the allowance for credit losses is adequate to cover risks in the portfolio at June 30, 2003.

 

Net charge-offs for the second quarter of 2003 were $10.1 million, including $4.8 million relating to the Company’s syndicated non-relationship commercial and purchased media and telecommunication loan portfolio.  This compares with $16.0 million and $9.7 million, respectively, for the second quarter of 2002.  For the first half of 2003, net charge-offs were $22.6 million, compared with $23.0 million in the same period last year.  As an annualized percentage of average loans, net charge-offs were 0.52 percent, 0.81 percent and 0.64 percent for the second quarters of 2003 and 2002 and the first quarter of 2003, respectively.

 

The allowance for credit losses is maintained at a level that management deems appropriate based on a thorough analysis of numerous factors, including levels of net charge-offs and nonaccrual loans and

 

20



 

changes in the loan portfolio.  Credit quality will be influenced by underlying trends in the economy, particularly in California, and other factors that may be beyond management’s control.  No assurances can be given that the Company will not sustain credit losses, in any particular period, that are sizable in relation to the allowance for credit losses.  Based on known information available to it at the date of this report, management believes the allowance for credit losses is adequate to cover risks inherent in the portfolio at June 30, 2003.  Subsequent evaluation of the loan portfolio, in light of factors then prevailing, will dictate the level of provisions required to maintain the adequacy of the allowance for credit losses.

 

The table below summarizes the changes in the allowance for credit losses for the three and six months ended June 30, 2003 and 2002.

 

Changes in Allowance for Credit Losses

 

 

 

For the three months ended
June 30,

 

For the six months ended
June 30,

 

Dollars in thousands

 

2003

 

2002

 

2003

 

2002

 

 

 

 

 

 

 

 

 

 

 

Loans outstanding

 

$

7,590,226

 

$

7,854,530

 

$

7,590,226

 

$

7,854,530

 

Average amount of loans outstanding

 

$

7,793,863

 

$

7,889,005

 

$

7,878,627

 

$

7,678,388

 

Balance of allowance for credit losses, beginning of period

 

$

169,480

 

$

155,657

 

$

164,502

 

$

142,862

 

Loans charged off:

 

 

 

 

 

 

 

 

 

Commercial

 

(14,151

)

(15,999

)

(27,438

)

(24,383

)

Real estate and other

 

(60

)

(1,862

)

(1,655

)

(2,774

)

Total loans charged off

 

(14,211

)

(17,861

)

(29,093

)

(27,157

)

Less recoveries of loans previously charged off:

 

 

 

 

 

 

 

 

 

Commercial

 

3,749

 

1,009

 

6,017

 

2,036

 

Real estate and other

 

409

 

842

 

501

 

2,119

 

Total recoveries

 

4,158

 

1,851

 

6,518

 

4,155

 

Net loans charged off

 

(10,053

)

(16,010

)

(22,575

)

(23,002

)

Additions to allowance charged to operating expense

 

11,500

 

18,000

 

29,000

 

29,000

 

Additions to allowance from acquisition

 

 

 

 

8,787

 

Balance, end of period

 

$

170,927

 

$

157,647

 

$

170,927

 

$

157,647

 

 

 

 

 

 

 

 

 

 

 

Total net charge-offs to average loans (annualized)

 

(0.52

)%

(0.81

)%

(0.58

)%

(0.60

)%

 

 

 

 

 

 

 

 

 

 

Ratio of allowance for credit losses to total period end loans

 

 

 

 

 

2.25

%

2.01

%

 

21



 

Other Assets

 

Other assets included the following:

Other Assets

 

Dollars in thousands

 

June 30,
2003

 

December 31,
2002

 

June 30,
2002

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate swap mark-to-market

 

$

70,168

 

$

56,690

 

$

29,472

 

Accrued interest receivable

 

44,543

 

45,124

 

49,386

 

Claim in receivership and other assets

 

23,285

 

23,142

 

22,987

 

Loans held-for-sale

 

3,625

 

18,155

 

54,516

 

Income tax refund

 

3,305

 

3,464

 

 

Other

 

55,687

 

40,191

 

45,032

 

Total other assets

 

$

200,613

 

$

186,766

 

$

201,393

 

 

The claim in receivership and other assets were acquired in the acquisition of Pacific Bank.  The claim in receivership, which is approximately half of the balance, is expected to be realized in 2003.

 

See ¾ “Net Interest Income” for a discussion of interest rate swaps that result in the swap mark-to-market asset of $70.2 million.

