UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED
For the quarterly period ended March 31, 2011
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 of Incorporation) |
|
(I.R.S. Employer Identification No.) |
City National Plaza
555 South Flower Street, Los Angeles, California, 90071
(Address of principal executive offices)(Zip Code)
(213) 673-7700
(Registrants telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report)
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 the filing requirements for at least the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act). (Check one):
Large accelerated filer x |
|
Accelerated filer o |
|
|
|
Non-accelerated filer o |
|
Smaller reporting company o |
(Do not check if a smaller reporting company) |
|
|
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o Yes x No
As of April 30, 2011, there were 53,178,300 shares of Common Stock outstanding (including unvested restricted shares).
|
| |
3 | ||
Managements Discussion and Analysis of Financial Condition and Results of Operations |
52 | |
84 | ||
88 | ||
|
|
|
|
| |
90 | ||
90 | ||
90 | ||
91 |
PART I - FINANCIAL INFORMATION
CITY NATIONAL CORPORATION
CONSOLIDATED BALANCE SHEETS
|
|
March 31, |
|
December 31, |
|
March 31, |
| |||
(in thousands, except share amounts) |
|
2011 |
|
2010 |
|
2010 |
| |||
|
|
(Unaudited) |
|
|
|
(Unaudited) |
| |||
Assets |
|
|
|
|
|
|
| |||
Cash and due from banks |
|
$ |
203,600 |
|
$ |
126,882 |
|
$ |
293,855 |
|
Due from banks - interest-bearing |
|
743,569 |
|
142,807 |
|
429,157 |
| |||
Federal funds sold |
|
100,000 |
|
165,000 |
|
50,000 |
| |||
Securities available-for-sale - cost $5,803,623, $5,658,120, and $3,897,750 at March 31, 2011, December 31, 2010 and March 31, 2010, respectively: |
|
|
|
|
|
|
| |||
Securities pledged as collateral |
|
|
|
|
|
198,349 |
| |||
Held in portfolio |
|
5,849,390 |
|
5,720,675 |
|
3,730,132 |
| |||
Trading securities |
|
81,287 |
|
255,397 |
|
68,405 |
| |||
Loans and leases, excluding covered loans |
|
11,269,684 |
|
11,386,628 |
|
11,689,536 |
| |||
Less: Allowance for loan and lease losses |
|
263,356 |
|
257,007 |
|
292,799 |
| |||
Loans and leases, excluding covered loans, net |
|
11,006,328 |
|
11,129,621 |
|
11,396,737 |
| |||
Covered loans, net of allowance for loan losses |
|
1,684,068 |
|
1,790,133 |
|
1,803,048 |
| |||
Net loans and leases |
|
12,690,396 |
|
12,919,754 |
|
13,199,785 |
| |||
Premises and equipment, net |
|
131,345 |
|
128,426 |
|
123,178 |
| |||
Deferred tax asset |
|
113,231 |
|
105,398 |
|
149,397 |
| |||
Goodwill |
|
486,403 |
|
486,070 |
|
479,982 |
| |||
Customer-relationship intangibles, net |
|
41,016 |
|
42,564 |
|
43,153 |
| |||
Affordable housing investments |
|
111,583 |
|
99,670 |
|
90,304 |
| |||
Customers acceptance liability |
|
1,571 |
|
1,715 |
|
3,267 |
| |||
Other real estate owned ($121,822, $120,866 and $77,526 covered by FDIC loss share at March 31, 2011, December 31, 2010 and March 31, 2010, respectively) |
|
178,164 |
|
178,183 |
|
135,551 |
| |||
FDIC indemnification asset |
|
270,576 |
|
295,466 |
|
325,356 |
| |||
Other assets |
|
633,801 |
|
685,111 |
|
746,604 |
| |||
Total assets |
|
$ |
21,635,932 |
|
$ |
21,353,118 |
|
$ |
20,066,475 |
|
Liabilities |
|
|
|
|
|
|
| |||
Demand deposits |
|
$ |
8,756,877 |
|
$ |
8,457,178 |
|
$ |
7,881,959 |
|
Interest checking deposits |
|
1,771,234 |
|
1,863,004 |
|
2,202,703 |
| |||
Money market deposits |
|
6,521,767 |
|
6,344,749 |
|
4,939,662 |
| |||
Savings deposits |
|
308,612 |
|
291,299 |
|
382,994 |
| |||
Time deposits-under $100,000 |
|
312,658 |
|
338,112 |
|
421,808 |
| |||
Time deposits-$100,000 and over |
|
806,791 |
|
882,520 |
|
1,134,603 |
| |||
Total deposits |
|
18,477,939 |
|
18,176,862 |
|
16,963,729 |
| |||
Short-term borrowings |
|
151,663 |
|
153,444 |
|
9,614 |
| |||
Long-term debt |
|
703,173 |
|
704,971 |
|
986,585 |
| |||
Reserve for off-balance sheet credit commitments |
|
21,707 |
|
21,529 |
|
18,498 |
| |||
Acceptances outstanding |
|
1,571 |
|
1,715 |
|
3,266 |
| |||
Other liabilities |
|
223,239 |
|
264,203 |
|
174,707 |
| |||
Total liabilities |
|
19,579,292 |
|
19,322,724 |
|
18,156,399 |
| |||
Redeemable noncontrolling interest |
|
46,013 |
|
45,676 |
|
46,665 |
| |||
Commitments and contingencies |
|
|
|
|
|
|
| |||
Equity |
|
|
|
|
|
|
| |||
Common stock, par value $1.00 per share; 75,000,000 shares authorized; 53,885,886 shares issued at March 31, 2011, December 31, 2010 and March 31, 2010 |
|
53,886 |
|
53,886 |
|
53,886 |
| |||
Additional paid-in capital |
|
480,918 |
|
487,868 |
|
505,330 |
| |||
Accumulated other comprehensive income |
|
26,535 |
|
36,853 |
|
23,927 |
| |||
Retained earnings |
|
1,511,153 |
|
1,482,037 |
|
1,382,421 |
| |||
Treasury shares, at cost - 1,446,355, 1,639,203 and 1,997,480 shares at March 31, 2011, December 31, 2010 and March 31, 2010, respectively |
|
(86,954 |
) |
(101,065 |
) |
(127,342 |
) | |||
Total shareholders equity |
|
1,985,538 |
|
1,959,579 |
|
1,838,222 |
| |||
Noncontrolling interest |
|
25,089 |
|
25,139 |
|
25,189 |
| |||
Total equity |
|
2,010,627 |
|
1,984,718 |
|
1,863,411 |
| |||
Total liabilities and equity |
|
$ |
21,635,932 |
|
$ |
21,353,118 |
|
$ |
20,066,475 |
|
See accompanying Notes to the Unaudited Consolidated Financial Statements.
CITY NATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
|
|
For the three months ended |
| ||||
|
|
March 31, |
| ||||
(in thousands, except per share amounts) |
|
2011 |
|
2010 |
| ||
Interest Income |
|
|
|
|
| ||
Loans and leases |
|
$ |
162,939 |
|
$ |
169,549 |
|
Securities available-for-sale |
|
37,333 |
|
32,200 |
| ||
Trading securities |
|
87 |
|
(51 |
) | ||
Due from banks - interest-bearing |
|
297 |
|
346 |
| ||
Federal funds sold and securities purchased under resale agreements |
|
154 |
|
22 |
| ||
Total interest income |
|
200,810 |
|
202,066 |
| ||
Interest Expense |
|
|
|
|
| ||
Deposits |
|
10,190 |
|
13,164 |
| ||
Federal funds purchased and securities sold under repurchase agreements |
|
|
|
1,936 |
| ||
Subordinated debt |
|
4,648 |
|
4,639 |
| ||
Other long-term debt |
|
4,682 |
|
6,822 |
| ||
Total interest expense |
|
19,520 |
|
26,561 |
| ||
Net interest income |
|
181,290 |
|
175,505 |
| ||
Provision for credit losses on loans and leases, excluding covered loans |
|
|
|
55,000 |
| ||
Provision for losses on covered loans |
|
19,116 |
|
|
| ||
Net interest income after provision |
|
162,174 |
|
120,505 |
| ||
Noninterest Income |
|
|
|
|
| ||
Trust and investment fees |
|
35,638 |
|
33,509 |
| ||
Brokerage and mutual fund fees |
|
5,661 |
|
5,281 |
| ||
Cash management and deposit transaction charges |
|
11,725 |
|
12,576 |
| ||
International services |
|
8,316 |
|
6,508 |
| ||
FDIC loss sharing income, net |
|
8,605 |
|
9,086 |
| ||
Gain on disposal of assets |
|
2,424 |
|
1,391 |
| ||
Gain on sale of securities |
|
130 |
|
2,134 |
| ||
Other |
|
21,558 |
|
7,391 |
| ||
Impairment loss on securities: |
|
|
|
|
| ||
Total other-than-temporary impairment loss on securities |
|
(4,510 |
) |
(15,208 |
) | ||
Less: Portion of loss recognized in other comprehensive income |
|
4,346 |
|
14,205 |
| ||
Net impairment loss recognized in earnings |
|
(164 |
) |
(1,003 |
) | ||
Total noninterest income |
|
93,893 |
|
76,873 |
| ||
Noninterest Expense |
|
|
|
|
| ||
Salaries and employee benefits |
|
111,012 |
|
95,459 |
| ||
Net occupancy of premises |
|
13,346 |
|
12,905 |
| ||
Legal and professional fees |
|
10,077 |
|
9,183 |
| ||
Information services |
|
7,497 |
|
7,516 |
| ||
Depreciation and amortization |
|
6,748 |
|
6,347 |
| ||
Amortization of intangibles |
|
2,168 |
|
2,447 |
| ||
Marketing and advertising |
|
6,518 |
|
5,248 |
| ||
Office services and equipment |
|
4,606 |
|
3,798 |
| ||
Other real estate owned |
|
14,489 |
|
17,197 |
| ||
FDIC assessments |
|
9,806 |
|
6,521 |
| ||
Other operating |
|
11,130 |
|
9,313 |
| ||
Total noninterest expense |
|
197,397 |
|
175,934 |
| ||
Income before income taxes |
|
58,670 |
|
21,444 |
| ||
Income taxes |
|
17,886 |
|
4,418 |
| ||
Net income |
|
$ |
40,784 |
|
$ |
17,026 |
|
Less: Net income attributable to noncontrolling interest |
|
1,092 |
|
1,328 |
| ||
Net income attributable to City National Corporation |
|
$ |
39,692 |
|
$ |
15,698 |
|
Less: Dividends and accretion on preferred stock |
|
|
|
5,702 |
| ||
Net income available to common shareholders |
|
$ |
39,692 |
|
$ |
9,996 |
|
Net income per share, basic |
|
$ |
0.75 |
|
$ |
0.19 |
|
Net income per share, diluted |
|
$ |
0.74 |
|
$ |
0.19 |
|
Shares used to compute net income per share, basic |
|
52,320 |
|
51,690 |
| ||
Shares used to compute net income per share, diluted |
|
52,894 |
|
52,092 |
| ||
Dividends per share |
|
$ |
0.20 |
|
$ |
0.10 |
|
See accompanying Notes to the Unaudited Consolidated Financial Statements.
CITY NATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
|
|
For the three months ended |
| ||||
|
|
March 31, |
| ||||
(in thousands) |
|
2011 |
|
2010 |
| ||
Cash Flows From Operating Activities |
|
|
|
|
| ||
Net income |
|
$ |
40,784 |
|
$ |
17,026 |
|
Adjustments to net income: |
|
|
|
|
| ||
Provision for credit losses on loans and leases, excluding covered loans |
|
|
|
55,000 |
| ||
Provision for losses on covered loans |
|
19,116 |
|
|
| ||
Amortization of intangibles |
|
2,168 |
|
2,447 |
| ||
Depreciation and amortization |
|
6,748 |
|
6,347 |
| ||
Share-based employee compensation expense |
|
4,678 |
|
3,872 |
| ||
Deferred income tax benefit |
|
(811 |
) |
(1,050 |
) | ||
Gain on disposal of assets |
|
(2,424 |
) |
(1,391 |
) | ||
Gain on sale of securities |
|
(130 |
) |
(2,134 |
) | ||
Impairment loss on securities |
|
164 |
|
1,003 |
| ||
Other, net |
|
(12,700 |
) |
12,914 |
| ||
Net change in: |
|
|
|
|
| ||
Trading securities |
|
174,171 |
|
85,897 |
| ||
Other assets and other liabilities, net |
|
35,560 |
|
4,406 |
| ||
Net cash provided by operating activities |
|
267,324 |
|
184,337 |
| ||
Cash Flows From Investing Activities |
|
|
|
|
| ||
Purchase of securities available-for-sale |
|
(598,336 |
) |
(398,372 |
) | ||
Sales of securities available-for-sale |
|
6,094 |
|
407,611 |
| ||
Maturities and paydowns of securities available-for-sale |
|
436,519 |
|
406,905 |
| ||
Loan originations, net of principal collections |
|
199,409 |
|
410,291 |
| ||
Net payments for premises and equipment |
|
(9,567 |
) |
(5,216 |
) | ||
Net cash acquired in acquisitions |
|
7,922 |
|
|
| ||
Other investing activities, net |
|
16,624 |
|
12,967 |
| ||
Net cash provided by investing activities |
|
58,665 |
|
834,186 |
| ||
Cash Flows From Financing Activities |
|
|
|
|
| ||
Net increase (decrease) in deposits |
|
292,671 |
|
(415,719 |
) | ||
Net decrease in federal funds purchased and securities sold under repurchase agreements |
|
|
|
(442,895 |
) | ||
Net increase in short-term borrowings, net of transfers from long-term debt |
|
70 |
|
40 |
| ||
Net decrease in long-term debt |
|
|
|
(353 |
) | ||
Proceeds from exercise of stock options |
|
4,015 |
|
9,821 |
| ||
Tax benefit from exercise of stock options |
|
920 |
|
2,142 |
| ||
Redemption of preferred stock |
|
|
|
(200,000 |
) | ||
Cash dividends paid |
|
(10,576 |
) |
(8,214 |
) | ||
Other financing activities, net |
|
(609 |
) |
(3,259 |
) | ||
Net cash provided by (used in) financing activities |
|
286,491 |
|
(1,058,437 |
) | ||
Net decrease in cash and cash equivalents |
|
612,480 |
|
(39,914 |
) | ||
Cash and cash equivalents at beginning of year |
|
434,689 |
|
812,926 |
| ||
Cash and cash equivalents at end of period |
|
$ |
1,047,169 |
|
$ |
773,012 |
|
Supplemental Disclosures of Cash Flow Information: |
|
|
|
|
| ||
Cash paid during the period for: |
|
|
|
|
| ||
Interest |
|
$ |
32,666 |
|
$ |
28,253 |
|
Income taxes |
|
2 |
|
|
| ||
Non-cash investing activities: |
|
|
|
|
| ||
Transfer of loans to other real estate owned |
|
$ |
34,139 |
|
$ |
42,497 |
|
See accompanying Notes to the Unaudited Consolidated Financial Statements.
CITY NATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
AND COMPREHENSIVE INCOME
(Unaudited)
|
|
City National Corporation Shareholders Equity |
|
|
|
|
| ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
| ||||||||
|
|
Common |
|
|
|
|
|
Additional |
|
other |
|
|
|
|
|
Non- |
|
|
| ||||||||
|
|
shares |
|
Preferred |
|
Common |
|
paid-in |
|
comprehensive |
|
Retained |
|
Treasury |
|
controlling |
|
Total |
| ||||||||
(in thousands, except share amounts) |
|
issued |
|
stock |
|
stock |
|
capital |
|
income (loss) |
|
earnings |
|
shares |
|
interest |
|
equity |
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Balance, January 1, 2010 |
|
53,885,886 |
|
$ |
196,048 |
|
$ |
53,886 |
|
$ |
513,550 |
|
$ |
(3,049 |
) |
$ |
1,377,639 |
|
$ |
(151,751 |
) |
$ |
26,441 |
|
$ |
2,012,764 |
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Net income (1) |
|
|
|
|
|
|
|
|
|
|
|
15,698 |
|
|
|
535 |
|
16,233 |
| ||||||||
Other comprehensive income, net of tax (2) |
|
|
|
|
|
|
|
|
|
26,976 |
|
|
|
|
|
|
|
26,976 |
| ||||||||
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
535 |
|
43,209 |
| ||||||||
Dividends and distributions to noncontrolling interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(535 |
) |
(535 |
) | ||||||||
Issuance of shares under share-based compensation plans |
|
|
|
|
|
|
|
(15,658 |
) |
|
|
|
|
24,409 |
|
|
|
8,751 |
| ||||||||
Preferred stock accretion |
|
|
|
3,952 |
|
|
|
|
|
|
|
(3,952 |
) |
|
|
|
|
|
| ||||||||
Redemption of preferred stock |
|
|
|
(200,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
(200,000 |
) | ||||||||
Share-based employee compensation expense |
|
|
|
|
|
|
|
3,849 |
|
|
|
|
|
|
|
|
|
3,849 |
| ||||||||
Tax benefit from share-based compensation plans |
|
|
|
|
|
|
|
1,413 |
|
|
|
|
|
|
|
|
|
1,413 |
| ||||||||
Cash dividends: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Preferred |
|
|
|
|
|
|
|
|
|
|
|
(1,750 |
) |
|
|
|
|
(1,750 |
) | ||||||||
Common |
|
|
|
|
|
|
|
|
|
|
|
(5,214 |
) |
|
|
|
|
(5,214 |
) | ||||||||
Net change in deferred compensation plans |
|
|
|
|
|
|
|
27 |
|
|
|
|
|
|
|
|
|
27 |
| ||||||||
Change in redeemable noncontrolling interest |
|
|
|
|
|
|
|
2,149 |
|
|
|
|
|
|
|
|
|
2,149 |
| ||||||||
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,252 |
) |
(1,252 |
) | ||||||||
Balance, March 31, 2010 |
|
53,885,886 |
|
$ |
|
|
$ |
53,886 |
|
$ |
505,330 |
|
$ |
23,927 |
|
$ |
1,382,421 |
|
$ |
(127,342 |
) |
$ |
25,189 |
|
$ |
1,863,411 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Balance, January 1, 2011 |
|
53,885,886 |
|
$ |
|
|
$ |
53,886 |
|
$ |
487,868 |
|
$ |
36,853 |
|
$ |
1,482,037 |
|
$ |
(101,065 |
) |
$ |
25,139 |
|
$ |
1,984,718 |
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Net income (1) |
|
|
|
|
|
|
|
|
|
|
|
39,692 |
|
|
|
534 |
|
40,226 |
| ||||||||
Other comprehensive loss, net of tax (2) |
|
|
|
|
|
|
|
|
|
(10,318 |
) |
|
|
|
|
|
|
(10,318 |
) | ||||||||
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
534 |
|
29,908 |
| ||||||||
Dividends and distributions to noncontrolling interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(534 |
) |
(534 |
) | ||||||||
Issuance of shares under share-based compensation plans |
|
|
|
|
|
|
|
(11,820 |
) |
|
|
|
|
14,111 |
|
|
|
2,291 |
| ||||||||
Share-based employee compensation expense |
|
|
|
|
|
|
|
4,629 |
|
|
|
|
|
|
|
|
|
4,629 |
| ||||||||
Tax benefit from share-based compensation plans |
|
|
|
|
|
|
|
1,037 |
|
|
|
|
|
|
|
|
|
1,037 |
| ||||||||
Cash dividends: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Common |
|
|
|
|
|
|
|
|
|
|
|
(10,576 |
) |
|
|
|
|
(10,576 |
) | ||||||||
Net change in deferred compensation plans |
|
|
|
|
|
|
|
26 |
|
|
|
|
|
|
|
|
|
26 |
| ||||||||
Change in redeemable noncontrolling interest |
|
|
|
|
|
|
|
(822 |
) |
|
|
|
|
|
|
|
|
(822 |
) | ||||||||
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(50 |
) |
(50 |
) | ||||||||
Balance, March 31, 2011 |
|
53,885,886 |
|
$ |
|
|
$ |
53,886 |
|
$ |
480,918 |
|
$ |
26,535 |
|
$ |
1,511,153 |
|
$ |
(86,954 |
) |
$ |
25,089 |
|
$ |
2,010,627 |
|
(1) Net income excludes net income attributable to redeemable noncontrolling interest of $558 and $793 for the three-month periods ended March 31, 2011 and 2010, respectively. Redeemable noncontrolling interest is reflected in the mezzanine section of the consolidated balance sheets. See Note 17 of the Notes to the Unaudited Consolidated Financial Statements.