 

Off Balance Sheet

 

In the normal course of business, the Company is a party to financial instruments with off-balance sheet risk.  These financial instruments include commitments to extend credit, letters of credit, and financial guarantees.  These instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount reflected in the consolidated balance sheet.  Commitments to extend credit are agreements to lend to a client as long as there is no violation of any condition established in the contract.  Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee.  Since a portion of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements.  The Company evaluates each client’s creditworthiness on a case-by-case basis.

 

The Company had outstanding loan commitments aggregating  $3,292.8 million at June 30, 2003.  In addition, the Company had $355.2 million outstanding in bankers’ acceptances and letters of credit of which $295.8 million relate to standby letters of credit at June 30, 2003.  Substantially all of the Company’s loan commitments are on a variable rate basis and are comprised of real estate and commercial loan commitments.

 

Deposits

 

Deposits totaled $10.2 billion at June 30, 2003, an increase of 16 percent compared with $8.8 billion at June 30, 2002, and increased 3 percent over the $9.9 billion at March 31, 2003.  New clients, additional trust and escrow deposits and a lower earnings credit on analyzed deposit accounts resulting from lower interest rates, contributed to the growth of deposits.

 

Demand deposits accounted for 48 percent of total deposits at June 30, 2003.  Core deposits, which continued to provide substantial benefits to the Bank’s cost of funds, were 90 percent of total deposits at June 30, 2003.  See “¾ Net Interest Income.”

 

22



 

CAPITAL ADEQUACY REQUIREMENT

 

The following table presents the regulatory standards for well capitalized institutions and the capital ratios for the Corporation and the Bank at June 30, 2003, December 31, 2002 and June 30, 2002.

 

 

 

Regulatory
Well Capitalized
Standards

 

June 30,
2003

 

December 31,
2002

 

June 30,
2002

 

City National Corporation

 

 

 

 

 

 

 

 

 

Tier 1 leverage

 

%

7.17

%

7.55

%

7.44

 

Tier 1 risk-based capital

 

6.00

 

10.21

 

9.87

 

9.74

 

Total risk-based capital

 

10.00

 

14.45

 

14.26

 

14.24

 

 

 

 

 

 

 

 

 

 

 

City National Bank

 

 

 

 

 

 

 

 

 

Tier 1 leverage

 

5.00

 

7.74

 

7.24

 

6.98

 

Tier 1 risk-based capital

 

6.00

 

10.93

 

9.46

 

9.14

 

Total risk-based capital

 

10.00

 

15.18

 

13.85

 

13.65

 

 

Tier 1 capital ratios include the impact of $25.4 million of preferred stock issued by real estate investment trust subsidiaries of the Bank which is included in minority interest in consolidated subsidiaries.

 

On January 22, 2003, the Board of Directors authorized a 1-million-share stock buyback program.  During the second quarter of 2003, 537,300 shares were repurchased under this program at an average price of $41.64 per share.  A total of 750,100 shares have been repurchased under this program at an average cost of $42.47 per share, leaving 249,900 shares available for repurchase.  The shares purchased under the buyback programs may be reissued for acquisitions, upon the exercise of stock options, and for other general corporate purposes. There were 2,027,574 treasury shares at June 30, 2003.

 

On July 15, 2003, the Board of Directors authorized the repurchase of 500,000 additional shares of City National Corporation stock, following completion of the Company’s current buyback initiative. In addition, the Board of Directors approved a 37 percent increase in the Company’s quarterly common stock cash dividend.  The new quarterly dividend of $0.28 per share is up from the $0.205 per share previously paid.

 

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 securities and loans.

 

Average core deposits and shareholders’ equity comprised 83 percent of total funding of average assets in the second quarter of 2003, compared with 76 percent in the second quarter of 2002.  This increase allowed the Company to decrease its use of more costly alternative funding sources.  See “¾ Net Interest Income.”

 

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

ASSET/LIABILITY MANAGEMENT

 

The principal objective of asset/liability management is to maximize net interest income subject to margin volatility and liquidity constraints. Margin volatility results when the rate reset (or repricing) characteristics of assets are materially different from those of the Company’s liabilities.  Liquidity risk results from the mismatching of asset and liability cash flows.  Management chooses asset/liability strategies that promote stable earnings and reliable

 

23



 

funding.  Interest rate risk and funding positions are kept within limits established by the Board of Directors to ensure that risk taking is managed within prudent interest rate and liquidity guidelines.

 

A quantitative and qualitative discussion about market risk is included on pages A-16 to A-20 of the Corporation’s Form 10-K for the year ended December 31, 2002.

 

Net Interest Simulation: During the first half of 2003, the Company maintained a moderate asset sensitive interest rate position. Based on the balance sheet at June 30, 2003, the Company’s net interest income simulation model indicates that net interest income would not be substantially adversely impacted by changes in interest rates. Assuming a static balance sheet, a gradual 100 basis point decline in interest rates over a twelve-month horizon would result in a decrease in projected net interest income of approximately 3.0 percent.  The 3.0 percent at-risk amount is up slightly from the previous two quarters, which were 2.7 percent and 2.3 percent at December 31, 2002, and March 31, 2003 respectively.  (Note: The 100 basis point decline could cause some rates to be negative.  We assume that discount rates may fall to zero but no further.)  A gradual 100bp increase in interest rates over the next 12-month period would result in an increase in projected net interest income of approximately 2.4 percent.  This is little changed from the December 31, 2002, and March 31, 2003 results which were 2.8 percent and 2.3 percent respectively.  Exposure remains within ALCO guidelines.  The Company continues to use a variety of other tools to manage its asset sensitivity.

 

Present Value of Equity: The model indicates that the Present Value of Equity (PVE) is only slightly vulnerable to a sudden and substantial change in interest rates.  As of June 30, 2003 a 200 basis point increase in interest rates results in a 2.1 percent decline in PVE.  This compares to a 2.6 percent decline at December 31, 2002, and reflects the increase in asset sensitivity experienced over the previous six months.  PVE improves only slightly as rates decrease due to their very low starting levels.

 

As of June 30, 2003, the Company had $976.4 million of notional principal in receive fixed-pay LIBOR interest rate swaps, of which $841.4 million have maturities greater than one year. The Company’s interest-rate risk-management instruments had a fair value and credit exposure risk of $70.2 million and  $57.5 million at  June 30, 2003 and March 31, 2003, respectively taking into consideration legal right of offset. The credit exposure represents the cost to replace, on a present value basis and at current market rates, the net positive value of all contracts for each counterparty that were outstanding at the end of the period. The Company’s swap agreements require collateral to mitigate the amount of credit risk if certain market value exposure thresholds are exceeded. As of June 30, 2003, collateral securing swap agreements consisted of securities with a total market value of $58.9 million to reduce counterparty exposure.

 

At June 30, 2003 the Company’s outstanding foreign exchange contracts for both those purchased as well as sold totaled $123.8 million including $2.4 million of foreign exchange contracts with maturities over 1 year.  Total outstanding foreign exchange contracts for both those purchased as well as sold were $72.7 million including $2.4 million of foreign exchange contracts with maturities over 1 year at March 31, 2003.  The Company enters into foreign exchange contracts with its clients and counterparty banks primarily for the purpose of offsetting or hedging for clients’ transaction and economic exposures arising out of commercial transactions.  The Company’s policies also permit limited proprietary currency positioning.  The Company actively manages its foreign exchange exposures within prescribed risk limits and controls.

 

ITEM 4.  CONTROL AND PROCEDURES

 

 

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

 

Under SEC rules, the Company is required to maintain disclosure controls and procedures designed to ensure that information required by the Company in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.  As part of the Company’s system of disclosure controls and procedures, we have created a disclosure committee which consists of certain members of the Company’s senior management.  The Company’s disclosure controls and procedures are designed to ensure that material information related to the Company, including its

 

24



 

consolidated subsidiaries, is made known to management, including the chief executive officer, chief financial officer and other members of the disclosure committee, in a timely manner.

 

The Company has carried out an evaluation of the effectiveness of the design and operation of its disclosure controls and procedures as of the end of the period covered by this report.  The Company’s management, including the Company’s disclosure committee and its chief executive officer and chief financial officer, supervised and participated in the evaluation.  Based on the evaluation, the chief executive officer and the chief financial officer concluded that the Company’s disclosure controls and procedures were effective as of the evaluation date.

 

CHANGES IN INTERNAL CONTROLS

 

There were no significant changes in the Company’s internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation.

 

25



 

CAUTIONARY STATEMENT FOR PURPOSES OF THE “SAFE HARBOR” PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

 

We have made forward-looking statements in this document that are subject to risks and uncertainties. These statements are based on the beliefs and assumptions of our management, and on information currently available to our management. Forward-looking statements include the information concerning our possible or assumed future results of operations, business and earnings outlook and statements preceded by, followed by, or that include the words “will,” believes,” “expects,” “anticipates,” “intends,” “plans,” “estimates,” or similar expressions.

 

Our management believes these forward-looking statements are reasonable. However, you should not place undue reliance on the forward-looking statements, since they are based on current expectations. Actual results may differ materially from those currently expected or anticipated.