(2) See Note 9 for additional information on other comprehensive income.
See accompanying Notes to the Unaudited Consolidated Financial Statements.
CITY NATIONAL CORPORATION
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1. Summary of Significant Accounting Policies
Organization
City National Corporation (the Corporation) is the holding company for City National Bank (the Bank). The Bank delivers banking, trust and investment services through 79 offices in Southern California, the San Francisco Bay area, Nevada and New York City. As of March 31, 2011, the Corporation had six consolidated investment advisory affiliates and a noncontrolling interest in two other firms. The Corporation also had one unconsolidated subsidiary, Business Bancorp Capital Trust I. Because the Bank comprises substantially all of the business of the Corporation, references to the Company mean the Corporation and the Bank together. The Corporation is approved as a financial holding company pursuant to the Gramm-Leach-Bliley Act of 1999.
Consolidation
The consolidated financial statements of the Company include the accounts of the Corporation, its non-bank subsidiaries, the Bank and the Banks wholly owned subsidiaries, after the elimination of all material intercompany transactions. The Company has both redeemable and non-redeemable noncontrolling interest. A noncontrolling interest is the portion of equity in a subsidiary not attributable to a parent. Preferred stock of consolidated bank affiliates that is owned by third parties is reflected as Noncontrolling interest in the equity section of the consolidated balance sheets. Redeemable noncontrolling interest includes noncontrolling ownership interests that are redeemable at the option of the holder or outside the control of the issuer. The redeemable equity ownership interests of third parties in the Corporations investment advisory affiliates are not considered to be permanent equity and are reflected as Redeemable noncontrolling interest in the mezzanine section between liabilities and equity in the consolidated balance sheets. Noncontrolling interests share of subsidiary earnings is reflected as Net income attributable to noncontrolling interest in the consolidated statements of income.
The Companys investment management and wealth advisory affiliates are organized as limited liability companies. The Corporation generally owns a majority position in each affiliate and certain management members of each affiliate own the remaining shares. The Corporation has contractual arrangements with its affiliates whereby a percentage of revenue is allocable to fund affiliate operating expenses (operating share) while the remaining portion of revenue (distributable revenue) is allocable to the Corporation and the noncontrolling owners. All majority-owned affiliates that meet the prescribed criteria for consolidation are consolidated. The Corporations interests in two investment management affiliates in which it holds a noncontrolling share are accounted for using the equity method. Additionally, the Company has various interests in variable interest entities (VIEs) that are not required to be consolidated. See Note 16 for a more detailed discussion on VIEs.
Use of Estimates
The Companys accounting and reporting policies conform to generally accepted accounting principles (GAAP) and practices in the financial services industry. To prepare the financial statements in conformity with GAAP, management must make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements, and income and expenses during the reporting period. Circumstances and events that differ significantly from those underlying the Companys estimates and assumptions could cause actual financial results to differ from those estimates. The material estimates included in the financial statements relate to the allowance for loan and lease losses, the reserve for off-balance sheet credit commitments, valuation of stock options and restricted stock, income taxes, goodwill and intangible asset impairment, securities available-for-sale impairment, private equity and alternative investment impairment, valuation of assets and liabilities acquired in business combinations, subsequent valuations of acquired impaired loans, FDIC indemnification assets, valuation of noncontrolling interest and the valuation of financial assets and liabilities reported at fair value.
The Company has applied its critical accounting policies and estimation methods consistently in all periods presented in these financial statements.
Note 1. Summary of Significant Accounting Policies (Continued)
Basis of Presentation
The Company is on the accrual basis of accounting for income and expenses. The results of operations reflect any adjustments, all of which are of a normal recurring nature, unless otherwise disclosed in this Form 10-Q, and which, in the opinion of management, are necessary for a fair presentation of the results for the periods presented. In accordance with the usual practice of banks, assets and liabilities of individual trust, agency and fiduciary funds have not been included in the financial statements. These unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements included in the Companys Annual Report on Form 10-K for the year ended December 31, 2010.
The results for the 2011 interim period are not necessarily indicative of the results expected for the full year. The Company has not made any significant changes in its critical accounting policies or in its estimates and assumptions from those disclosed in its 2010 Annual Report other than the adoption of new accounting pronouncements and other authoritative guidance that became effective for the Company on or after January 1, 2011. Refer to Accounting Pronouncements for discussion of accounting pronouncements adopted in 2011.
Certain prior period amounts have been reclassified to conform to the current period presentation.
Accounting Pronouncements
During the three months ended March 31, 2011, the following accounting pronouncements applicable to the Company were issued or became effective:
· In January 2010, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2010-06, Fair Value Measurements (Topic 820), Improving Disclosures about Fair Value Measurements (ASU 2010-06). ASU 2010-06 enhances disclosure requirements under Accounting Standards Codification (ASC) Topic 820, Fair Value Measurements and Disclosures (ASC 820), to include disclosure of transfers in and out of Level 1 and 2, and detail of activity in Level 3 fair value measurements. The ASU also provides clarification of existing disclosure requirements pertaining to the level of disaggregation used in fair value measurements, and disclosures about inputs and valuation techniques used for both recurring and nonrecurring fair value measurements. The new guidance, except for the requirement to provide the Level 3 activity on a gross basis, was adopted by the Company on January 1, 2010. The expanded disclosure requirements pertaining to Level 3 activity became effective for the Company on January 1, 2011. Adoption of the new guidance did not have a material effect on the Companys consolidated financial statements.
· In January 2011, the FASB issued ASU 2011-01, Receivables (Topic 310): Deferral of the Effective Date of Disclosures about Troubled Debt Restructurings in Update No. 2010-20 (ASU 2011-01). The ASU temporarily delayed the effective date of the disclosures about troubled debt restructurings in ASU 2010-20 until the FASB completes its deliberations on what constitutes a troubled debt restructuring. Currently, that guidance is anticipated to be effective for interim and annual periods ending after June 15, 2011 concurrent with the effective date of ASU 2011-02.
· In April 2011, the FASB issued ASU 2011-02, Receivables (Topic 310), A Creditors Determination of Whether a Restructuring is a Troubled Debt Restructuring (ASU 2011-02). In evaluating whether a restructuring constitutes a troubled debt restructuring, a creditor (lender) must separately conclude that both of the following exist: (1) the restructuring constitutes a concession, and (2) the debtor (borrower) is experiencing financial difficulties. Determining whether a modification is a troubled debt restructuring requires significant judgment. ASU 2011-02 clarifies the guidance on whether a lender has granted a concession, and on the lenders evaluation of whether a borrower is experiencing financial difficulties. ASU 2011-02 is effective for interim and annual periods ending after June 15, 2011, and applies retrospectively to restructurings occurring on or after the beginning of the year. Thus, an entity will be required to apply the guidance to determine whether modifications that were not previously considered TDRs and that have occurred since the beginning of the year would now be considered TDRs. Adoption of the new guidance is not expected to have a significant effect on the Companys financial statements.
Note 2. Business Combinations
San Jose, California Branch
On February 11, 2011, the Company purchased a branch banking office in San Jose, California from another financial institution. The Company acquired approximately $8.4 million in deposits. The Company recorded $0.3 million of goodwill and a core deposit intangible of $0.1 million with its acquisition of the branch.
Datafaction, Inc.
On November 15, 2010, the Corporation acquired Datafaction Inc. (Datafaction), a provider of accounting and imaging software for business managers and professional services firms, in an all-cash transaction. Datafactions product and service offerings are expected to complement the cash management solutions available to the Companys business clients. The Company recognized goodwill of approximately $6.2 million and a customer contract intangible of approximately $2.2 million related to the acquisition.
Sun West Bank and 1st Pacific Bank of California
On May 28, 2010, the Bank acquired the banking operations of Sun West Bank (SWB) in Las Vegas, Nevada in a purchase and assumption agreement with the Federal Deposit Insurance Corporation (FDIC). Excluding the effects of acquisition accounting adjustments, the Bank acquired approximately $340.0 million in assets and assumed $310.1 million in liabilities. The Bank acquired most of SWBs assets, including loans and other real estate owned (OREO) with a fair value of $127.6 million and $12.1 million, respectively, and assumed deposits with a fair value of $304.3 million. The Bank received approximately $29.2 million in cash from the FDIC at acquisition and recognized a gain of $24.7 million on the acquisition of SWB in the second quarter of 2010. The acquisition of SWB added three new bank branches in Nevada.
On May 7, 2010, the Bank acquired the banking operations of 1st Pacific Bank of California (FPB) in a purchase and assumption agreement with the FDIC. Excluding the effects of acquisition accounting adjustments, the Bank acquired approximately $318.6 million in assets and assumed $264.2 million in liabilities. The Bank acquired most of FPBs assets, including loans with a fair value of $202.8 million and assumed deposits with a fair value of $237.2 million. The Bank paid $12.3 million in cash to the FDIC at acquisition. During the second quarter of 2010, the Bank recognized a gain of $0.5 million on the acquisitions of FPB. During the third quarter of 2010, the Bank recognized an additional gain of $2.1 million when the first loss tranche under the FPB loss-sharing agreement was amended by the FDIC. The acquisition of FPB added five new bank branches in California.
In connection with the acquisitions of SWB and FPB, the Bank entered into loss-sharing agreements with the FDIC under which the FDIC will reimburse the Bank for 80 percent of eligible losses with respect to covered assets. Covered assets include acquired loans (covered loans) and OREO (covered OREO) that are subject to a loss-sharing agreement with the FDIC. The term of the loss-sharing agreements is 10 years for single-family residential loans and five years for all other loans. The expected reimbursements under the loss-sharing agreements were recorded as indemnification assets at their estimated fair value of $104.6 million for SWB and $36.5 million for FPB at acquisition date. The difference between the fair value of the FDIC indemnification asset and the undiscounted cash flows that the Bank expects to collect from the FDIC is accreted into noninterest income.
The Bank recognized a $3.6 million liability in the acquisition of FPB relating to a requirement that the Bank reimburse the FDIC if actual cumulative losses are lower than the cumulative losses originally estimated by the FDIC prior to the acquired banks failure. There was no similar liability recognized in the acquisition of SWB.
Note 3. Fair Value Measurements
Accounting guidance defines fair value for financial reporting purposes as the price that would be received to sell an asset or paid to transfer a liability in an orderly market transaction between market participants at the measurement date (reporting date). Fair value is based on an exit price in the principal market or most advantageous market in which the reporting entity could transact.
Note 3. Fair Value Measurements (Continued)
For each asset and liability required to be reported at fair value, management has identified the unit of account and valuation premise to be applied for purposes of measuring fair value. The unit of account is the level at which an asset or liability is aggregated or disaggregated for purposes of applying fair value measurement. The valuation premise is a concept that determines whether an asset is measured on a standalone basis or in combination with other assets. The Company measures its assets and liabilities on a standalone basis then aggregates assets and liabilities with similar characteristics for disclosure purposes.
Fair Value Hierarchy
Management employs market standard valuation techniques in determining the fair value of assets and liabilities. Inputs used in valuation techniques are based on assumptions that market participants would use in pricing an asset or liability. The inputs used in valuation techniques are prioritized as follows:
Level 1Quoted market prices in an active market for identical assets and liabilities.
Level 2Observable inputs including quoted prices (other than Level 1) in active markets for similar assets or liabilities, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability such as interest rates, yield curves, volatilities and default rates, and inputs that are derived principally from or corroborated by observable market data.
Level 3Unobservable inputs reflect the reporting entitys own assumptions about the assumptions market participants would use in pricing the asset or liability based on the best information available.
If the determination of fair value measurement for a particular asset or liability is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. Managements assessment of the significance of a particular input to the fair value measurement requires judgment and considers factors specific to the asset or liability measured.
The Company records securities available-for-sale, trading securities and derivative contracts at fair value on a recurring basis. Certain other assets such as impaired loans, OREO, goodwill, customer-relationship intangibles and investments carried at cost are recorded at fair value on a nonrecurring basis. Nonrecurring fair value measurements typically involve assets that are periodically evaluated for impairment and for which any impairment is recorded in the period in which the remeasurement is performed.
Note 3. Fair Value Measurements (Continued)
The following tables summarize assets and liabilities measured at fair value as of March 31, 2011, December 31, 2010 and March 31, 2010 by level in the fair value hierarchy:
|
|
|
|
Fair Value Measurements at Reporting Date Using |
| ||||||||
(in thousands) |
|
Balance as of |
|
Quoted Prices in |
|
Significant Other |
|
Significant |
| ||||
Measured on a Recurring Basis |
|
|
|
|
|
|
|
|
| ||||
Assets |
|
|
|
|
|
|
|
|
| ||||
Securities available-for-sale |
|
|
|
|
|
|
|
|
| ||||
U.S. Treasury |
|
$ |
14,091 |
|
$ |
14,091 |
|
$ |
|
|
$ |
|
|
Federal agency - Debt |
|
1,538,090 |
|
|
|
1,538,090 |
|
|
| ||||
Federal agency - MBS |
|
520,571 |
|
|
|
520,571 |
|
|
| ||||
CMOs - Federal agency |
|
3,275,555 |
|
|
|
3,275,555 |
|
|
| ||||
CMOs - Non-agency |
|
106,676 |
|
|
|
106,676 |
|
|
| ||||
State and municipal |
|
341,405 |
|
|
|
341,405 |
|
|
| ||||
Other debt securities |
|
43,885 |
|
|
|
22,973 |
|
20,912 |
| ||||
Equity securities and mutual funds |
|
9,117 |
|
9,117 |
|
|
|
|
| ||||
Trading securities |
|
81,287 |
|
77,360 |
|
3,927 |
|
|
| ||||
Mark-to-market derivatives (1) |
|
39,861 |
|
3,275 |
|
36,586 |
|
|
| ||||
Total assets at fair value |
|
$ |
5,970,538 |
|
$ |
103,843 |
|
$ |
5,845,783 |
|
$ |
20,912 |
|
|
|
|
|
|
|
|
|
|
| ||||
Liabilities |
|
|
|
|
|
|
|
|
| ||||
Mark-to-market derivatives (2) |
|
$ |
22,126 |
|
$ |
1,227 |
|
$ |
20,899 |
|
$ |
|
|
Other liabilities |
|
150 |
|
|
|
150 |
|
|
| ||||
Total liabilities at fair value |
|
$ |
22,276 |
|
$ |
1,227 |
|
$ |
21,049 |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Measured on a Nonrecurring Basis |
|
|
|
|
|
|
|
|
| ||||
Assets |
|
|
|
|
|
|
|
|
| ||||
Collateral dependent impaired loans (3) |
|
|
|
|
|
|
|
|
| ||||
Commercial |
|
$ |
958 |
|
$ |
958 |
|
$ |
|
|
$ |
|
|
Commercial real estate mortgages |
|
1,888 |
|
1,888 |
|
|
|
|
| ||||
Residential mortgages |
|
2,774 |
|
1,961 |
|
813 |
|
|
| ||||
Real estate construction |
|
9,221 |
|
9,221 |
|
|
|
|
| ||||
Equity lines of credit |
|
1,707 |
|
711 |
|
996 |
|
|
| ||||
Installment |
|
2,800 |
|
2,800 |
|
|
|
|
| ||||
Other real estate owned (4) |
|
30,230 |
|
22,565 |
|
7,665 |
|
|
| ||||
Total assets at fair value |
|
$ |
49,578 |
|
$ |
40,104 |
|
$ |
9,474 |
|
$ |
|
|
(1) Reported in Other assets in the consolidated balance sheets.
(2) Reported in Other liabilities in the consolidated balance sheets.
(3) Impaired loans for which fair value was calculated using the collateral valuation method.
(4) Other real estate owned balance of $178.2 million in the consolidated balance sheets includes $121.8 million of covered OREO and is net of estimated disposal costs.
Note 3. Fair Value Measurements (Continued)
|
|
|
|
Fair Value Measurements at Reporting Date Using |
| ||||||||
(in thousands) |
|
Balance as of |
|
Quoted Prices in |
|
Significant Other |
|
Significant |
| ||||
Measured on a Recurring Basis |
|
|
|
|
|
|
|
|
| ||||
Assets |
|
|
|
|
|
|
|
|
| ||||
Securities available-for-sale |
|
|
|
|
|
|
|
|
| ||||
U.S. Treasury |
|
$ |
14,113 |
|
$ |
14,113 |
|
$ |
|
|
$ |
|
|
Federal agency - Debt |
|
1,142,328 |
|
|
|
1,142,328 |
|
|
| ||||
Federal agency - MBS |
|
551,346 |
|
|
|
551,346 |
|
|
| ||||
CMOs - Federal agency |
|
3,497,147 |
|
|
|
3,497,147 |
|
|
| ||||
CMOs - Non-agency |
|
118,295 |
|
|
|
118,295 |
|
|
| ||||
State and municipal |
|
343,380 |
|
|
|
343,380 |
|
|
| ||||
Other debt securities |
|
43,630 |
|
|
|
22,648 |
|
20,982 |
| ||||
Equity securities and mutual funds |
|
10,436 |
|
10,436 |
|
|
|
|
| ||||
Trading securities |
|
255,397 |
|
249,861 |
|
5,536 |
|
|
| ||||
Mark-to-market derivatives (1) |
|
46,712 |
|
3,258 |
|
43,454 |
|
|
| ||||
Total assets at fair value |
|
$ |
6,022,784 |
|
$ |
277,668 |
|
$ |
5,724,134 |
|
$ |
20,982 |
|
|
|
|
|
|
|
|
|
|
| ||||
Liabilities |
|
|
|
|
|
|
|
|
| ||||
Mark-to-market derivatives (2) |
|
$ |
26,437 |
|
$ |
1,215 |
|
$ |
25,222 |
|
$ |
|
|
Other liabilities |
|
160 |
|
|
|
160 |
|
|
| ||||
Total liabilities at fair value |
|
$ |
26,597 |
|
$ |
1,215 |
|
$ |
25,382 |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Measured on a Nonrecurring Basis |
|
|
|
|
|
|
|
|
| ||||
Assets |
|
|
|
|
|
|
|
|
| ||||
Collateral dependent impaired loans (3) |
|
|
|
|
|
|
|
|
| ||||
Commercial |
|
$ |
1,528 |
|
$ |
|
|
$ |
1,528 |
|
$ |
|
|
Commercial real estate mortgages |
|
31,684 |
|
|
|
21,236 |
|
10,448 |
| ||||
Residential mortgages |
|
9,061 |
|
|
|
8,210 |
|
851 |
| ||||
Real estate construction |
|
98,059 |
|
|
|
98,059 |
|
|
| ||||
Equity lines of credit |
|
3,092 |
|
|
|
2,224 |
|
868 |
| ||||
Collateral dependent impaired covered loans (3) |
|
|
|
|
|
|
|
|
| ||||
Commercial |
|
2,557 |
|
|
|
|
|
2,557 |
| ||||
Other real estate owned (4) |
|
88,993 |
|
|
|
65,605 |
|
23,388 |
| ||||
Private equity investments |
|
10,804 |
|
|
|
|
|
10,804 |
| ||||
Total assets at fair value |
|
$ |
245,778 |
|
$ |
|
|
$ |
196,862 |
|
$ |
48,916 |
|
(1) Reported in Other assets in the consolidated balance sheets.
(2) Reported in Other liabilities in the consolidated balance sheets.
(3) Impaired loans for which fair value was calculated using the collateral valuation method.
(4) Other real estate owned balance of $178.2 million in the consolidated balance sheets includes $120.9 million of covered OREO and is net of estimated disposal costs.
Note 3. Fair Value Measurements (Continued)
|
|
|
|
Fair Value Measurements at Reporting Date Using |
| ||||||||
(in thousands) |
|
Balance as of |
|
Quoted Prices in |
|
Significant Other |
|
Significant |
| ||||
Measured on a Recurring Basis |
|
|
|
|
|
|
|
|
| ||||
Assets |
|
|
|
|
|
|
|
|
| ||||
Securities available-for-sale |
|
|
|
|
|
|
|
|
| ||||
U.S. Treasury |
|
$ |
15,100 |
|
$ |
15,100 |
|
$ |
|
|
$ |
|
|
Federal agency - Debt |
|
611,317 |
|
|
|
611,317 |
|
|
| ||||
Federal agency - MBS |
|
448,293 |
|
|
|
448,293 |
|
|
| ||||
CMOs - Federal agency |
|
2,174,217 |
|
|
|
2,174,217 |
|
|
| ||||
CMOs - Non-agency |
|
228,930 |
|
|
|
228,930 |
|
|
| ||||
State and municipal |
|
365,826 |
|
|
|
365,826 |
|
|
| ||||
Other debt securities |
|
70,600 |
|
|
|
45,607 |
|
24,993 |
| ||||
Equity securities and mutual funds |
|
14,198 |
|
14,198 |
|
|
|
|
| ||||
Trading securities |
|
68,405 |
|
66,932 |
|
1,473 |
|
|
| ||||
Mark-to-market derivatives (1) |
|
51,039 |
|
5,258 |
|
45,781 |
|
|
| ||||
Total assets at fair value |
|
$ |
4,047,925 |
|
$ |
101,488 |
|
$ |
3,921,444 |
|
$ |
24,993 |
|
|
|
|
|
|
|
|
|
|
| ||||
Liabilities |
|
|
|
|
|
|
|
|
| ||||
Mark-to-market derivatives (2) |
|
$ |
19,567 |
|
$ |
1,733 |
|
$ |
17,834 |
|
$ |
|
|
Total liabilities at fair value |
|
$ |
19,567 |
|
$ |
1,733 |
|
$ |
17,834 |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Measured on a Nonrecurring Basis |
|
|
|
|
|
|
|
|
| ||||
Assets |
|
|
|
|
|
|
|
|
| ||||
Collateral dependent impaired loans (3) |
|
|
|
|
|
|
|
|
| ||||
Commercial |
|
$ |
3,810 |
|
$ |
|
|
$ |
3,810 |
|
$ |
|
|
Commercial real estate mortgages |
|
46,267 |
|
|
|
32,889 |
|
13,378 |
| ||||
Residential mortgages |
|
7,450 |
|
|
|
7,065 |
|
385 |
| ||||
Real estate construction |
|
128,740 |
|
|
|
70,489 |
|
58,251 |
| ||||
Other real estate owned (4) |
|
36,532 |
|
|
|
27,394 |
|
9,138 |
| ||||
Private equity investments |
|
3,740 |
|
|
|
|
|
3,740 |
| ||||
Total assets at fair value |
|
$ |
226,539 |
|
$ |
|
|
$ |
141,647 |
|
$ |
84,892 |
|
(1) |
Reported in Other assets in the consolidated balance sheets. |
(2) |
Reported in Other liabilities in the consolidated balance sheets. |
(3) |
Impaired loans for which fair value was calculated using the collateral valuation method. |
(4) |
Other real estate owned balance of $135.6 million in the consolidated balance sheets includes $77.5 million of covered OREO and is net of estimated disposal costs. |
At March 31, 2011, $5.97 billion, or approximately 28 percent, of the Companys total assets were recorded at fair value on a recurring basis, compared with $6.02 billion or approximately 28 percent at December 31, 2010, and $4.05 billion or approximately 20 percent at March 31, 2010. The majority of these financial assets were valued using Level 1 or Level 2 inputs. Less than 1 percent of total assets were measured using Level 3 inputs. Approximately $22.3 million, $26.6 million and $19.6 million of the Companys total liabilities at March 31, 2011, December 31, 2010 and March 31, 2010, respectively, were recorded at fair value on a recurring basis using Level 1 or Level 2 inputs. At March 31, 2011, $49.6 million, or less than 1 percent of the Companys total assets, were recorded at fair value on a nonrecurring basis, compared with $245.8 million or 1 percent at December 31, 2010, and $226.5 million or 1 percent at March 31, 2010. These assets were measured using Level 2 and Level 3 inputs. There were no transfers of assets or liabilities between Level 1 and Level 2 of the fair value hierarchy during the three months ended March 31, 2011.
Note 3. Fair Value Measurements (Continued)
For assets measured at fair value on a nonrecurring basis, the following table presents the total losses (gains), which include charge-offs, recoveries, specific reserves, OREO valuation write-downs, OREO valuation write ups and net losses on sales of OREO, recognized in the three months ended March 31, 2011 and 2010:
|
|
For the three months ended |
| ||||
(in thousands) |
|
2011 |
|
2010 |
| ||
Collateral dependent impaired loans |
|
|
|
|
| ||
Commercial |
|
$ |
606 |
|
$ |
2,618 |
|
Commercial real estate mortgages |
|
(7,114 |
) |
17,307 |
| ||
Residential mortgages |
|
142 |
|
852 |
| ||
Real estate construction |
|
(2,217 |
) |
10,245 |
| ||
Equity lines of credit |
|
(36 |
) |
|
| ||
Installment |
|
4,514 |
|
|
| ||
Other real estate owned |
|
9,122 |
|
12,548 |
| ||
Private equity investments |
|
|
|
398 |
| ||
Total net losses recognized |
|
$ |
5,017 |
|
$ |
43,968 |
|
Level 3 assets measured at fair value on a recurring basis in the current and prior period consist of collateralized debt obligation senior notes. The fair value of these securities is determined using an internal cash flow model that incorporates managements assumptions about risk-adjusted discount rates, prepayment expectations, projected cash flows and collateral performance. These assumptions are not directly observable in the market. Unrealized gains and losses on securities available-for-sale are reported as a component of Accumulated other comprehensive income (AOCI) in the consolidated balance sheets. Activity in Level 3 assets measured at fair value on a recurring basis for the three months ended March 31, 2011 is summarized in the following table:
Level 3 Assets Measured on a Recurring Basis
|
|
For the three months ended |
| ||||
|
|
March 31, 2011 |
|
March 31, 2010 |
| ||
(in thousands) |
|
Securities |
|
Securities |
| ||
Balance, beginning of period |
|
$ |
20,982 |
|
$ |
26,779 |
|
Total realized/unrealized gains (losses): |
|
|
|
|
| ||
Included in other comprehensive income |
|
1,690 |
|
(1,638 |
) | ||
Settlements |
|
(1,707 |
) |
(120 |
) | ||
Other (1) |
|
(53 |
) |
(28 |
) | ||
Balance, end of period |
|
$ |
20,912 |
|
$ |
24,993 |
|
(1) Other rollforward activity consists of amortization of premiums recognized on the initial purchase of the securities available-for-sale.
There were no purchases, sales or issuances of Level 3 assets measured on a recurring basis during the three months ended March 31, 2011 and 2010. Paydowns of $1.7 million and $0.1 million were received on Level 3 assets measured on a recurring basis for the three months ended March 31, 2011 and 2010, respectively. There were no gains or losses for the three months ended March 31, 2011 and 2010 included in earnings attributable to the change in unrealized gains or losses relating to assets still held as of March 31, 2011.
Note 3. Fair Value Measurements (Continued)
Level 3 assets measured at fair value on a nonrecurring basis include certain collateral-dependent impaired loans, OREO for which fair value is not solely based on market observable inputs, and certain private equity and alternative investments. Non-observable inputs related to valuing loans and OREO may include adjustments to external appraised values based on an internally generated discounted cash flow analysis or managements assumptions about market trends or other factors that are not directly observable. Private equity and alternative investments do not have readily determinable fair values. These investments are carried at cost and evaluated for impairment on a quarterly basis. Due to the lack of readily determinable fair values for these investments, the impairment assessment is based primarily on a review of investment performance and the likelihood that the capital invested would be recovered.
Fair Value of Financial Instruments
A financial instrument is broadly defined as cash, evidence of an ownership interest in another entity, or a contract that imposes a contractual obligation on one entity and conveys a corresponding right to a second entity to require delivery or exchange of a financial instrument. The table below summarizes the estimated fair values for the Companys financial instruments as of March 31, 2011 and March 31, 2010. The disclosure does not include estimated fair value amounts for assets and liabilities which are not defined as financial instruments but which have significant value. These assets and liabilities include the value of customer-relationship intangibles, goodwill, and affordable housing investments carried at cost, other assets, deferred taxes and other liabilities. Accordingly, the total of the fair values presented does not represent the underlying value of the Company.
Following is a description of the methods and assumptions used in estimating the fair values for each class of financial instrument:
Cash and due from banks, Due from banksinterest bearing and Federal funds sold For these short-term instruments, the carrying amount is a reasonable estimate of fair value.
Securities available-for-sale and Trading securities For securities held as available-for-sale, the fair value is determined by quoted market prices, where available, or on observable market inputs appropriate for the type of security. If quoted market prices or observable market inputs are not available, discounted cash flows may be used to determine an appropriate fair value. Fair values for trading securities, with the exception of CDO income notes, are based on quoted market prices or dealer quotes. The fair value of trading securities for which quoted prices are not available is based on observable market inputs. The fair value of CDO income notes was determined using a discounted cash flow model.
Loans and leases Loans are not recorded at fair value on a recurring basis. Nonrecurring fair value adjustments are periodically recorded on impaired loans that are measured for impairment based on the fair value of collateral. Due to the lack of activity in the secondary market for the types of loans in the Companys portfolio, a model-based approach is used for determining the fair value of loans for purposes of the disclosures in the following table. The fair value of loans is estimated by discounting future cash flows using discount rates that incorporate the Companys assumptions concerning current market yields, credit risk and liquidity premiums. Loan cash flow projections are based on contractual loan terms adjusted for the impact of current interest rate levels on borrower behavior, including prepayments. Loan prepayment assumptions are based on industry standards for the type of loans being valued. Projected cash flows are discounted using yield curves based on current market conditions. Yield curves are constructed by product type using the Banks loan pricing model for like-quality credits. The discount rates used in the Companys model represent the rates the Bank would offer to current borrowers for like-quality credits. These rates could be different from what other financial institutions could offer for these loans.
Covered loans The fair value of covered loans is based on estimates of future loan cash flows and appropriate discount rates, which incorporate the Companys assumptions about market funding cost and liquidity premium. The estimates of future loan cash flows are determined using the Companys assumptions concerning the amount and timing of principal and interest payments, prepayments and credit losses.
FDIC indemnification asset The fair value of the FDIC indemnification asset is estimated by discounting estimated future cash flows based on estimated current market rates.
Note 3. Fair Value Measurements (Continued)
Investment in FRB and FHLB stock Investments in government agency stock are recorded at cost. Ownership of these securities is restricted to member banks and the securities do not have a readily determinable market value. Purchases and sales of these securities are at par value with the issuer. The fair value of investments in FRB and FHLB stock is equal to the carrying amount.
Derivative contracts The fair value of non-exchange traded (over-the-counter) derivatives is obtained from third party market sources. The Company provides client data to the third party source for purposes of calculating the credit valuation component of the fair value measurement of client derivative contracts. The fair values of interest rate contracts include interest receivable and payable and cash collateral, if any.
Deposits The fair value of demand and interest checking deposits, savings deposits, and certain money market accounts is the amount payable on demand at the reporting date. The fair value of fixed-maturity certificates of deposit (CD) is determined by discounting expected future cash flows using the rates offered by the Bank for deposits of similar type and remaining maturity at the measurement date. This value is compared to the termination value of each CD given the banks standard early withdrawal penalties. The fair value reported is the higher of the discounted present value of each CD and the termination value after the recovery of prepayment penalties. The Bank reviews pricing for its CD products weekly. This review gives consideration to market pricing for products of similar type and maturity offered by other financial institutions.
Federal funds purchased and Securities sold under repurchase agreements The carrying amount is a reasonable estimate of fair value.
Other short-term borrowings The fair value of the current portion of long-term debt classified in short-term borrowings is obtained through third-party pricing sources. The carrying amount of remaining other short-term borrowings is a reasonable estimate of fair value.
Structured securities sold under repurchase agreements The fair value of structured repurchase agreements is based on market pricing for synthetic instruments with the same term and structure. These values are validated against dealer quotes for similar instruments.
Long-term debt The fair value of long-term debt is obtained through third-party pricing sources.
FDIC clawback liability The FDIC clawback liability represents an estimated payment by the Company to the FDIC if actual cumulative losses on acquired covered assets are lower than the cumulative losses originally estimated by the FDIC at the time of acquisition. The fair value of the FDIC clawback liability is estimated by discounting estimated future cash flows based on estimated current market rates.
Commitments to extend credit The fair value of these commitments is estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties, or on the estimated cost to terminate them or otherwise settle the obligations with the counterparties at the reporting date. The Company does not make fixed-rate loan commitments.
Commitments to affordable housing funds, private equity funds and alternative investments The fair value of commitments to invest in affordable housing funds, private equity funds and alternative investments is based on the estimated cost to terminate them or otherwise settle the obligation.
Note 3. Fair Value Measurements (Continued)
The carrying amounts and fair values of the Companys financial instruments as of March 31, 2011 and March 31, 2010 were as follows:
|
|
March 31, 2011 |
|
March 31, 2010 |
| ||||||||
|
|
Carrying |
|
Fair |
|
Carrying |
|
Fair |
| ||||
(in millions) |
|
Amount |
|
Value |
|
Amount |
|
Value |
| ||||
Financial Assets: |
|
|
|
|
|
|
|
|
| ||||
Cash and due from banks |
|
$ |
203.6 |
|
$ |
203.6 |
|
$ |
293.9 |
|
$ |
293.9 |
|
Due from banks - interest bearing |
|
743.6 |
|
743.6 |
|
429.2 |
|
429.2 |
| ||||
Federal funds sold |
|
100.0 |
|
100.0 |
|
50.0 |
|
50.0 |
| ||||
Securities available-for-sale |
|
5,849.4 |
|
5,849.4 |
|
3,928.5 |
|
3,928.5 |
| ||||
Trading securities |
|
81.3 |
|
81.3 |
|
68.4 |
|
68.4 |
| ||||
Loans and leases, net of allowance |
|
11,006.3 |
|
11,245.6 |
|
11,396.7 |
|
11,616.9 |
| ||||
Covered loans, net of allowance |
|
1,684.1 |
|
1,661.2 |
|
1,803.0 |
|
1,803.0 |
| ||||
FDIC indemnification asset |
|
270.6 |
|
236.9 |
|
325.4 |
|
324.4 |
| ||||
Investment in FHLB and FRB stock |
|
117.1 |
|
117.1 |
|
123.2 |
|
123.2 |
| ||||
Derivative contracts |
|
39.9 |
|
39.9 |
|
51.0 |
|
51.0 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Financial Liabilities: |
|
|
|
|
|
|
|
|
| ||||
Deposits |
|
$ |
18,477.9 |
|
$ |
18,482.5 |
|
$ |
16,963.7 |
|
$ |
16,968.1 |
|
Federal funds purchased and securities sold under repurchase agreements |
|
|
|
|
|
8.9 |
|
8.9 |
| ||||
Structured securities sold under repurchase agreements |
|
|
|
|
|
175.0 |
|
184.4 |
| ||||
Other short-term borrowings |
|
151.7 |
|
155.1 |
|
0.7 |
|
0.7 |
| ||||
Long-term debt |
|
703.2 |
|
735.1 |
|
811.6 |
|
849.3 |
| ||||
Derivative contracts |
|
22.1 |
|
22.1 |
|
19.6 |
|
19.6 |
| ||||
FDIC clawback liability |
|
7.2 |
|
7.2 |
|
|
|
|
| ||||
Commitments to extend credit |
|
4.8 |
|
19.8 |
|
2.0 |
|
16.6 |
| ||||
Commitments to affordable housing funds, private equity funds and alternative investments |
|
33.1 |
|
46.0 |
|
11.0 |
|
27.8 |
|
Note 4. Investment Securities
The following is a summary of amortized cost and estimated fair value for the major categories of securities available-for-sale at March 31, 2011, December 31, 2010 and March 31, 2010:
|
|
|
|
Gross |
|
Gross |
|
|
| ||||
|
|
Amortized |
|
Unrealized |
|
Unrealized |
|
|
| ||||
(in thousands) |
|
Cost |
|
Gains |
|
Losses |
|
Fair Value |
| ||||
March 31, 2011 |
|
|
|
|
|
|
|
|
| ||||
U.S. Treasury |
|
$ |
14,051 |
|
$ |
40 |
|
$ |
|
|
$ |
14,091 |
|
Federal agency - Debt |
|
1,542,122 |
|
4,140 |
|
(8,172 |
) |
1,538,090 |
| ||||
Federal agency - MBS |
|
511,829 |
|
12,194 |
|
(3,452 |
) |
520,571 |
| ||||
CMOs - Federal agency |
|
3,236,969 |
|
51,409 |
|
(12,823 |
) |
3,275,555 |
| ||||
CMOs - Non-agency |
|
113,482 |
|
1,071 |
|
(7,877 |
) |
106,676 |
| ||||
State and municipal |
|
332,190 |
|
9,903 |
|
(688 |
) |
341,405 |
| ||||
Other debt securities |
|
48,816 |
|
2,348 |
|
(7,279 |
) |
43,885 |
| ||||
Total debt securities |
|
5,799,459 |
|
81,105 |
|
(40,291 |
) |
5,840,273 |
| ||||
Equity securities and mutual funds |
|
4,164 |
|
4,953 |
|
|
|
9,117 |
| ||||
Total securities |
|
$ |
5,803,623 |
|
$ |
86,058 |
|
$ |
(40,291 |
) |
$ |
5,849,390 |
|
|
|
|
|
|
|
|
|
|
| ||||
December 31, 2010 |
|
|
|
|
|
|
|
|
| ||||
U.S. Treasury |
|
$ |
14,070 |
|
$ |
47 |
|
$ |
(4 |
) |
$ |
14,113 |
|
Federal agency - Debt |
|
1,142,520 |
|
5,029 |
|
(5,221 |
) |
1,142,328 |
| ||||
Federal agency - MBS |
|
540,768 |
|
13,379 |
|
(2,801 |
) |
551,346 |
| ||||
CMOs - Federal agency |
|
3,442,238 |
|
65,494 |
|
(10,585 |
) |
3,497,147 |
| ||||
CMOs - Non-agency |
|
126,819 |
|
1,147 |
|
(9,671 |
) |
118,295 |
| ||||
State and municipal |
|
334,596 |
|
9,399 |
|
(615 |
) |
343,380 |
| ||||
Other debt securities |
|
50,564 |
|
2,018 |
|
(8,952 |
) |
43,630 |
| ||||
Total debt securities |
|
5,651,575 |
|
96,513 |
|
(37,849 |
) |
5,710,239 |
| ||||
Equity securities and mutual funds |
|
6,545 |
|
3,891 |
|
|
|
10,436 |
| ||||
Total securities |
|
$ |
5,658,120 |
|
$ |
100,404 |
|
$ |
(37,849 |
) |
$ |
5,720,675 |
|
|
|
|
|
|
|
|
|
|
| ||||
March 31, 2010 |
|
|
|
|
|
|
|
|
| ||||
U.S. Treasury |
|
$ |
15,097 |
|
$ |
8 |
|
$ |
(5 |
) |
$ |
15,100 |
|
Federal agency - Debt |
|
610,506 |
|
1,396 |
|
(585 |
) |
611,317 |
| ||||
Federal agency - MBS |
|
440,082 |
|
8,858 |
|
(647 |
) |
448,293 |
| ||||
CMOs - Federal agency |
|
2,137,606 |
|
38,762 |
|
(2,151 |
) |
2,174,217 |
| ||||
CMOs - Non-agency |
|
252,343 |
|
765 |
|
(24,178 |
) |
228,930 |
| ||||
State and municipal |
|
356,076 |
|
10,282 |
|
(532 |
) |
365,826 |
| ||||
Other debt securities |
|
75,869 |
|
1,618 |
|
(6,887 |
) |
70,600 |
| ||||
Total debt securities |
|
3,887,579 |
|
61,689 |
|
(34,985 |
) |
3,914,283 |
| ||||
Equity securities and mutual funds |
|
10,171 |
|
4,027 |
|
|
|
14,198 |
| ||||
Total securities |
|
$ |
3,897,750 |
|
$ |
65,716 |
|
$ |
(34,985 |
) |
$ |
3,928,481 |
|
Proceeds from sales of available-for-sale securities were $6.1 million and $407.6 million for the three months ended March 31, 2011 and 2010, respectively. The following table provides the gross realized gains and losses on the sales of securities:
|
|
For the three months ended |
| ||||
|
|
March 31, |
| ||||
(in thousands) |
|
2011 |
|
2010 |
| ||
Gross realized gains |
|
$ |
160 |
|
$ |
4,502 |
|
Gross realized losses |
|
(30 |
) |
(2,368 |
) | ||
Net realized gains |
|
$ |
130 |
|
$ |
2,134 |
|
Note 4. Investment Securities (Continued)
Interest income on securities available-for-sale for the three months ended March 31, 2011 and 2010 is comprised of: (i) taxable interest income of $34.2 million and $28.8 million, respectively, (ii) nontaxable interest income of $2.9 million and $3.1 million, respectively, and (iii) dividend income of $0.2 million and $0.3 million, respectively.