 

Forward-looking statements are not guarantees of performance. They involve risks, uncertainties, and assumptions. Our future results and shareholder values may differ materially from those expressed in these forward-looking statements. Many of the factors described below that will determine these results and values are beyond our ability to control or predict. For those statements, we claim the protection of the safe harbor contained in the Private Securities Litigation Reform Act of 1995.

 

Forward-looking statements speak only as of the date they are made and the Company does not undertake to update forward-looking statements to reflect circumstances or events that occur as of the date the statements are made or to update earnings guidance including the factors that influence earnings.

 

 A number of factors, some of which are beyond the Corporation’s ability to control or predict, could cause future results to differ materially from those contemplated by such forward-looking statements. These factors include (1) the unknown economic impact caused by the State of California’s budget shortfall, (2) earthquake or other natural disasters impacting the condition of real estate collateral, (3) the effect of acquisitions and integration of acquired businesses, and (4) economic uncertainty created by worldwide geopolitical unrest, hostilities, terrorist attacks and related events, any of which could hurt our business.

 

                                          Loan delinquencies may increase;

 

                                          Problem assets and foreclosures may increase;

 

                                          Demand for our products and services may decline; and

 

                                          Collateral for loans made by us, especially real estate, may decline in value, in turn reducing clients’ borrowing power, and reducing the value of assets and collateral associated with our existing loans.

 

Changes in interest rates affect our profitability.  We derive our income mainly from the difference or “spread” between the interest earned on loans, securities, and other interest-earning assets, and interest paid on deposits, borrowings, and other interest-bearing liabilities. In general, the wider the spread, the more we earn. When market rates of interest change, the interest we receive on our assets and the interest we pay on our liabilities fluctuates. This causes changes in our spread and affects our net interest income. In addition, interest rates affect how much money we lend.

 

Significant changes in the provision or applications of laws or regulations affecting our business could materially affect our business. The banking industry is subject to extensive federal and state regulations, and significant new laws or changes in, or repeals of, existing laws may cause results to differ materially. Also, federal monetary policy, particularly as implemented through the Federal Reserve System, significantly affects our credit conditions, primarily through open market operations in U.S. government securities, the discount rate for member bank borrowing, and bank reserve requirements. A material change in these conditions would affect our results. Parts of our business are also subject to federal and state securities laws and regulations. Significant changes in these laws and regulations would also affect our business.

 

We face strong competition from financial service companies and other companies that offer banking services which can hurt our business.  Increased competition in our market may result in reduced loans and deposits. Ultimately, we may not be able to compete successfully against current and future competitors. Many competitors offer the banking services that we offer in our service area. These competitors include national, regional, and community banks. We also face competition from

 

26



 

many other types of financial institutions, including, without limitation, savings and loans, finance companies, brokerage firms, insurance companies, credit unions, mortgage banks, and other financial intermediaries. Recently passed legislation will make it easier for other types of financial institutions to compete with us.

 

Our results would be adversely affected if we suffered higher than expected losses on our loans.  We assume risk from the possibility that we will suffer losses because borrowers, guarantors, and related parties fail to perform under the terms of their loans. We try to minimize this risk by adopting and implementing what we believe are effective underwriting and credit policies and procedures, including how we establish and review the allowance for credit losses. We assess the likelihood of nonperformance, track loan performance, and diversify our credit portfolio. Those policies and procedures may still not prevent unexpected losses that could adversely affect our results.

 

Our financial results could be adversely affected by unanticipated changes in regulatory, judicial, or legislative tax treatment of business transactions.

 

27



 

PART II.                OTHER INFORMATION

 

ITEM 6.                  EXHIBITS AND REPORTS ON FORM 8-K

 

(a)           Exhibits

 

No.

 

10.1         Amendment to City National Corporation 1995 Omnibus Plan

 

31.1         Chief Executive Officer certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 302 of the Sarbanes-Oxley Act of 2002

 

31.2         Chief Financial Officer certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 302 of the Sarbanes-Oxley Act of 2002

 

32.0         Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002

 

(b)           Report on Form 8-K

 

On July 15, 2003, the Corporation filed a report on Form 8-K under item 9 (Regulation FD Disclosure) and item 12 (results of Operations and Financial Condition) of Form 8-K and is included under item 9 in accordance with SEC Release No. 33-8126 regarding the financial results for the quarter and six months ended June 30, 2003.  Included in the report was a press release dated July 15, 2003.