The following table provides the expected remaining maturities of debt securities included in the securities portfolio at March 31, 2011, except for mortgage-backed securities which are allocated according to the average life of expected cash flows. Average expected maturities will differ from contractual maturities because mortgage debt issuers may have the right to repay obligations prior to contractual maturity.
Debt Securities Available-for-Sale
(in thousands) |
|
One year or |
|
Over 1 year |
|
Over 5 years |
|
Over 10 years |
|
Total |
| |||||
U.S. Treasury |
|
$ |
9,035 |
|
$ |
5,056 |
|
$ |
|
|
$ |
|
|
$ |
14,091 |
|
Federal agency - Debt |
|
414,419 |
|
994,072 |
|
129,599 |
|
|
|
1,538,090 |
| |||||
Federal agency - MBS |
|
2,469 |
|
334,454 |
|
125,535 |
|
58,113 |
|
520,571 |
| |||||
CMOs - Federal agency |
|
468,437 |
|
2,365,152 |
|
372,379 |
|
69,587 |
|
3,275,555 |
| |||||
CMOs - Non-agency |
|
25,305 |
|
45,777 |
|
35,594 |
|
|
|
106,676 |
| |||||
State and municipal |
|
36,099 |
|
154,220 |
|
93,391 |
|
57,695 |
|
341,405 |
| |||||
Other |
|
4,901 |
|
10,193 |
|
28,791 |
|
|
|
43,885 |
| |||||
Total debt securities |
|
$ |
960,665 |
|
$ |
3,908,924 |
|
$ |
785,289 |
|
$ |
185,395 |
|
$ |
5,840,273 |
|
Amortized cost |
|
$ |
956,701 |
|
$ |
3,858,949 |
|
$ |
795,129 |
|
$ |
188,680 |
|
$ |
5,799,459 |
|
Impairment Assessment
The Company performs a quarterly assessment of the debt and equity securities in its investment portfolio that have an unrealized loss to determine whether the decline in the fair value of these securities below their cost is other-than-temporary. Impairment is considered other-than-temporary when it becomes probable that an investor will be unable to recover the cost of an investment. The Companys impairment assessment takes into consideration factors such as the length of time and the extent to which the market value has been less than cost; the financial condition and near-term prospects of the issuer, including events specific to the issuer or industry; defaults or deferrals of scheduled interest, principal or dividend payments; external credit ratings and recent downgrades; and whether the Company intends to sell the security and whether it is more likely than not it will be required to sell the security prior to recovery of its amortized cost basis. If a decline in fair value is judged to be other than temporary, the cost basis of the individual security is written down to fair value which then becomes the new cost basis. The new cost basis is not adjusted for subsequent recoveries in fair value.
When there are credit losses associated with an impaired debt security and the Company does not have the intent to sell the security and it is more likely than not that it will not have to sell the security before recovery of its cost basis, the Company will separate the amount of the impairment into the amount that is credit-related and the amount related to non-credit factors. The credit-related impairment is recognized in Net impairment loss recognized in earnings in the consolidated statements of income. The non-credit-related impairment is recognized in AOCI.
Securities Deemed to be Other-Than-Temporarily Impaired
Through the impairment assessment process, the Company determined that certain investments were other-than-temporarily impaired at March 31, 2011. The Company recorded impairment losses in earnings on securities available-for-sale of $0.2 million for the three months ended March 31, 2011. The non-credit portion of impairment of $0.5 million at March 31, 2011 was recorded in AOCI. The Company recorded impairment losses in earnings on securities available-for-sale of $1.0 million for the three months ended March 31, 2010. All impairment losses for the three months ending March 31, 2011 and 2010 related to non-agency collateralized mortgage obligation securities (CMOs).
Note 4. Investment Securities (Continued)
The following table provides a rollforward of cumulative credit-related other-than-temporary impairment recognized in earnings for debt securities for the three months ended March 31, 2011 and 2010. Credit-related other-than-temporary impairment that was recognized in earnings is reflected as an Initial credit-related impairment if the period reported is the first time the security had a credit impairment. A credit related other-than-temporary impairment is reflected as a Subsequent credit-related impairment if the period reported is not the first time the security had a credit impairment. There were no initial credit-related impairments for the three months ended March 31, 2011 and 2010.
|
|
For the three months ended |
| ||||
(in thousands) |
|
2011 |
|
2010 |
| ||
Balance, beginning of period |
|
$ |
19,445 |
|
$ |
17,707 |
|
Subsequent credit-related impairment |
|
164 |
|
1,003 |
| ||
Balance, end of period |
|
$ |
19,609 |
|
$ |
18,710 |
|
Non-Agency CMOs
The Company identified certain non-agency CMOs that were considered to be other-than-temporarily impaired because the present value of expected cash flows was less than cost. These CMOs have a fixed interest rate for an initial period after which they become variable-rate instruments with annual rate resets. For purposes of projecting future cash flows, the current fixed coupon was used through the reset date for each security. The prevailing LIBOR/Treasury forward curve as of the measurement date was used to project all future floating-rate cash flows based on the characteristics of each security. Other factors considered in the projection of future cash flows include the current level of subordination from other CMO classes, anticipated prepayment rates, cumulative defaults and loss given default. The Company recognized credit-related impairment losses in earnings on its investments in certain non-agency CMOs totaling $0.2 million in the first quarter of 2011. The remaining other-than-temporary impairment for these securities at March 31, 2011 was recognized in AOCI. This non-credit portion of other-than-temporary impairment is attributed to external market conditions, primarily the lack of liquidity in these securities and increases in interest rates.
Note 4. Investment Securities (Continued)
The following tables provide a summary of the gross unrealized losses and fair value of investment securities aggregated by investment category and length of time that the securities have been in a continuous unrealized loss position as of March 31, 2011, December 31, 2010 and March 31, 2010. The table includes investments for which an other-than-temporary impairment has not been recognized in earnings, along with investments that had a non-credit-related impairment recognized in AOCI:
|
|
Less than 12 months |
|
12 months or greater |
|
Total |
| ||||||||||||
(in thousands) |
|
Fair Value |
|
Estimated |
|
Fair Value |
|
Estimated |
|
Fair Value |
|
Estimated |
| ||||||
March 31, 2011 |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Federal agency - Debt |
|
$ |
1,032,448 |
|
$ |
8,172 |
|
$ |
|
|
$ |
|
|
$ |
1,032,448 |
|
$ |
8,172 |
|
Federal agency - MBS |
|
123,602 |
|
3,452 |
|
|
|
|
|
123,602 |
|
3,452 |
| ||||||
CMOs - Federal agency |
|
994,856 |
|
12,823 |
|
|
|
|
|
994,856 |
|
12,823 |
| ||||||
CMOs - Non-agency |
|
2,683 |
|
1 |
|
53,214 |
|
7,876 |
|
55,897 |
|
7,877 |
| ||||||
State and municipal |
|
24,738 |
|
613 |
|
691 |
|
75 |
|
25,429 |
|
688 |
| ||||||
Other debt securities |
|
|
|
|
|
16,010 |
|
7,279 |
|
16,010 |
|
7,279 |
| ||||||
Total securities |
|
$ |
2,178,327 |
|
$ |
25,061 |
|
$ |
69,915 |
|
$ |
15,230 |
|
$ |
2,248,242 |
|
$ |
40,291 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
December 31, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
U.S. Treasury |
|
$ |
5,028 |
|
$ |
4 |
|
$ |
|
|
$ |
|
|
$ |
5,028 |
|
$ |
4 |
|
Federal agency - Debt |
|
561,205 |
|
5,221 |
|
|
|
|
|
561,205 |
|
5,221 |
| ||||||
Federal agency - MBS |
|
109,381 |
|
2,801 |
|
|
|
|
|
109,381 |
|
2,801 |
| ||||||
CMOs - Federal agency |
|
755,751 |
|
10,585 |
|
|
|
|
|
755,751 |
|
10,585 |
| ||||||
CMOs - Non-agency |
|
7,718 |
|
18 |
|
61,571 |
|
9,653 |
|
69,289 |
|
9,671 |
| ||||||
State and municipal |
|
25,845 |
|
558 |
|
700 |
|
57 |
|
26,545 |
|
615 |
| ||||||
Other debt securities |
|
|
|
|
|
14,407 |
|
8,952 |
|
14,407 |
|
8,952 |
| ||||||
Total securities |
|
$ |
1,464,928 |
|
$ |
19,187 |
|
$ |
76,678 |
|
$ |
18,662 |
|
$ |
1,541,606 |
|
$ |
37,849 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
March 31, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
U.S. Treasury |
|
$ |
5,031 |
|
$ |
5 |
|
$ |
|
|
$ |
|
|
$ |
5,031 |
|
$ |
5 |
|
Federal agency - Debt |
|
168,703 |
|
585 |
|
|
|
|
|
168,703 |
|
585 |
| ||||||
Federal agency - MBS |
|
111,762 |
|
647 |
|
|
|
|
|
111,762 |
|
647 |
| ||||||
CMOs - Federal agency |
|
299,262 |
|
2,151 |
|
|
|
|
|
299,262 |
|
2,151 |
| ||||||
CMOs - Non-agency |
|
19,947 |
|
104 |
|
155,810 |
|
24,074 |
|
175,757 |
|
24,178 |
| ||||||
State and municipal |
|
13,208 |
|
245 |
|
5,828 |
|
287 |
|
19,036 |
|
532 |
| ||||||
Other debt securities |
|
|
|
|
|
31,367 |
|
6,887 |
|
31,367 |
|
6,887 |
| ||||||
Total securities |
|
$ |
617,913 |
|
$ |
3,737 |
|
$ |
193,005 |
|
$ |
31,248 |
|
$ |
810,918 |
|
$ |
34,985 |
|
At March 31, 2011, total securities available-for-sale had a fair value of $5.85 billion, which included $2.25 billion of securities available-for-sale in an unrealized loss position as of March 31, 2011. This balance consists of $2.23 billion of temporarily impaired securities and $22.6 million of securities that had non-credit related impairment recognized in AOCI. At March 31, 2011, the Company had 132 debt securities in an unrealized loss position. The debt securities in an unrealized loss position include 33 Federal agency debt securities, 8 Federal agency MBS, 46 Federal agency CMOs, 9 non-agency CMOs, 35 state and municipal securities and 1 other debt security. The Company does not consider the debt securities in the table above to be other than temporarily impaired at March 31, 2011.
Note 4. Investment Securities (Continued)
The increase in unrealized losses on Federal agency securities and CMOs at March 31, 2011 compared with the earlier periods presented is primarily the result of higher market interest rates. Additionally, the unrealized loss on Non-agency CMOs reflects the lack of liquidity in this sector of the market. The Company only holds the most senior tranches of each non-agency issue which provides protection against defaults. Other than the $0.2 million credit loss recognized in 2011 on Non-agency CMOs, the Company expects to receive principal and interest payments equivalent to or greater than the current cost basis of its portfolio of debt securities. Additionally, the Company does not intend to sell the securities, and it is not more likely than not that it will be required to sell the securities before it recovers the cost basis of its investment. The mortgages in these asset pools are relatively large and have been made to borrowers with strong credit history and significant equity invested in their homes. They are well diversified geographically. Over the past year, the real estate market has stabilized somewhat, though performance varies substantially by geography and borrower. Though reduced, a significant weakening of economic fundamentals coupled with a return to elevated unemployment rates and substantial deterioration in the value of high-end residential properties could increase the probability of default and related credit losses. These conditions could cause the value of these securities to decline and trigger the recognition of further other-than-temporary impairment charges.
Other debt securities include the Companys investments in highly rated corporate debt and collateralized bond obligations backed by trust preferred securities (CDOs) issued by a geographically diverse pool of small- and medium-sized financial institutions. The CDOs held in securities available-for-sale at March 31, 2011 are the most senior tranches of each issue. The market for CDOs has been inactive since 2008, accordingly, the fair values of these securities were determined using an internal pricing model that incorporates assumptions about discount rates in an illiquid market, projected cash flows and collateral performance. The CDOs had a $7.2 million net unrealized loss at March 31, 2011 which the Company attributes to the illiquid credit markets. The CDOs have collateral that well exceeds the outstanding debt. Security valuations reflect the current and prospective performance of the issuers whose debt is contained in these asset pools. The Company expects to receive all contractual principal and interest payments due on its CDOs. Additionally, the Company does not intend to sell the securities, and it is not more likely than not that it will be required to sell the securities before it recovers the cost basis of its investment.
At December 31, 2010, total securities available-for-sale had a fair value of $5.72 billion, which included $1.54 billion of securities available-for-sale in an unrealized loss position as of December 31, 2010. This balance consisted of $1.51 billion of temporarily impaired securities and $27.4 million of securities that had non-credit related impairment recognized in AOCI. At December 31, 2010, the Company had 109 debt securities in an unrealized loss position. The debt securities in an unrealized loss position included 1 U.S. Treasury note, 22 Federal agency debt securities, 7 Federal agency MBS, 30 Federal agency CMOs, 12 non-agency CMOs, 36 state and municipal securities and 1 other debt securities.
At March 31, 2010, total securities available-for-sale had a fair value of $3.93 billion, which included $810.9 million of securities available-for-sale in an unrealized loss position as of March 31, 2010. This balance consisted of $768.3 million of temporarily impaired securities and $42.6 million of securities that had non-credit related impairment recognized in AOCI. At March 31, 2010, the Company had 88 debt securities in an unrealized loss position. The debt securities in an unrealized loss position included 1 U. S. Treasury note, 9 Federal agency debt securities, 8 Federal agency MBS, 17 Federal agency CMOs, 24 non-agency CMOs, 26 state and municipal securities and 3 other debt securities.
Note 5. Other Investments
Federal Home Loan Bank of San Francisco and Federal Reserve Bank Stock
The Companys investment in stock issued by the Federal Home Loan Bank of San Francisco (FHLB) and Federal Reserve (FRB) totaled $117.1 million, $120.7 million and $123.2 million at March 31, 2011, December 31, 2010 and March 31, 2010, respectively. Ownership of government agency securities is restricted to member banks, and the securities do not have readily determinable market values. The Company records investments in FHLB and FRB stock at cost in Other assets of the consolidated balance sheets and evaluates these investments for impairment.
Note 5. Other Investments (Continued)
At March 31, 2011, the Company held $86.3 million of FHLB stock. FHLB banks are cooperatives that provide products and services to member banks. The FHLB provides significant liquidity to the U.S. banking system through advances to its member banks in exchange for collateral. The purchase of stock is required in order to receive advances and other services. FHLB stock is not publicly traded and is purchased and sold by member banks at its par value. The Company expects to recover the full amount invested in FHLB stock and does not consider its investment to be impaired at March 31, 2011.
Private Equity and Alternative Investments
The Company has ownership interests in a limited number of private equity, venture capital, real estate and hedge funds that are not publicly traded and do not have readily determinable fair values. These investments are carried at cost in the Other assets section of the consolidated balance sheets and are net of impairment write-downs, if applicable. The Companys investments in these funds totaled $38.0 million at March 31, 2011, $37.5 million at December 31, 2010 and $37.4 million at March 31, 2010. A summary of investments by fund type is provided below:
(in thousands) |
|
March 31, |
|
December 31, |
|
March 31, |
| |||
Fund Type |
|
2011 |
|
2010 |
|
2010 |
| |||
Private equity and venture capital |
|
$ |
21,840 |
|
$ |
21,408 |
|
$ |
21,473 |
|
Real estate |
|
10,180 |
|
10,053 |
|
9,193 |
| |||
Hedge |
|
2,953 |
|
2,953 |
|
2,700 |
| |||
Other |
|
2,985 |
|
3,040 |
|
3,997 |
| |||
Total |
|
$ |
37,958 |
|
$ |
37,454 |
|
$ |
37,363 |
|
Management reviews these investments quarterly for impairment. The impairment assessment includes a review of the most recent financial statements and investment reports for each fund and discussions with fund management. An impairment loss is recognized if it is deemed probable that the Company will not recover the cost of an investment. The impairment loss is recognized in Other noninterest income in the consolidated statements of income. The new cost basis of the investment is not adjusted for subsequent recoveries in value. There were no impairment losses recognized on these investments during the three months ended March 31, 2011. The Company recognized impairment losses of $0.4 million for the year-earlier quarter.
Note 6. Loans, Allowance for Loan and Lease Losses, and Reserve for Off-Balance Sheet Credit Commitments
The following is a summary of the major categories of loans:
Loans and Leases
|
|
March 31, |
|
December 31, |
|
March 31, |
| |||
(in thousands) |
|
2011 |
|
2010 |
|
2010 |
| |||
Commercial |
|
$ |
4,096,507 |
|
$ |
4,136,874 |
|
$ |
4,063,613 |
|
Commercial real estate mortgages |
|
1,902,862 |
|
1,958,317 |
|
2,121,941 |
| |||
Residential mortgages |
|
3,603,058 |
|
3,552,312 |
|
3,514,149 |
| |||
Real estate construction |
|
415,241 |
|
467,785 |
|
730,734 |
| |||
Equity lines of credit |
|
733,567 |
|
733,741 |
|
733,550 |
| |||
Installment |
|
146,779 |
|
160,144 |
|
164,929 |
| |||
Lease financing |
|
371,670 |
|
377,455 |
|
360,620 |
| |||
Loans and leases, excluding covered loans |
|
11,269,684 |
|
11,386,628 |
|
11,689,536 |
| |||
Less: Allowance for loan and lease losses |
|
(263,356 |
) |
(257,007 |
) |
(292,799 |
) | |||
Loans and leases, excluding covered loans, net |
|
11,006,328 |
|
11,129,621 |
|
11,396,737 |
| |||
|
|
|
|
|
|
|
| |||
Covered loans |
|
1,766,084 |
|
1,857,522 |
|
1,803,048 |
| |||
Less: Allowance for loan losses |
|
(82,016 |
) |
(67,389 |
) |
|
| |||
Covered loans, net |
|
1,684,068 |
|
1,790,133 |
|
1,803,048 |
| |||
|
|
|
|
|
|
|
| |||
Total loans and leases |
|
$ |
13,035,768 |
|
$ |
13,244,150 |
|
$ |
13,492,584 |
|
Total loans and leases, net |
|
$ |
12,690,396 |
|
$ |
12,919,754 |
|
$ |
13,199,785 |
|
The loan amounts above include net unamortized fees and costs of $6.0 million, $7.0 million and $6.2 million as of March 31, 2011, December 31, 2010 and March 31, 2010, respectively.
Concentrations of credit risk arise when a number of clients are engaged in similar business activities, or activities in the same geographic region, or have similar economic features that would cause their ability to meet contractual obligations to be similarly affected by changes in economic conditions. The Companys lending activities are predominantly in California, and to a lesser extent, New York and Nevada. Excluding covered loans, at March 31, 2011, California represented 86 percent of total loans outstanding and Nevada and New York represented 1 percent and 6 percent, respectively. The remaining 7 percent of total loans outstanding represented other states. Although the Company has a diversified loan portfolio, a substantial portion of the loan portfolio and credit performance depends on the economic stability of Southern California. Credit performance also depends, to a lesser extent, on economic conditions in the San Francisco Bay area, New York and Nevada. Within the Companys covered loan portfolio at March 31, 2011, the five states with the largest concentration were California (41 percent), Texas (12 percent), Nevada (6 percent), New York (5 percent) and Arizona (4 percent). The remaining 32 percent of total covered loans outstanding represented other states.
Covered Loans
Covered loans represent loans acquired from the FDIC that are subject to loss-sharing agreements. Covered loans were $1.77 billion at March 31, 2011, $1.86 billion as of December 31, 2010 and $1.80 billion as of March 31, 2010. Covered loans, net of allowance for loan losses, were $1.68 billion as of March 31, 2011 and $1.79 billion at December 31, 2010. There was no allowance for loan losses on covered loans as of March 31, 2010.
Note 6. Loans, Allowance for Loan and Lease Losses, and Reserve for Off-Balance Sheet Credit Commitments (Continued)
The following is a summary of the major categories of covered loans:
|
|
March 31, |
|
December 31, |
|
March 31, |
| |||
(in thousands) |
|
2011 |
|
2010 |
|
2010 |
| |||
Commercial |
|
$ |
43,450 |
|
$ |
55,082 |
|
$ |
16,721 |
|
Commercial real estate mortgages |
|
1,508,551 |
|
1,569,739 |
|
1,600,201 |
| |||
Residential mortgages |
|
18,210 |
|
18,380 |
|
7,445 |
| |||
Real estate construction |
|
188,344 |
|
204,945 |
|
178,681 |
| |||
Equity lines of credit |
|
5,944 |
|
6,919 |
|
|
| |||
Installment |
|
1,585 |
|
2,457 |
|
|
| |||
Total covered loans |
|
1,766,084 |
|
1,857,522 |
|
1,803,048 |
| |||
Less: Allowance for loan losses |
|
(82,016 |
) |
(67,389 |
) |
|
| |||
Total covered loans, net |
|
$ |
1,684,068 |
|
$ |
1,790,133 |
|
$ |
1,803,048 |
|
The Company evaluated the loans acquired from its FDIC acquisitions and concluded that all loans, with the exception of a small population of acquired loans, would be accounted for under ASC Topic 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality (ASC 310-30). Loans are accounted for under ASC 310-30 when there is evidence of credit deterioration since origination and for which it is probable, at acquisition, that the Company would be unable to collect all contractually required payments. Interest income is recognized on all acquired impaired loans through accretion of the difference between the carrying amount of the loans and their expected cash flows.
Changes in the accretable yield for acquired impaired loans were as follows for the three months ending March 31, 2011 and 2010:
|
|
For the three months ended |
| ||||
(in thousands) |
|
2011 |
|
2010 |
| ||
Balance, beginning of period |
|
$ |
562,826 |
|
$ |
687,126 |
|
Accretion |
|
(27,572 |
) |
(28,881 |
) | ||
Reclassifications to nonaccretable yield |
|
(2,448 |
) |
|
| ||
Disposals and other |
|
(11,248 |
) |
505 |
| ||
Balance, end of period |
|
$ |
521,558 |
|
$ |
658,750 |
|
At acquisition date, the Company recorded an indemnification asset for its FDIC-assisted acquisitions. The FDIC indemnification asset represents the present value of the expected reimbursement from the FDIC related to expected losses on acquired loans and OREO. The FDIC indemnification asset from all FDIC-assisted acquisitions was $270.6 million at March 31, 2011, $295.5 million at December 31, 2010 and $325.4 million at March 31, 2010.
Credit Quality on Loans and Leases, Excluding Covered Loans
Allowance for Loan and Lease Losses and Reserve for Off-Balance Sheet Credit Commitments
The allowance for loan and lease losses and the reserve for off-balance sheet credit commitments are significant estimates that can and do change based on managements process of analyzing the loan and commitment portfolios and on managements assumptions about specific borrowers and applicable economic and environmental conditions, among other factors. The allowance for loan and lease losses and the reserve for off-balance sheet credit commitments which provide for the risk of losses inherent in the credit extension process, are increased by the provision for credit losses charged to operating expense. The allowance for loan and lease losses is decreased by the amount of charge-offs, net of recoveries. There is no exact method of predicting specific losses or amounts that ultimately may be charged off on particular segments of the loan portfolio.
Note 6. Loans, Allowance for Loan and Lease Losses, and Reserve for Off-Balance Sheet Credit Commitments (Continued)
The following is a summary of activity in the allowance for loan and lease losses and period end balances of loans evaluated for impairment, excluding covered loans, for the three month period ended March 31, 2011. Activity is provided by loan type which is consistent with the Companys methodology for determining the allowance for loan and lease losses.
(in thousands) |
|
Commercial |
|
Commercial |
|
Residential |
|
Real Estate |
|
Equity |
|
Installment |
|
Unallocated |
|
Total |
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Three months ended March 31, 2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Allowance for loan and lease losses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Beginning balance |
|
$ |
82,451 |
|
$ |
52,516 |
|
$ |
16,753 |
|
$ |
40,824 |
|
$ |
7,229 |
|
$ |
3,931 |
|
$ |
53,303 |
|
$ |
257,007 |
|
Provision for credit losses (2) |
|
(4,853 |
) |
(11,209 |
) |
(2,611 |
) |
(7,957 |
) |
(27 |
) |
1,716 |
|
24,763 |
|
(178 |
) | ||||||||
Charge-offs |
|
(3,238 |
) |
(2,799 |
) |
(647 |
) |
(566 |
) |
(793 |
) |
(324 |
) |
|
|
(8,367 |
) | ||||||||
Recoveries |
|
1,301 |
|
9,011 |
|
32 |
|
4,392 |
|
36 |
|
122 |
|
|
|
14,894 |
| ||||||||
Net charge-offs (recoveries) |
|
(1,937 |
) |
6,212 |
|
(615 |
) |
3,826 |
|
(757 |
) |
(202 |
) |
|
|
6,527 |
| ||||||||
Ending balance |
|
$ |
75,661 |
|
$ |
47,519 |
|
$ |
13,527 |
|
$ |
36,693 |
|
$ |
6,445 |
|
$ |
5,445 |
|
$ |
78,066 |
|
$ |
263,356 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Ending balance of allowance: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Individually evaluated for impairment |
|
$ |
2,291 |
|
$ |
1,060 |
|
$ |
384 |
|
$ |
334 |
|
$ |
72 |
|
$ |
4,514 |
|
$ |
|
|
$ |
8,655 |
|
Collectively evaluated for impairment |
|
73,370 |
|
46,459 |
|
13,143 |
|
36,359 |
|
6,373 |
|
931 |
|
78,066 |
|
254,701 |
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Loans and leases, excluding covered loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Ending balance of loans and leases: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Loans and leases excluding covered loans |
|
$ |
4,468,177 |
|
$ |
1,902,862 |
|
$ |
3,603,058 |
|
$ |
415,241 |
|
$ |
733,567 |
|
$ |
146,779 |
|
$ |
|
|
$ |
11,269,684 |
|
Individually evaluated for impairment |
|
14,408 |
|
25,670 |
|
12,415 |
|
81,448 |
|
4,234 |
|
6,938 |
|
|
|
145,113 |
| ||||||||
Collectively evaluated for impairment |
|
4,453,769 |
|
1,877,192 |
|
3,590,643 |
|
333,793 |
|
729,333 |
|
139,841 |
|
|
|
11,124,571 |
|
(1) |
Includes lease financing loans. |
(2) |
There was no provision for credit losses for the first quarter of 2011. Net transfers to the reserve for off-balance sheet credit commitments were $0.2 million for the quarter. |
Note 6. Loans, Allowance for Loan and Lease Losses, and Reserve for Off-Balance Sheet Credit Commitments (Continued)
The following is a summary of activity in the allowance for loan and lease losses on non-covered loans for the three months ended March 31, 2010:
(in thousands) |
|
For the three |
| |
Balance, beginning of period |
|
$ |
288,493 |
|
Charge-offs |
|
|
| |
Commercial |
|
(18,070 |
) | |
Commercial real estate mortgages |
|
(14,975 |
) | |
Residential mortgages |
|
(1,460 |
) | |
Real estate construction |
|
(14,225 |
) | |
Equity lines of credit |
|
(213 |
) | |
Installment |
|
(1,496 |
) | |
Total charge-offs |
|
(50,439 |
) | |
Recoveries |
|
|
| |
Commercial |
|
445 |
| |
Commercial real estate mortgages |
|
7 |
| |
Residential mortgages |
|
69 |
| |
Real estate construction |
|
43 |
| |
Equity lines of credit |
|
3 |
| |
Installment |
|
336 |
| |
Total recoveries |
|
903 |
| |
Net charge-offs |
|
(49,536 |
) | |
Provision for credit losses |
|
55,000 |
| |
Transfers to reserve for off-balance sheet credit commitments |
|
(1,158 |
) | |
Balance, end of period |
|
$ |
292,799 |
|
Off-balance sheet credit exposures include loan commitments, letters of credit and financial guarantees. The following table provides a summary of activity in the reserve for off-balance sheet credit commitments for the three months ended March 31, 2011 and 2010:
|
|
For the three months ended |
| ||||
(in thousands) |
|
2011 |
|
2010 |
| ||
Balance, beginning of period |
|
$ |
21,529 |
|
$ |
17,340 |
|
Transfers from allowance for loan and lease losses |
|
178 |
|
1,158 |
| ||
Balance, end of period |
|
$ |
21,707 |
|
$ |
18,498 |
|
Note 6. Loans, Allowance for Loan and Lease Losses, and Reserve for Off-Balance Sheet Credit Commitments (Continued)
Nonaccrual Loans and Leases
The table below provides a summary of nonaccrual loans and leases, excluding covered loans, at March 31, 2011, December 31, 2010 and March 31, 2010:
(in thousands) |
|
March 31, |
|
December 31, |
|
March 31, |
| |||
|
|
|
|
|
|
|
| |||
Commercial |
|
$ |
17,944 |
|
$ |
19,498 |
|
$ |
72,983 |
|
|
|
|
|
|
|
|
| |||
Commercial real estate mortgages |
|
28,028 |
|
44,882 |
|
66,194 |
| |||
|
|
|
|
|
|
|
| |||
Residential mortgages: |
|
|
|
|
|
|
| |||
Fixed |
|
9,869 |
|
13,253 |
|
5,645 |
| |||
Variable |
|
4,675 |
|
5,468 |
|
6,400 |
| |||
Total residential mortgages |
|
14,544 |
|
18,721 |
|
12,045 |
| |||
|
|
|
|
|
|
|
| |||
Real estate construction: |
|
|
|
|
|
|
| |||
Construction |
|
57,920 |
|
74,446 |
|
116,563 |
| |||
Land |
|
23,528 |
|
23,763 |
|
48,422 |
| |||
Total real estate construction |
|
81,448 |
|
98,209 |
|
164,985 |
| |||
|
|
|
|
|
|
|
| |||
Equity lines of credit |
|
6,676 |
|
6,782 |
|
4,089 |
| |||
|
|
|
|
|
|
|
| |||
Installment: |
|
|
|
|
|
|
| |||
Commercial |
|
7,082 |
|
1,414 |
|
7,959 |
| |||
Consumer |
|
317 |
|
282 |
|
906 |
| |||
Total installment |
|
7,399 |
|
1,696 |
|
8,865 |
| |||
|
|
|
|
|
|
|
| |||
Lease financing |
|
1,353 |
|
1,135 |
|
855 |
| |||
|
|
|
|
|
|
|
| |||
Total nonaccrual loans |
|
$ |
157,392 |
|
$ |
190,923 |
|
$ |
330,016 |
|
Note 6. Loans, Allowance for Loan and Lease Losses, and Reserve for Off-Balance Sheet Credit Commitments (Continued)
Impaired Loans and Leases
Information on impaired loans, excluding covered loans, at March 31, 2011 and December 31, 2010 is provided in the following tables:
(in thousands) |
|
Recorded |
|
Unpaid |
|
Related |
|
Average |
|
Interest |
| |||||
March 31, 2011 |
|
|
|
|
|
|
|
|
|
|
| |||||
With no related allowance recorded: |
|
|
|
|
|
|
|
|
|
|
| |||||
Commercial |
|
$ |
6,400 |
|
$ |
6,400 |
|
$ |
|
|
$ |
6,848 |
|
$ |
|
|
Commercial real estate mortgages |
|
18,491 |
|
18,371 |
|
|
|
20,994 |
|
130 |
| |||||
Residential mortgages: |
|
|
|
|
|
|
|
|
|
|
| |||||
Fixed |
|
6,238 |
|
6,198 |
|
|
|
8,590 |
|
145 |
| |||||
Variable |
|
3,271 |
|
3,266 |
|
|
|
3,659 |
|
10 |
| |||||
Total residential mortgages |
|
9,509 |
|
9,464 |
|
|
|
12,249 |
|
155 |
| |||||
Real estate construction: |
|
|
|
|
|
|
|
|
|
|
| |||||
Construction |
|
49,258 |
|
49,102 |
|
|
|
62,518 |
|
230 |
| |||||
Land |
|
23,528 |
|
23,528 |
|
|
|
23,630 |
|
|
| |||||
Total real estate construction |
|
72,786 |
|
72,630 |
|
|
|
86,148 |
|
230 |
| |||||
Equity lines of credit |
|
3,292 |
|
3,280 |
|
|
|
3,149 |
|
|
| |||||
Installment: |
|
|
|
|
|
|
|
|
|
|
| |||||
Commercial |
|
|
|
|
|
|
|
569 |
|
|
| |||||
Consumer |
|
41 |
|
41 |
|
|
|
41 |
|
|
| |||||
Total installment |
|
41 |
|
41 |
|
|
|
610 |
|
|
| |||||
Lease financing |
|
1,108 |
|
1,074 |
|
|
|
554 |
|
99 |
| |||||
Total with no related allowance |
|
$ |
111,627 |
|
$ |
111,260 |
|
$ |
|
|
$ |
130,552 |
|
$ |
614 |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
With an allowance recorded: |
|
|
|
|
|
|
|
|
|
|
| |||||
Commercial |
|
$ |
6,923 |
|
$ |
6,934 |
|
$ |
2,291 |
|
$ |
7,745 |
|
$ |
|
|
Commercial real estate mortgages |
|
7,299 |
|
7,299 |
|
1,060 |
|
13,219 |
|
|
| |||||
Residential mortgages: |
|
|
|
|
|
|
|
|
|
|
| |||||
Fixed |
|
1,553 |
|
1,542 |
|
103 |
|
1,060 |
|
|
| |||||
Variable |
|
1,414 |
|
1,409 |
|
281 |
|
1,424 |
|
|
| |||||
Total residential mortgages |
|
2,967 |
|
2,951 |
|
384 |
|
2,484 |
|
|
| |||||
Real estate construction: |
|
|
|
|
|
|
|
|
|
|
| |||||
Construction |
|
8,818 |
|
8,818 |
|
334 |
|
8,834 |
|
|
| |||||
Land |
|
|
|
|
|
|
|
|
|
|
| |||||
Total real estate construction |
|
8,818 |
|
8,818 |
|
334 |
|
8,834 |
|
|
| |||||
Equity lines of credit |
|
957 |
|
954 |
|
72 |
|
1,412 |
|
3 |
| |||||
Installment: |
|
|
|
|
|
|
|
|
|
|
| |||||
Commercial |
|
6,897 |
|
6,897 |
|
4,514 |
|
3,448 |
|
|
| |||||
Consumer |
|
|
|
|
|
|
|
|
|
|
| |||||
Total installment |
|
6,897 |
|
6,897 |
|
4,514 |
|
3,448 |
|
|
| |||||
Lease financing |
|
|
|
|
|
|
|
|
|
|
| |||||
Total with an allowance |
|
$ |
33,861 |
|
$ |
33,853 |
|
$ |
8,655 |
|
$ |
37,142 |
|
$ |
3 |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Total impaired loans by type: |
|
|
|
|
|
|
|
|
|
|
| |||||
Commercial |
|
$ |
13,323 |
|
$ |
13,334 |
|
$ |
2,291 |
|
$ |
14,593 |
|
$ |
|
|
Commercial real estate mortgages |
|
25,790 |
|
25,670 |
|
1,060 |
|
34,213 |
|
130 |
| |||||
Residential mortgages |
|
12,476 |
|
12,415 |
|
384 |
|
14,733 |
|
155 |
| |||||
Real estate construction |
|
81,604 |
|
81,448 |
|
334 |
|
94,982 |
|
230 |
| |||||
Equity lines of credit |
|
4,249 |
|
4,234 |
|
72 |
|
4,561 |
|
3 |
| |||||
Installment |
|
6,938 |
|
6,938 |
|
4,514 |
|
4,058 |
|
|
| |||||
Lease financing |
|
1,108 |
|
1,074 |
|
|
|
554 |
|
99 |
| |||||
Total impaired loans |
|
$ |
145,488 |
|
$ |
145,113 |
|
$ |
8,655 |
|
$ |
167,694 |
|
$ |
617 |
|
Note 6. Loans, Allowance for Loan and Lease Losses, and Reserve for Off-Balance Sheet Credit Commitments (Continued)
(in thousands) |
|
Recorded |
|
Unpaid |
|
Related |
|
Average |
|
Interest |
| |||||
December 31, 2010 |
|
|
|
|
|
|
|
|
|
|
| |||||
With no related allowance recorded: |
|
|
|
|
|
|
|
|
|
|
| |||||
Commercial |
|
$ |
7,295 |
|
$ |
7,293 |
|
$ |
|
|
$ |
5,574 |
|
$ |
624 |
|
Commercial real estate mortgages |
|
23,496 |
|
23,426 |
|
|
|
28,320 |
|
352 |
| |||||
Residential mortgages: |
|
|
|
|
|
|
|
|
|