 

 

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:

August 14, 2003

 

/s/ Frank P. Pekny

 

 

 

 

FRANK P. PEKNY

 

 

 

Executive Vice President and

 

 

 

Chief Financial Officer/Treasurer

 

 

 

(Authorized Officer and Principal Financial Officer)

 

28


EX-10.1 3 a03-2176_1ex10d1.htm EX-10.1

Exhibit 10.1

 

AMENDMENT TO CITY NATIONAL CORPORATION

1995 OMINIBUS PLAN

 

 

WHEREAS, the Company has previously adopted the City National Corporation 1995 Omnibus Plan (the “Plan”) on February 22, 1995, and the Plan was approved by the shareholders of the Company on April 18, 1995, and the Plan was previously amended on April 16, 1997; and

 

WHEREAS, the Board is authorized to amend the Plan pursuant to Section 7.6(a) of the Plan; and

 

WHEREAS, the Board has been advised that shareholder approval of this Amendment to the Plan is not required by Rule 16b-3 or Section 424 of the Code or to comply with any other applicable law, and has determined that shareholder approval is not necessary or advisable for any other reason;

 

NOW, THEREFORE, pursuant to Section 7.6(a) of the Plan, the Plan is hereby amended as follows:

 

1.             Notwithstanding any other provision of the Plan, the Committee may grant to any Eligible Employee (including Other Eligible Persons) an Award (including, but not limited to restricted units or other deferred Awards) which will be payable in shares of Common Stock (a “Share Award”) and/or in Cash Only Awards on such terms as the Committee may determine in its sole discretion.  Such Awards may be made as additional compensation for services or may be in lieu of other compensation which the Eligible Employee is entitled to receive from the Company.  All such Share Awards and Cash Only Awards shall constitute Awards for all purposes of the Plan, and shall be subject to the limits on Awards which are payable in Shares and in cash which are contained in the Plan.

 

2.             Notwithstanding any other provision of the Plan, the Committee may grant Dividend Equivalents in connection with any Award which is made under the Plan on such terms as the Committee may determine in its sole discretion.

 

3.             All capitalized terms which are used herein shall have the same definitions which are contained in the Plan, unless otherwise defined herein.

 


EX-31.1 4 a03-2176_1ex31d1.htm EX-31.1

Exhibit 31.1

 

CHIEF EXECUTIVE OFFICER SECTION 302 CERTIFICATION

 

I, Russell Goldsmith, certify that:

 

1.             I have reviewed this quarterly report on Form 10Q of City National Corporation;

 

2.                                       Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

 

3.                                       Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

 

4.                                       The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have:

 

a.                                       Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

b.                                      Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

c.                                       Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter period that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5.                                       The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

 

a.                                       All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

b.                                      Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.

 

 

DATE:

August 14, 2003

 

 

/s/ Russell Goldsmith

 

 

 

 

 

 

RUSSELL GOLDSMITH

 

 

 

 

 

 

Chief Executive Officer

 

 

 


EX-31.2 5 a03-2176_1ex31d2.htm EX-31.2

Exhibit 31.2

 

CHIEF FINANCIAL OFFICER SECTION 302 CERTIFICATION

 

I, Frank P. Pekny, certify that:

 

1.             I have reviewed this quarterly report on Form 10Q of City National Corporation;

 

2.                                       Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

 

3.                                       Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

 

4.                                       The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have:

 

a.                                       Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

b.                                      Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

c.                                       Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5.                                       The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

 

a.                                       All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

b.                                      Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.

 

 

DATE:

August 14, 2003

 

 

/s/ Frank P. Pekny

 

 

 

 

 

 

FRANK P. PEKNY

 

 

 

 

 

 

Chief Financial Officer

 

 

 


EX-32.0 6 a03-2176_1ex32d0.htm EX-32.0

Exhibit 32.0

 

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

 

In connection with the Quarterly Report of City National Corporation (the “Company”) on Form 10-Q for the period ending June 30, 2003 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), we, Russell Goldsmith, Chief Executive Officer of the Company, and Frank P. Pekny, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that to the best of our knowledge, based on a review of the Report of the Company, and except as corrected or supplemented in a subsequent report:

 

(1)          The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

(2)          The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

 

DATE:

August 14, 2003

 

 

/s/ Russell Goldsmith

 

 

 

 

 

 

RUSSELL GOLDSMITH

 

 

 

 

 

 

Chief Executive Officer

 

 

 

 

DATE:

August 14, 2003

 

 

/s/ Frank P. Pekny

 

 

 

 

 

 

FRANK P. PEKNY

 

 

 

 

 

 

Chief Financial Officer

 

 

 

 

A signed original of this written statement required by Section 906 has been provided to City National Corporation and will be retained by City National Corporation and furnished to the Securities and Exchange Commission upon request.

 


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