|
| |||||
Fixed |
|
10,942 |
|
10,858 |
|
|
|
6,615 |
|
|
| |||||
Variable |
|
4,048 |
|
4,040 |
|
|
|
6,747 |
|
|
| |||||
Total residential mortgages |
|
14,990 |
|
14,898 |
|
|
|
13,362 |
|
|
| |||||
Real estate construction: |
|
|
|
|
|
|
|
|
|
|
| |||||
Construction |
|
75,778 |
|
75,639 |
|
|
|
50,936 |
|
797 |
| |||||
Land |
|
23,732 |
|
23,732 |
|
|
|
24,339 |
|
|
| |||||
Total real estate construction |
|
99,510 |
|
99,371 |
|
|
|
75,275 |
|
797 |
| |||||
Equity lines of credit |
|
3,006 |
|
2,997 |
|
|
|
2,105 |
|
|
| |||||
Installment: |
|
|
|
|
|
|
|
|
|
|
| |||||
Commercial |
|
1,137 |
|
1,107 |
|
|
|
568 |
|
|
| |||||
Consumer |
|
41 |
|
41 |
|
|
|
21 |
|
|
| |||||
Total installment |
|
1,178 |
|
1,148 |
|
|
|
589 |
|
|
| |||||
Lease financing |
|
|
|
|
|
|
|
|
|
|
| |||||
Total with no related allowance |
|
$ |
149,475 |
|
$ |
149,133 |
|
$ |
|
|
$ |
125,225 |
|
$ |
1,773 |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
With an allowance recorded: |
|
|
|
|
|
|
|
|
|
|
| |||||
Commercial |
|
$ |
8,567 |
|
$ |
8,567 |
|
$ |
2,592 |
|
$ |
37,265 |
|
$ |
|
|
Commercial real estate mortgages |
|
19,139 |
|
19,154 |
|
1,889 |
|
30,737 |
|
|
| |||||
Residential mortgages: |
|
|
|
|
|
|
|
|
|
|
| |||||
Fixed |
|
566 |
|
563 |
|
69 |
|
1,172 |
|
|
| |||||
Variable |
|
1,435 |
|
1,428 |
|
273 |
|
936 |
|
|
| |||||
Total residential mortgages |
|
2,001 |
|
1,991 |
|
342 |
|
2,108 |
|
|
| |||||
Real estate construction: |
|
|
|
|
|
|
|
|
|
|
| |||||
Construction |
|
8,850 |
|
8,850 |
|
366 |
|
65,531 |
|
|
| |||||
Land |
|
|
|
|
|
|
|
13,964 |
|
|
| |||||
Total real estate construction |
|
8,850 |
|
8,850 |
|
366 |
|
79,495 |
|
|
| |||||
Equity lines of credit |
|
1,868 |
|
1,862 |
|
255 |
|
934 |
|
|
| |||||
Installment: |
|
|
|
|
|
|
|
|
|
|
| |||||
Commercial |
|
|
|
|
|
|
|
3,962 |
|
|
| |||||
Consumer |
|
|
|
|
|
|
|
75 |
|
|
| |||||
Total installment |
|
|
|
|
|
|
|
4,037 |
|
|
| |||||
Lease financing |
|
855 |
|
855 |
|
|
|
855 |
|
|
| |||||
Total with an allowance |
|
$ |
41,280 |
|
$ |
41,279 |
|
$ |
5,444 |
|
$ |
155,431 |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Total impaired loans by type: |
|
|
|
|
|
|
|
|
|
|
| |||||
Commercial |
|
$ |
15,862 |
|
$ |
15,860 |
|
$ |
2,592 |
|
$ |
42,839 |
|
$ |
624 |
|
Commercial real estate mortgages |
|
42,635 |
|
42,580 |
|
1,889 |
|
59,057 |
|
352 |
| |||||
Residential mortgages |
|
16,991 |
|
16,889 |
|
342 |
|
15,470 |
|
|
| |||||
Real estate construction |
|
108,360 |
|
108,221 |
|
366 |
|
154,770 |
|
797 |
| |||||
Equity lines of credit |
|
4,874 |
|
4,859 |
|
255 |
|
3,039 |
|
|
| |||||
Installment |
|
1,178 |
|
1,148 |
|
|
|
4,626 |
|
|
| |||||
Lease financing |
|
855 |
|
855 |
|
|
|
855 |
|
|
| |||||
Total impaired loans |
|
$ |
190,755 |
|
$ |
190,412 |
|
$ |
5,444 |
|
$ |
280,656 |
|
$ |
1,773 |
|
Note 6. Loans, Allowance for Loan and Lease Losses, and Reserve for Off-Balance Sheet Credit Commitments (Continued)
Information on impaired loans, excluding covered loans, at March 31, 2010 is provided in the following table:
|
|
Unpaid Principal Balance |
|
|
|
|
| ||||||
(in thousands) |
|
With No |
|
With |
|
Total |
|
Related |
| ||||
March 31, 2010 |
|
|
|
|
|
|
|
|
| ||||
Commercial |
|
$ |
20,269 |
|
$ |
48,460 |
|
$ |
68,729 |
|
$ |
14,950 |
|
Commercial real estate mortgage |
|
18,611 |
|
46,205 |
|
64,816 |
|
6,743 |
| ||||
Residental mortgages |
|
10,145 |
|
431 |
|
10,576 |
|
78 |
| ||||
Real estate construction |
|
34,901 |
|
129,338 |
|
164,239 |
|
20,540 |
| ||||
Equity lines of credit |
|
1,200 |
|
899 |
|
2,099 |
|
552 |
| ||||
Installment |
|
|
|
7,649 |
|
7,649 |
|
1,652 |
| ||||
Lease financing |
|
855 |
|
|
|
855 |
|
|
| ||||
Total impaired loans |
|
$ |
85,981 |
|
$ |
232,982 |
|
$ |
318,963 |
|
$ |
44,515 |
|
Additional detail on the components of impaired loans, excluding covered loans, is provided below:
(in thousands) |
|
March 31, |
|
December 31, |
|
March 31, |
| |||
Nonaccrual loans (1) |
|
$ |
145,113 |
|
$ |
179,578 |
|
$ |
318,963 |
|
Troubled debt restructured loans on accrual |
|
|
|
10,834 |
|
|
| |||
Total impaired loans, excluding covered loans |
|
$ |
145,113 |
|
$ |
190,412 |
|
$ |
318,963 |
|
(1) Impaired loans exclude $12.3 million, $11.3 million and $11.0 million of nonaccrual loans under $500,000 that are not individually evaluated for impairment at March 31, 2011, December 31, 2010 and March 31, 2010.
Impaired loans may include troubled debt restructured loans that have been returned to accrual status, but will continue to be reported as impaired until they have a demonstrated period of performance under their restructured terms. There were no such restructured loans in impaired loans at March 31, 2011 and 2010. Impaired loans at December 31, 2010 included $10.8 million of restructured loans that have been returned to accrual status.
The average balance of impaired loans was $167.7 million and $347.4 million for the three months ended March 31, 2011 and 2010, respectively. With the exception of restructured loans that have been returned to accrual status and a limited number of loans on cash basis nonaccrual for which the full collection of principal and interest is expected, interest income is not recognized on impaired loans until the principal balance of these loans is paid off.
Troubled Debt Restructured Loans
Troubled debt restructured loans were $10.1 million, before specific reserves of $1.6 million, at March 31, 2011. Troubled debt restructured loans were $32.5 million, before specific reserves of $1.6 million, at December 31, 2010. Troubled debt restructured loans were $17.1 million, before specific reserves of $2.2 million at March 31, 2010. There were no commitments to lend additional funds on restructured loans at March 31, 2011.
Note 6. Loans, Allowance for Loan and Lease Losses, and Reserve for Off-Balance Sheet Credit Commitments (Continued)
Past Due Loans and Leases
Loans are considered past due following the date when either interest or principal is contractually due and unpaid. The following tables provide a summary of past due loans, excluding covered loans, at March 31, 2011, December 31, 2010 and March 31, 2010 based upon the length of time the loans have been past due:
(in thousands) |
|
30-59 Days |
|
60-89 Days Past Due |
|
Greater |
|
Nonaccrual |
|
Total Past |
|
Current |
|
Total Loans |
| |||||||
March 31, 2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Commercial |
|
$ |
4,239 |
|
$ |
1,019 |
|
$ |
1,474 |
|
$ |
17,944 |
|
$ |
24,676 |
|
$ |
4,071,831 |
|
$ |
4,096,507 |
|
Commercial real estate mortgages |
|
8,202 |
|
2,920 |
|
|
|
28,028 |
|
39,150 |
|
1,863,712 |
|
1,902,862 |
| |||||||
Residential mortgages: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Fixed |
|
|
|
1,575 |
|
1,123 |
|
9,869 |
|
12,567 |
|
1,664,806 |
|
1,677,373 |
| |||||||
Variable |
|
|
|
|
|
|
|
4,675 |
|
4,675 |
|
1,921,010 |
|
1,925,685 |
| |||||||
Total residential mortgages |
|
|
|
1,575 |
|
1,123 |
|
14,544 |
|
17,242 |
|
3,585,816 |
|
3,603,058 |
| |||||||
Real estate construction: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Construction |
|
3,498 |
|
|
|
|
|
57,920 |
|
61,418 |
|
229,217 |
|
290,635 |
| |||||||
Land |
|
4,995 |
|
|
|
|
|
23,528 |
|
28,523 |
|
96,083 |
|
124,606 |
| |||||||
Total real estate construction |
|
8,493 |
|
|
|
|
|
81,448 |
|
89,941 |
|
325,300 |
|
415,241 |
| |||||||
Equity lines of credit |
|
74 |
|
|
|
|
|
6,676 |
|
6,750 |
|
726,817 |
|
733,567 |
| |||||||
Installment: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Commercial |
|
55 |
|
|
|
|
|
7,082 |
|
7,137 |
|
16,329 |
|
23,466 |
| |||||||
Consumer |
|
277 |
|
|
|
|
|
317 |
|
594 |
|
122,719 |
|
123,313 |
| |||||||
Total installment |
|
332 |
|
|
|
|
|
7,399 |
|
7,731 |
|
139,048 |
|
146,779 |
| |||||||
Lease financing |
|
|
|
|
|
1,082 |
|
1,353 |
|
2,435 |
|
309,235 |
|
371,670 |
| |||||||
Total |
|
$ |
21,340 |
|
$ |
5,514 |
|
$ |
3,679 |
|
$ |
157,392 |
|
$ |
187,925 |
|
$ |
11,081,759 |
|
$ |
11,269,684 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
December 31, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Commercial |
|
$ |
9,832 |
|
$ |
4,178 |
|
$ |
904 |
|
$ |
19,498 |
|
$ |
34,412 |
|
$ |
4,102,462 |
|
$ |
4,136,874 |
|
Commercial real estate mortgages |
|
15,112 |
|
3,996 |
|
|
|
44,882 |
|
63,990 |
|
1,894,327 |
|
1,958,317 |
| |||||||
Residential mortgages: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Fixed |
|
|
|
731 |
|
379 |
|
13,253 |
|
14,363 |
|
1,628,683 |
|
1,643,046 |
| |||||||
Variable |
|
|
|
|
|
|
|
5,468 |
|
5,468 |
|
1,903,798 |
|
1,909,266 |
| |||||||
Total residential mortgages |
|
|
|
731 |
|
379 |
|
18,721 |
|
19,831 |
|
3,532,481 |
|
3,552,312 |
| |||||||
Real estate construction: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Construction |
|
554 |
|
|
|
|
|
74,446 |
|
75,000 |
|
251,518 |
|
326,518 |
| |||||||
Land |
|
|
|
|
|
|
|
23,763 |
|
23,763 |
|
117,504 |
|
141,267 |
| |||||||
Total real estate construction |
|
554 |
|
|
|
|
|
98,209 |
|
98,763 |
|
369,022 |
|
467,785 |
| |||||||
Equity lines of credit |
|
74 |
|
526 |
|
|
|
6,782 |
|
7,382 |
|
726,359 |
|
733,741 |
| |||||||
Installment: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Commercial |
|
63 |
|
|
|
|
|
1,414 |
|
1,477 |
|
29,684 |
|
31,161 |
| |||||||
Consumer |
|
304 |
|
|
|
|
|
282 |
|
586 |
|
128,397 |
|
128,983 |
| |||||||
Total installment |
|
367 |
|
|
|
|
|
1,696 |
|
2,063 |
|
158,081 |
|
160,144 |
| |||||||
Lease financing |
|
7 |
|
|
|
1,216 |
|
1,135 |
|
2,358 |
|
375,097 |
|
377,455 |
| |||||||
Total |
|
$ |
25,946 |
|
$ |
9,431 |
|
$ |
2,499 |
|
$ |
190,923 |
|
$ |
228,799 |
|
$ |
11,157,829 |
|
$ |
11,386,628 |
|
Note 6. Loans, Allowance for Loan and Lease Losses, and Reserve for Off-Balance Sheet Credit Commitments (Continued)
(in thousands) |
|
30-59 Days |
|
60-89 Days |
|
Greater |
|
Nonaccrual |
|
Total Past |
|
Current |
|
Total Loans |
| |||||||
March 31, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Commercial |
|
$ |
8,724 |
|
$ |
5,966 |
|
$ |
165 |
|
$ |
72,983 |
|
$ |
87,838 |
|
$ |
3,975,775 |
|
$ |
4,063,613 |
|
Commercial real estate mortgages |
|
12,014 |
|
1,510 |
|
|
|
66,194 |
|
79,718 |
|
2,042,223 |
|
2,121,941 |
| |||||||
Residential mortgages: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Fixed |
|
2,400 |
|
5,446 |
|
1,547 |
|
5,645 |
|
15,038 |
|
1,690,348 |
|
1,705,386 |
| |||||||
Variable |
|
675 |
|
636 |
|
|
|
6,400 |
|
7,711 |
|
1,801,052 |
|
1,808,763 |
| |||||||
Total residential mortgages |
|
3,075 |
|
6,082 |
|
1,547 |
|
12,045 |
|
22,749 |
|
3,491,400 |
|
3,514,149 |
| |||||||
Real estate construction: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Construction |
|
3,274 |
|
|
|
|
|
116,563 |
|
119,837 |
|
398,161 |
|
517,998 |
| |||||||
Land |
|
|
|
|
|
|
|
48,422 |
|
48,422 |
|
164,314 |
|
212,736 |
| |||||||
Total real estate construction |
|
3,274 |
|
|
|
|
|
164,985 |
|
168,259 |
|
562,475 |
|
730,734 |
| |||||||
Equity lines of credit |
|
548 |
|
126 |
|
|
|
4,089 |
|
4,763 |
|
728,787 |
|
733,550 |
| |||||||
Installment: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Commercial |
|
555 |
|
|
|
|
|
7,959 |
|
8,514 |
|
27,119 |
|
35,633 |
| |||||||
Consumer |
|
123 |
|
|
|
|
|
906 |
|
1,029 |
|
128,267 |
|
129,296 |
| |||||||
Total installment |
|
678 |
|
|
|
|
|
8,865 |
|
9,543 |
|
155,386 |
|
164,929 |
| |||||||
Lease financing |
|
|
|
|
|
|
|
855 |
|
855 |
|
359,765 |
|
360,620 |
| |||||||
Total |
|
$ |
28,313 |
|
$ |
13,684 |
|
$ |
1,712 |
|
$ |
330,016 |
|
$ |
373,725 |
|
$ |
11,315,811 |
|
$ |
11,689,536 |
|
Credit Quality Monitoring
The Company closely monitors and assesses credit quality and credit risk in the loan and lease portfolio on an ongoing basis. Loan risk classifications are continuously reviewed and updated. The following tables provide a summary of the loan and lease portfolio, excluding covered loans, by loan type and credit quality classification as of March 31, 2011, December 31, 2010 and March 31, 2010. Nonclassified loans generally include those loans that are expected to be repaid in accordance with contractual loan terms. Classified loans are those loans that are classified as substandard or doubtful consistent with regulatory guidelines.
Note 6. Loans, Allowance for Loan and Lease Losses, and Reserve for Off-Balance Sheet Credit Commitments (Continued)
|
|
March 31, 2011 |
| |||||||
(in thousands) |
|
Nonclassified |
|
Classified |
|
Total |
| |||
Commercial |
|
$ |
3,989,842 |
|
$ |
106,665 |
|
$ |
4,096,507 |
|
Commercial real estate mortgages |
|
1,678,846 |
|
224,016 |
|
1,902,862 |
| |||
Residential mortgages: |
|
|
|
|
|
|
| |||
Fixed |
|
1,653,456 |
|
23,917 |
|
1,677,373 |
| |||
Variable |
|
1,907,399 |
|
18,286 |
|
1,925,685 |
| |||
Total residential mortgages |
|
3,560,855 |
|
42,203 |
|
3,603,058 |
| |||
Real estate construction: |
|
|
|
|
|
|
| |||
Construction |
|
120,355 |
|
170,280 |
|
290,635 |
| |||
Land |
|
51,644 |
|
72,962 |
|
124,606 |
| |||
Total real estate construction |
|
171,999 |
|
243,242 |
|
415,241 |
| |||
Equity lines of credit |
|
715,871 |
|
17,696 |
|
733,567 |
| |||
Installment: |
|
|
|
|
|
|
| |||
Commercial |
|
14,064 |
|
9,402 |
|
23,466 |
| |||
Consumer |
|
121,194 |
|
2,119 |
|
123,313 |
| |||
Total installment |
|
135,258 |
|
11,521 |
|
146,779 |
| |||
Lease financing |
|
367,286 |
|
4,384 |
|
371,670 |
| |||
Total |
|
$ |
10,619,957 |
|
$ |
649,727 |
|
$ |
11,269,684 |
|
|
|
December 31, 2010 |
|
March 31, 2010 |
| ||||||||||||||
(in thousands) |
|
Nonclassified |
|
Classified |
|
Total |
|
Nonclassified |
|
Classified |
|
Total |
| ||||||
Commercial |
|
$ |
4,009,923 |
|
$ |
126,951 |
|
$ |
4,136,874 |
|
$ |
3,808,459 |
|
$ |
255,154 |
|
$ |
4,063,613 |
|
Commercial real estate mortgages |
|
1,727,353 |
|
230,964 |
|
1,958,317 |
|
1,913,141 |
|
208,800 |
|
2,121,941 |
| ||||||
Residential mortgages: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Fixed |
|
1,615,970 |
|
27,076 |
|
1,643,046 |
|
1,676,479 |
|
28,907 |
|
1,705,386 |
| ||||||
Variable |
|
1,880,570 |
|
28,696 |
|
1,909,266 |
|
1,760,799 |
|
47,964 |
|
1,808,763 |
| ||||||
Total residential mortgages |
|
3,496,540 |
|
55,772 |
|
3,552,312 |
|
3,437,278 |
|
76,871 |
|
3,514,149 |
| ||||||
Real estate construction: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Construction |
|
129,671 |
|
196,847 |
|
326,518 |
|
225,165 |
|
292,833 |
|
517,998 |
| ||||||
Land |
|
53,400 |
|
87,867 |
|
141,267 |
|
94,090 |
|
118,646 |
|
212,736 |
| ||||||
Total real estate construction |
|
183,071 |
|
284,714 |
|
467,785 |
|
319,255 |
|
411,479 |
|
730,734 |
| ||||||
Equity lines of credit |
|
716,276 |
|
17,465 |
|
733,741 |
|
715,996 |
|
17,554 |
|
733,550 |
| ||||||
Installment: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Commercial |
|
21,349 |
|
9,812 |
|
31,161 |
|
27,066 |
|
8,567 |
|
35,633 |
| ||||||
Consumer |
|
126,905 |
|
2,078 |
|
128,983 |
|
127,222 |
|
2,074 |
|
129,296 |
| ||||||
Total installment |
|
148,254 |
|
11,890 |
|
160,144 |
|
154,288 |
|
10,641 |
|
164,929 |
| ||||||
Lease financing |
|
371,684 |
|
5,771 |
|
377,455 |
|
352,707 |
|
7,913 |
|
360,620 |
| ||||||
Total |
|
$ |
10,653,101 |
|
$ |
733,527 |
|
$ |
11,386,628 |
|
$ |
10,701,124 |
|
$ |
988,412 |
|
$ |
11,689,536 |
|
Note 6. Loans, Allowance for Loan and Lease Losses, and Reserve for Off-Balance Sheet Credit Commitments (Continued)
Credit Quality on Covered Loans
The following is a summary of activity in the allowance for loan losses on covered loans:
|
|
For the three months ended |
| ||||
(in thousands) |
|
2011 |
|
2010 |
| ||
Balance, beginning of period |
|
$ |
67,389 |
|
$ |
|
|
Provision for losses |
|
19,116 |
|
|
| ||
Reduction in allowance due to loan removals |
|
(4,489 |
) |
|
| ||
Balance, end of period |
|
$ |
82,016 |
|
$ |
|
|
The allowance for loan losses on covered loans was $82.0 million as of March 31, 2011. The Company recorded provision expense of $19.1 million for the three months ended March 31, 2011. There was no allowance for loan losses or provision expense on covered loans at March 31, 2010. The Company updates its cash flow projections for covered loans accounted for under ASC 310-30 on a quarterly basis, and may recognize provision expense and an allowance for loan losses as a result of that analysis. The loss on covered loans is mainly the result of lower projected interest cash flows due to loan prepayments and the Companys revised default forecasts, though credit losses decreased slightly as compared with previous expectations. The revisions of the default forecasts were based on the results of managements review of the credit quality of the covered loans and the analysis of the loan performance data since the acquisition of covered loans. The allowance for loan losses on covered loans is reduced for any loan removals. A loan is removed when it has been fully paid-off, fully charged off, sold or transferred to OREO.
Covered loans accounted for under ASC 310-30 are generally considered accruing and performing loans as the loans accrete interest income over the estimated life of the loan when cash flows are reasonably estimable. Accordingly, acquired impaired loans that are contractually past due are still considered to be accruing and performing loans. If the timing and amount of future cash flows is not reasonably estimable, the loans may be classified as nonaccrual loans and interest income is not recognized until the timing and amount of future cash flows can be reasonably estimated. At March 31, 2011 and 2010, there were no acquired impaired covered loans accounted for under ASC 310-30 that were on nonaccrual status. Of the population of covered loans that are accounted for outside the scope of ASC 310-30, the Company had $2.3 million and $2.6 million of acquired covered loans that were on nonaccrual status and were considered to be impaired as of March 31, 2011 and December 31, 2010, respectively.
At March 31, 2011, covered loans that were 30 to 89 days delinquent totaled $89.3 million and covered loans that were 90 days or more past due on accrual status totaled $390.3 million. At December 31, 2010, covered loans that were 30 to 89 days delinquent totaled $99.5 million and covered loans that were 90 days or more past due on accrual status totaled $399.0 million. At March 31, 2010, covered loans that were 30 to 89 days delinquent totaled $65.2 million and covered loans that were 90 days or more past due on accrual status totaled $323.6 million.
Note 7. Other Real Estate Owned
The following table provides a summary of OREO activity for the three months ended March 31, 2011 and 2010:
|
|
For the three months ended |
|
For the three months ended |
| ||||||||||||||
(in thousands) |
|
Non-Covered |
|
Covered |
|
Total |
|
Non-Covered |
|
Covered |
|
Total |
| ||||||
Balance, beginning of period |
|
$ |
57,317 |
|
$ |
120,866 |
|
$ |
178,183 |
|
$ |
53,308 |
|
$ |
60,558 |
|
$ |
113,866 |
|
Additions |
|
6,562 |
|
27,577 |
|
34,139 |
|
21,097 |
|
24,827 |
|
45,924 |
| ||||||
Sales |
|
(6,064 |
) |
(18,317 |
) |
(24,381 |
) |
(5,403 |
) |
(3,835 |
) |
(9,238 |
) | ||||||
Valuation adjustments |
|
(1,473 |
) |
(8,304 |
) |
(9,777 |
) |
(10,977 |
) |
(4,024 |
) |
(15,001 |
) | ||||||
Balance, end of period |
|
$ |
56,342 |
|
$ |
121,822 |
|
$ |
178,164 |
|
$ |
58,025 |
|
$ |
77,526 |
|
$ |
135,551 |
|
At March 31, 2011, OREO was $178.2 million and included $121.8 million of covered OREO. At December 31, 2010, OREO was $178.2 million and included $120.9 million of covered OREO. At March 31, 2010, OREO was $135.6 million and included covered OREO of $77.5 million
Covered OREO expenses and valuation write-downs are recorded in the noninterest expense section of the consolidated statements of income. Under the loss-sharing agreements, 80 percent of covered OREO expenses and valuation write-downs are reimbursable to the Company from the FDIC. The portion of these expenses that is reimbursable is recorded in FDIC loss sharing income, net in the noninterest income section of the consolidated statements of income.
Note 8. Borrowed Funds
The components of short-term borrowings and long-term debt as of March 31, 2011, December 31, 2010 and March 31, 2010 are provided below:
|
|
March 31, |
|
December 31, |
|
March 31, |
| |||
(in thousands) (1) |
|
2011 |
|
2010 |
|
2010 |
| |||
Short-term borrowings |
|
|
|
|
|
|
| |||
Current portion of subordinated debt: |
|
|
|
|
|
|
| |||
City National Bank - 6.75% Subordinated Notes Due September 2011 |
|
$ |
150,973 |
|
$ |
152,824 |
|
$ |
|
|
Federal funds purchased |
|
|
|
|
|
8,884 |
| |||
Other short-term borrowings |
|
690 |
|
620 |
|
730 |
| |||
Total short-term borrowings |
|
$ |
151,663 |
|
$ |
153,444 |
|
$ |
9,614 |
|
|
|
|
|
|
|
|
| |||
Long-term debt |
|
|
|
|
|
|
| |||
Senior notes: |
|
|
|
|
|
|
| |||
City National Corporation - 5.125% Senior Notes Due February 2013 |
|
$ |
221,525 |
|
$ |
223,416 |
|
$ |
223,469 |
|
City National Corporation - 5.25% Senior Notes Due September 2020 |
|
297,079 |
|
297,003 |
|
|
| |||
Subordinated debt: |
|
|
|
|
|
|
| |||
City National Bank - 6.75% Subordinated Notes Due September 2011 |
|
|
|
|
|
160,043 |
| |||
City National Bank - 9.00% Subordinated Notes Due July 2019 (2) |
|
49,690 |
|
49,680 |
|
49,652 |
| |||
City National Bank - 9.00% Subordinated Notes Due August 2019 |
|
74,843 |
|
74,839 |
|
74,825 |
| |||
City National Bank - Fixed and Floating Subordinated Notes due August 2019 (3) |
|
54,885 |
|
54,882 |
|
54,872 |
| |||
Junior subordinated debt: |
|
|
|
|
|
|
| |||
Floating Rate Business Bancorp Capital Trust I Securities Due November 2034 (4) |
|
5,151 |
|
5,151 |
|
5,151 |
| |||
9.625% City National Capital Trust I Securities Due February 2040 |
|
|
|
|
|
243,573 |
| |||
Securities sold under repurchase agreements |
|
|
|
|
|
175,000 |
| |||
Total long-term debt |
|
$ |
703,173 |
|
$ |
704,971 |
|
$ |
986,585 |
|
(1) The carrying value of certain borrowed funds is net of discount and issuance costs, which are being amortized into interest expense, as well as the impact of fair value hedge accounting, if applicable.
(2) These notes bear a fixed interest rate of 9 percent for the initial five years from the date of issuance (July 15, 2009) and thereafter the rate is reset at the Banks option to either LIBOR plus 600 basis points or to prime plus 500 basis points.
(3) These notes bear a fixed interest rate of 9 percent for the initial five years from the date of issuance (August 12, 2009) and thereafter bear an interest rate equal to the three-month LIBOR rate plus 6 percent. The rate is reset quarterly and is subject to an interest rate cap of 10 percent throughout the term of the notes.
(4) These floating rate securities pay interest of three-month LIBOR plus 1.965 percent and is reset quarterly. As of March 31, 2011, the interest rate was approximately 2.25 percent.
Note 9. Shareholders Equity
The components of accumulated other comprehensive income, net of tax, at March 31, 2011, December 31, 2010 and March 31, 2010 are as follows:
|
|
March 31, |
|
December 31, |
|
March 31, |
| |||
(in thousands) |
|
2011 |
|
2010 |
|
2010 |
| |||
Net unrealized gain on securities available-for-sale |
|
$ |
26,622 |
|
$ |
36,386 |
|
$ |
17,876 |
|
Net unrealized gain on cash flow hedges |
|
598 |
|
1,184 |
|
6,065 |
| |||
Pension liability adjustment |
|
(685 |
) |
(717 |
) |
(14 |
) | |||
Total accumulated other comprehensive income |
|
$ |
26,535 |
|
$ |
36,853 |
|
$ |
23,927 |
|
Note 9. Shareholders Equity (Continued)
The components of total comprehensive income for the three-months ended March 31, 2011 and 2010 are as follows:
|
|
For the three months ended |
| ||||
(in thousands) |
|
2011 |
|
2010 |
| ||
Net income (1) |
|
$ |
40,226 |
|
$ |
16,233 |
|
Other comprehensive income: |
|
|
|
|
| ||
Securities available for sale: |
|
|
|
|
| ||
Net unrealized (loss) gain, net of taxes of ($5,204) and $24,092 and reclassification of $51 and $1,394 included in net income |
|
(7,236 |
) |
33,504 |
| ||
Non-credit related impairment loss, net of taxes of ($1,818) and ($5,942) |
|
(2,528 |
) |
(8,262 |
) | ||
Net unrealized (loss) gain on cash flow hedges, net of taxes of $0 and $2,461 and reclassification of $341 and $1,744 included in net income |
|
(586 |
) |
1,694 |
| ||
Pension liability adjustment |
|
32 |
|
40 |
| ||
Total other comprehensive (loss) income |
|
(10,318 |
) |
26,976 |
| ||
Total comprehensive income |
|
$ |
29,908 |
|
$ |
43,209 |
|
(1) Net income excludes net income attributable to redeemable noncontrolling interest of $558 and $793 for the three-month periods ended March 31, 2011 and 2010, respectively. Redeemable noncontrolling interest is reflected in the mezzanine section of the consolidated balance sheets.
The following table summarizes the Companys share repurchases for the three months ended March 31, 2011. All repurchases relate to shares withheld or previously owned shares used to pay taxes due upon vesting of restricted stock. There were no issuer repurchases of the Corporations common stock as part of its repurchase plan for the three months ended March 31, 2011.
Period |
|
Total Number of |
|
Average Price |
| |
January 1, 2011 to January 31, 2011 |
|
106 |
|
$ |
62.66 |
|
February 1, 2011 to February 28, 2011 |
|
201 |
|
60.13 |
| |
March 1, 2011 to March 31, 2011 |
|
28,826 |
|
59.17 |
| |
|
|
29,133 |
|
59.19 |
| |
At March 31, 2011, the Corporation had 0.4 million shares of common stock reserved for issuance and 0.9 million shares of unvested restricted stock granted to employees and directors under share-based compensation programs.
Note 10. Earnings per Common Share
The Company applies the two-class method of computing basic and diluted EPS. Under the two-class method, EPS is determined for each class of common stock and participating security according to dividends declared and participation rights in undistributed earnings. The Company grants restricted shares under a share-based compensation plan that qualify as participating securities.
Note 10. Earnings per Common Share (Continued)
The computation of basic and diluted EPS is presented in the following table:
|
|
For the three months ended |
| ||||
(in thousands, except per share amounts) |
|
2011 |
|
2010 |
| ||
Basic EPS: |
|
|
|
|
| ||
Net income attributable to City National Corporation |
|
$ |
39,692 |
|
$ |
15,698 |
|
Less: Dividends and accretion on preferred stock |
|
|
|
5,702 |
| ||
Net income available to common shareholders |
|
$ |
39,692 |
|
$ |
9,996 |
|
Less: Earnings allocated to participating securities |
|
578 |
|
113 |
| ||
Earnings allocated to common shareholders |
|
$ |
39,114 |
|
$ |
9,883 |
|
|
|
|
|
|
| ||
Weighted average common shares outstanding |
|
52,320 |
|
51,690 |
| ||
|
|
|
|
|
| ||
Basic earnings per common share |
|
$ |
0.75 |
|
$ |
0.19 |
|
|
|
|
|
|
| ||
Diluted EPS: |
|
|
|
|
| ||
Earnings allocated to common shareholders (1) |
|
$ |
39,119 |
|
$ |
9,883 |
|
|
|
|
|
|
| ||
Weighted average common shares outstanding |
|
52,320 |
|
51,690 |
| ||
Dilutive effect of equity awards |
|
574 |
|
402 |
| ||
Weighted average diluted common shares outstanding |
|
52,894 |
|
52,092 |
| ||
|
|
|
|
|
| ||
Diluted earnings per common share |
|
$ |
0.74 |
|
$ |
0.19 |
|
(1) Earnings allocated to common shareholders for basic and diluted EPS may differ under the two-class method as a result of adding common stock equivalents for options and warrants to dilutive shares outstanding, which alters the ratio used to allocate earnings to common shareholders and participating securities for the purposes of calculating diluted EPS.
The average price of the Companys common stock for the period is used to determine the dilutive effect of outstanding stock options and common stock warrant. Antidilutive stock options and common stock warrant are not included in the calculation of basic or diluted EPS. There were 1.7 million average outstanding stock options that were antidilutive for the three months ended March 31, 2011 compared to 2.7 million outstanding stock options and a 1.1 million common stock warrant that were antidilutive for the same period in 2010. On April 8, 2010, the Company repurchased the common stock warrant.
Note 11. Share-Based Compensation
On March 31, 2011, the Company had one share-based compensation plan, the City National Corporation 2008 Omnibus Plan (the Plan), which was approved by the Companys shareholders on April 23, 2008. No new awards will be granted under predecessor plans. A description of the Plan is provided below. The compensation cost that has been recognized for all share-based awards was $4.7 million and $3.9 million for the three months ended March 31, 2011 and 2010, respectively. The Company received $4.0 million and $9.8 million in cash for the exercise of stock options during the three months ended March 31, 2011 and 2010, respectively. The tax benefit recognized for share-based compensation arrangements in equity was $1.0 million for the three months ended March 31, 2011, compared with $1.4 million for the three months ended March 31, 2010.
Note 11. Share-Based Compensation (Continued)
Plan Description
The Plan permits the grant of stock options, restricted stock, restricted stock units, performance shares, performance share units, performance units and stock appreciation rights, or any combination thereof, to the Companys eligible employees and non-employee directors. No grants of performance shares, performance share units, performance units or stock appreciation rights had been made as of March 31, 2011. The purpose of the Plan is to promote the success of the Company by providing additional means to attract, motivate, retain and reward key employees of the Company with awards and incentives for high levels of individual performance and improved financial performance of the Company, and to link non-employee director compensation to shareholder interests through equity grants. Stock option awards are granted with an exercise price equal to the market price of the Companys stock at the date of grant. These awards vest in four years and have 10-year contractual terms. Restricted stock awards granted under the Plan vest over a period of at least three years, as determined by the Compensation, Nominating and Governance Committee (Committee). The participant is entitled to dividends and voting rights for all shares issued even though they are not vested. Restricted stock awards issued under predecessor plans vest over five years. The Plan provides for acceleration of vesting if there is a change in control (as defined in the Plan) or a termination of service, which may include disability or death. Unvested options are forfeited upon termination of employment, except for those instances noted above, and the case of the retirement of a retirement-age employee for options granted prior to January 31, 2006. The Company generally issues treasury shares upon share option exercises. All unexercised options expire 10 years from the grant date. At March 31, 2011, there were approximately 0.4 million shares available for future grants.
Fair Value
The fair value of each option award is estimated on the date of grant using a Black-Scholes option valuation methodology that uses the assumptions noted in the following table. The Company evaluates exercise behavior and values options separately for executive and non-executive employees. Expected volatilities are based on the historical volatility of the Companys stock. The Company uses a 20-year look back period to calculate the volatility factor. The length of the look back period reduces the impact of the recent disruptions in the capital markets, and provides values that management believes are more representative of expected future volatility. The Company uses historical data to predict option exercise and employee termination behavior. The expected term of options granted is derived from historical exercise activity and represents the period of time that options granted are expected to be outstanding. The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant. The dividend yield is equal to the dividend yield of the Companys stock at the time of the grant.
To estimate the fair value of stock option awards, the Company uses the Black-Scholes methodology, which incorporates the assumptions summarized in the table below:
|
|
For the three months ended |
| ||
|
|
March 31, |
| ||
|
|
2011 |
|
2010 |
|
Weighted-average volatility |
|
30.91 |
% |
31.41 |
% |
Dividend yield |
|
1.46 |
% |
0.73 |
% |
Expected term (in years) |
|
6.04 |
|
6.08 |
|
Risk-free interest rate |
|
2.98 |
% |
2.99 |
% |
Using the Black-Scholes methodology, the weighted-average grant-date fair values of options granted during the three months ended March 31, 2011 and 2010 were $18.43 and $16.86, respectively. The total intrinsic values of options exercised during the three months ended March 31, 2011 and 2010 were $2.3 million and $5.4 million, respectively.
Note 11. Share-Based Compensation (Continued)
A summary of option activity and related information for the three months ended March 31, 2011 is presented below:
|
|
|
|
Weighted |
|
|
|
Weighted |
| ||
|
|
|
|
Average |
|
Aggregate |
|
Average |
| ||
|
|
Number of |
|
Exercise |
|
Intrinsic |
|
Remaining |
| ||
|
|
Shares |
|
Price |
|
Value |
|
Contractual |
| ||
Options |
|
(in thousands) |
|
(per share) |
|
(in thousands) (1) |
|
Term |
| ||
Outstanding at January 1, 2011 |
|
4,650 |
|
$ |
51.38 |
|
|
|
|
| |
Granted |
|
481 |
|
60.84 |
|
|
|
|
| ||
Exercised |
|
(107 |
) |
37.49 |
|
|
|
|
| ||
Forfeited or expired |
|
(11 |
) |
45.28 |
|
|
|
|
| ||
Outstanding at March 31, 2011 |
|
5,013 |
|
$ |
52.59 |
|
$ |
43,467 |
|
5.85 |
|
Exercisable at March 31, 2011 |
|
3,368 |
|
$ |
55.64 |
|
$ |
23,778 |
|
4.47 |
|
(1) Includes in-the-money options only.
A summary of changes in unvested options and related information for the three months ended March 31, 2011 is presented below:
|
|
|
|
Weighted Average |
| |
|
|
Number of |
|
Grant Date |
| |
|
|
Shares |
|
Fair Value |
| |
Unvested Options |
|
(in thousands) |
|
(per share) |
| |
Unvested at January 1, 2011 |
|
1,753 |
|
$ |
11.62 |
|
Granted |
|
481 |
|
18.43 |
| |
Vested |
|
(581 |
) |
11.72 |
| |
Forfeited |
|
(8 |
) |
11.09 |
| |
Unvested at March 31, 2011 |
|
1,645 |
|
$ |
13.57 |
|
The number of options vested during the three months ended March 31, 2011 and 2010 were 580,636 and 476,088, respectively. The total fair value of options vested during the three-month periods ended March 31, 2011 and 2010 was $6.8 million and $5.4 million, respectively. As of March 31, 2011, there was $18.6 million of unrecognized compensation cost related to unvested stock options granted under the Companys plans. That cost is expected to be recognized over a weighted-average period of 2.9 years.
Note 11. Share-Based Compensation (Continued)
The Plan provides for granting of restricted shares of Company stock to employees. In general, twenty-five percent of the restricted stock vests two years from the date of grant, then twenty-five percent vests on each of the next three consecutive grant anniversary dates. The restricted stock is subject to forfeiture until the restrictions lapse or terminate. A summary of changes in restricted stock and related information for the three months ended March 31, 2011 is presented below:
|
|
|
|
Weighted Average |
| |
|
|
Number of |
|
Grant Date |
| |
|
|
Shares |
|
Fair Value |
| |
Restricted Stock (1) |
|
(in thousands) |
|
(per share) |
| |
Unvested at January 1, 2011 |
|
717 |
|
$ |
45.04 |
|
Granted |
|
330 |
|
60.86 |
| |
Vested |
|
(135 |
) |
46.06 |
| |
Forfeited |
|
(4 |
) |
45.84 |
| |
Unvested at March 31, 2011 |
|
908 |
|
$ |
50.63 |
|
(1) Includes restricted stock units.
Restricted stock is valued at the closing price of the Companys stock on the date of award. The weighted-average grant-date fair values of restricted stock granted during the three months ended March 31, 2011 and 2010 were $60.86 and $50.27, respectively. The number of restricted shares vested during the three months ended March 31, 2011 and 2010 were 134,636 and 92,664, respectively. The total fair value of restricted stock vested during the three months ended March 31, 2011 and 2010 was $6.2 million and $6.1 million, respectively. The compensation expense related to restricted stock for the three months ended March 31, 2011 and 2010 was $2.3 million and $1.9 million, respectively. As of March 31, 2011, the unrecognized compensation cost related to restricted stock granted under the Companys plans was $33.2 million. That cost is expected to be recognized over a weighted-average period of 4.0 years.
Note 12. Derivative Instruments
The following table summarizes the notional amounts of derivative instruments as of March 31, 2011, December 31, 2010 and March 31, 2010. The notional amount of the contract is not recorded on the consolidated balance sheets, but is used as the basis for determining the amount of interest payments to be exchanged between the counterparties.
Note 12. Derivative Instruments (Continued)
Notional Amounts of Derivative Instruments
(in millions) |
|
March 31, |
|
December 31, |
|
March 31, |
| |||
Derivatives designated as hedging instruments |
|
|
|
|
|
|
| |||
Interest rate swaps - fair value: |
|
|
|
|
|
|
| |||
Certificates of deposit |
|
$ |
10.0 |
|
$ |
10.0 |
|
$ |
20.0 |
|
Long-term and subordinated debt |
|
355.9 |
|
355.9 |
|
358.2 |
| |||
Total fair value contracts |
|
$ |
365.9 |
|
$ |
365.9 |
|
$ |
378.2 |
|
|
|
|
|
|
|
|
| |||
Interest rate swaps - cash flow: |
|
|
|
|
|
|
| |||
U.S. Dollar LIBOR based loans |
|
$ |
|
|
$ |
|
|
$ |
50.0 |
|
Prime based loans |
|
|
|
|
|
75.0 |
| |||
Total cash flow contracts |
|
$ |
|
|
$ |
|
|
$ |
125.0 |
|
|
|
|
|
|
|
|
| |||
Total derivatives designated as hedging instruments |
|
$ |
365.9 |
|
$ |
365.9 |
|
$ |
503.2 |
|
|
|
|
|
|
|
|
| |||
Derivatives not designated as hedging instruments |
|
|
|
|
|
|
| |||
Interest rate contracts: |
|
|
|
|
|
|
| |||
Swaps |
|
$ |
992.2 |
|
$ |
1,043.8 |
|
$ |
958.3 |
|
Interest-rate caps, floors and collars |
|
81.7 |
|
84.5 |
|
127.2 |
| |||
Options purchased |
|
2.0 |
|
2.0 |
|
2.0 |
| |||
Options written |
|
2.0 |
|
2.0 |
|
2.0 |
| |||
Total interest-rate contracts |
|
$ |
1,077.9 |
|
$ |
1,132.3 |
|
$ |
1,089.5 |
|
|
|
|
|
|
|
|
| |||
Equity index futures |
|
$ |
|
|
$ |
|
|
$ |
0.5 |
|
|
|
|
|
|
|
|
| |||
Foreign exchange contracts: |
|
|
|
|
|
|
| |||
Spot and forward contracts |
|
$ |
103.2 |
|
$ |
78.2 |
|
$ |
259.0 |
|
Options purchased |
|
|
|
|
|
50.3 |
| |||
Options written |
|
|
|
|
|
50.3 |
| |||
Total foreign exchange contracts |
|
$ |
103.2 |
|
$ |
78.2 |
|
$ |
359.6 |
|
|
|
|
|
|
|
|
| |||
Total derivatives not designated as hedging instruments |
|
$ |
1,181.1 |
|
$ |
1,210.5 |
|
$ |
1,449.6 |
|
Note 12. Derivative Instruments (Continued)
The following table summarizes the fair value and balance sheet classification of derivative instruments as of March 31, 2011, December 31, 2010 and March 31, 2010. If a counterparty fails to perform, the Companys counterparty credit risk is equal to the amount reported as a derivative asset.
Fair Values of Derivative Instruments
|
|
March 31, 2011 |
|
December 31, 2010 |
|
March 31, 2010 |
| ||||||||||||
(in millions) |
|
Derivative |
|
Derivative |
|
Derivative |
|
Derivative |
|
Derivative |
|
Derivative |
| ||||||
Derivatives designated as hedging instruments |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Interest rate swaps - fair value: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Certificates of deposit |
|
$ |
0.3 |
|
$ |
|
|
$ |
0.3 |
|
$ |
|
|
$ |
1.0 |
|
$ |
|
|
Long-term and subordinated debt |
|
17.2 |
|
|
|
19.8 |
|
|
|
28.2 |
|
|
| ||||||
Total fair value contracts |
|
$ |
17.5 |
|
$ |
|
|
$ |
20.1 |
|
$ |
|
|
$ |
29.2 |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Interest rate swaps - cash flow: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
U.S. Dollar LIBOR based loans |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
1.0 |
|
$ |
|
|
Prime based loans |
|
|
|
|
|
|
|
|
|
1.0 |
|
|
| ||||||
Total cash flow contracts |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
2.0 |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Total derivatives designated as hedging instruments |
|
$ |
17.5 |
|
$ |
|
|
$ |
20.1 |
|
$ |
|
|
$ |
31.2 |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Derivatives not designated as hedging instruments |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Interest rate contracts: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Swaps |
|
$ |
21.6 |
|
$ |
21.5 |
|
$ |
25.7 |
|
$ |
25.7 |
|
$ |
17.4 |
|
$ |
17.1 |
|
Interest-rate caps, floors and collars |
|
0.4 |
|
0.4 |
|
0.5 |
|
0.5 |
|
0.5 |
|
0.5 |
| ||||||
Options purchased |
|
0.2 |
|
0.2 |
|
0.2 |
|
0.2 |
|
0.2 |
|
0.2 |
| ||||||
Options written |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Total interest-rate contracts |
|
$ |
22.2 |
|
$ |
22.1 |
|
$ |
26.4 |
|
$ |
26.4 |
|
$ |
18.1 |
|
$ |
17.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Equity index futures |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Foreign exchange contracts: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Spot and forward contracts |
|
$ |
1.5 |
|
$ |
1.3 |
|
$ |
1.3 |
|
$ |
1.0 |
|
$ |
3.4 |
|
$ |
3.4 |
|
Options purchased |
|
|
|
|
|
|
|
|
|
1.1 |
|
1.1 |
| ||||||
Options written |
|
|
|
|
|
|
|
|
|
0.6 |
|
0.6 |
| ||||||
Total foreign exchange contracts |
|
$ |
1.5 |
|
$ |
1.3 |
|
$ |
1.3 |
|
$ |
1.0 |
|
$ |
5.1 |
|
$ |
5.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Total derivatives not designated as hedging instruments |
|
$ |
23.7 |
|
$ |
23.4 |
|
$ |
27.7 |
|
$ |
27.4 |
|
$ |
23.2 |
|
$ |
22.9 |
|
(1) |
Derivative assets include the estimated gain to settle a derivative contract net of cash collateral received from counterparties plus net interest receivable. Derivative liabilities include the estimated loss to settle a derivative contract. |
Note 12. Derivative Instruments (Continued)
Derivatives Designated as Hedging Instruments
As of March 31, 2011, the Company had $365.9 million notional amount of interest-rate swap hedge transactions, all of which were designated as fair value hedges. There were no cash flow hedges outstanding at March 31, 2011. The $17.5 million positive fair value of the fair value hedges is recorded in other assets. It includes a mark-to-market asset of $17.4 million and net interest receivable of $1.9 million, less $1.8 million of cash collateral received from a counterparty. The balance of deposits and borrowings reported in the consolidated balance sheet include a $17.4 million mark-to-market adjustment associated with interest-rate hedge transactions. AOCI includes a net deferred gain of $0.6 million related to cash flow hedges that were terminated in 2010 prior to their maturity dates for which the hedged transactions had yet to occur.
As of December 31, 2010, the Company had $365.9 million notional amount of interest-rate swap hedge transactions, all of which were designated as fair value hedges. There were no cash flow hedges outstanding at December 31, 2010. The positive fair value of the fair value hedges of $20.1 million is recorded in other assets. It includes a mark-to-market asset of $21.4 million and net interest receivable of $1.8 million, less $3.1 million of cash collateral received from a counterparty. The balance of deposits and borrowings reported in the consolidated balance sheet include a $21.4 million mark-to-market adjustment associated with interest-rate hedge transactions. AOCI includes a net deferred gain of $1.2 million related to cash flow hedges that were terminated in 2010 prior to their maturity dates for which the hedged transactions had yet to occur.
As of March 31, 2010, the Company had $503.2 million notional amount of interest-rate swap hedge transactions, of which $378.2 million were designated as fair value hedges and $125.0 million were designated as cash flow hedges. The positive fair value of the fair value hedges of $29.2 million includes a mark-to-market asset of $27.2 million and net interest receivable of $2.0 million. The balance of deposits and borrowings reported in the consolidated balance sheet include a $27.2 million mark-to-market adjustment associated with interest-rate hedge transactions. The net positive fair value of cash flow hedges of variable-rate loans of $2.0 million includes a mark-to-market asset of $1.6 million and interest receivable of $0.4 million. AOCI includes $0.9 million, after tax, related to the net positive fair value of cash flow hedges at March 31, 2010. AOCI includes a net deferred gain of $5.1 million related to cash flow hedges that were terminated prior to their maturity dates for which the hedged transactions had yet to occur.
The Companys swap agreements require the deposit of cash or marketable debt securities as collateral based on certain risk thresholds. These requirements apply individually to the Corporation and to the Bank. Additionally, certain of the Companys swap agreements contain credit-risk-related contingent features. Under these agreements, the collateral requirements are based on the Companys credit rating from the major credit rating agencies. The amount of collateral required varies by counterparty based on a range of credit ratings that correspond with exposure thresholds established in the derivative agreements. If the credit rating on the Companys debt were to fall below the level associated with a particular exposure threshold and the derivatives with a counterparty are in a net liability position that exceeds that threshold, the counterparty could request immediate payment or delivery of collateral for the difference between the net liability amount and the exposure threshold. The aggregate fair value of all derivative instruments with credit-risk-related contingent features that were in a net liability position on March 31, 2011 was $8.8 million. The Company delivered collateral valued at $1.1 million on swap agreements that had credit-risk contingent features and were in a net liability position at March 31, 2011.
The Companys interest-rate swaps had $5.7 million, $5.3 million and $7.6 million of credit risk exposure at March 31, 2011, December 31, 2010 and March 31, 2010, respectively. The credit exposure represents the cost to replace, on a present value basis and at current market rates, all contracts outstanding by trading counterparty having an aggregate positive market value, net of margin collateral received. The Company enters into master netting agreements with swap counterparties to mitigate credit risk. Under these agreements, the net amount due from or payable to each counterparty is settled on the contract payment date. Collateral in the form of securities valued at $7.7 million, $9.7 million and $13.0 million had been received from swap counterparties at March 31, 2011, December 31, 2010 and March 31, 2010, respectively. The Company delivered collateral valued at $7.5 million on swap agreements that did not have credit-risk contingent features at March 31, 2011.
Note 12. Derivative Instruments (Continued)
The periodic net settlement of interest-rate swaps is recorded as an adjustment to interest income or interest expense. The impact of interest-rate swaps on interest income and interest expense for the three months ended March 31, 2011 and 2010 is provided below:
(in millions) |
|
|
|
For the three months ended |
| ||||
Derivative Instruments Designated as |
|
Location in Consolidated |
|
March 31, |
| ||||
Hedging Instruments |
|
Statements of Income |
|
2011 |
|
2010 |
| ||
Interest-rate swaps-fair value |
|
Interest expense |
|
$ |
(4.2 |
) |
$ |
(4.4 |
) |
Interest-rate swaps-cash flow |
|
Interest income |
|
0.6 |
|
3.0 |
| ||
Total income |
|
|
|
$ |
4.8 |
|
$ |
7.4 |
|
Fair value and cash flow interest-rate swaps increased net interest income by $4.8 million and $7.4 million for the three months ended March 31, 2011 and 2010, respectively.
Changes in fair value of the effective portion of cash flow hedges are reported in AOCI. When the cash flows associated with the hedged item are realized, the gain or loss included in AOCI is recognized in Interest income on loans and leases, the same location in the consolidated statements of income as the income on the hedged item. The amount of gains on cash flow hedges reclassified from AOCI to interest income was $0.6 million and $3.0 million for the three months ended March 31, 2011 and 2010, respectively. Within the next 12 months, $0.4 million of other comprehensive income, representing the amortization of deferred gains on terminated cash flow swaps, is expected to be reclassified into interest income. Any ineffective portion of the changes of fair value of cash flow hedges is recognized immediately in Other noninterest income in the consolidated statements of income.
The amount of after-tax loss on the change in fair value of cash flow hedges recognized in AOCI was $3.4 million (net of taxes of $2.5 million) for the three months ended March 31, 2010. In addition, $0.6 million of deferred gains on terminated cash flow hedges was reclassified from AOCI to income in the three months ended March 31, 2010. There were no cash flow hedges outstanding during the three months ended March 31, 2011.
Derivatives Not Designated as Hedging Instruments
Derivative contracts not designated as hedges are marked-to-market each reporting period with changes in fair value recorded as a part of Noninterest income in the consolidated statements of income. The table below provides the amount of gains and losses on these derivative contracts for the three months ended March 31, 2011 and 2010:
(in millions) |
|
|
|
For the three months ended |
| ||||
Derivatives Not Designated as |
|
Location in Consolidated |
|
March 31, |
| ||||
Hedging Instruments |
|
Statements of Income |
|
2011 |
|
2010 |
| ||
Interest-rate contracts |
|
Other noninterest income |
|
$ |
0.2 |
|
$ |
(0.1 |
) |
Equity index futures |
|
Other noninterest income |
|
|
|
(0.1 |
) | ||
Foreign exchange contracts |
|
International services income |
|
5.4 |
|
4.6 |
| ||
Total income |
|
|
|
$ |
5.6 |
|
$ |
4.4 |
|
Note 13. Income Taxes
The Company recognized income tax expense of $17.9 million and $4.4 million for the three months ended March 31, 2011 and 2010, respectively.
The Company recognizes accrued interest and penalties relating to uncertain tax positions as an income tax provision expense. The Company recognized interest and penalties expense of approximately $0.3 million and $61 thousand for the three months ended March 31, 2011 and 2010, respectively. The Company had approximately $3.2 million, $2.9 million and $7.4 million of accrued interest and penalties as of March 31, 2011, December 31, 2010 and March 31, 2010, respectively.
Note 13. Income Taxes (Continued)
The Company and its subsidiaries file a consolidated federal income tax return and also file income tax returns in various state jurisdictions. The Company is currently being audited by the Internal Revenue Service for the tax year 2010. The Company is also under audit with the California Franchise Tax Board for the tax years 2005 to 2007. The potential financial statement impact, if any, resulting from completion of these audits is expected to be minimal.
From time to time, there may be differences in opinion with respect to the tax treatment accorded transactions. If a tax position which was previously recognized on the consolidated financial statements is no longer more likely than not to be sustained upon a challenge from the taxing authorities, the tax benefit from the tax position will be derecognized. As of March 31, 2011, the Company does not have any tax positions which dropped below a more likely than not threshold.
Note 14. Retirement Plans
The Company has a profit-sharing retirement plan with an Internal Revenue Code Section 401(k) feature covering eligible employees. Employer contributions are made annually into a trust fund and are allocated to participants based on their salaries. The profit sharing contribution requirement is based on a percentage of annual operating income subject to a percentage of salary cap. Eligible employees may contribute up to 50 percent of their salary to the 401(k) plan, but not more than the maximum allowed under Internal Revenue Service regulations. The Company matches 50 percent of the first 6 percent of covered compensation. The Company recorded total profit sharing and matching contribution expense of $4.5 million and $2.1 million for the three months ended March 31, 2011 and 2010, respectively.
The Company has a Supplemental Executive Retirement Plan (SERP) for one of its executive officers. The SERP meets the definition of a pension plan under ASC Topic 960, Plan Accounting Defined Benefit Pension Plans. At March 31, 2011, there was a $6.4 million unfunded pension liability related to the SERP. Expense for the three months ended March 31, 2011 and 2010 was $0.2 million.
There is also a SERP covering three former executives of the Pacific Bank, which the Company acquired in 2000. As of March 31, 2011, there was an unfunded pension liability for this SERP of $2.4 million. Expense for the three months ended March 31, 2011 and 2010 were $0.2 million and $33 thousand, respectively.
The Company does not provide any other post-retirement employee benefits beyond the profit-sharing retirement plan and the SERPs.
Note 15. Contingencies
In connection with the liquidation of an investment acquired in a previous bank merger, the Company has an outstanding long-term indemnity. The maximum liability under the indemnity is $23.0 million, but the Company does not expect to make any payments of more than nominal amounts under the terms of this indemnity.
During the quarter, the Company received unfavorable judgments through arbitration totaling $7.2 million on two dispute-related legal claims. Approximately $5.1 million of these judgments are covered by the Companys insurance policies. Net charges of $1.4 million and $0.7 million were included in Other operating expense in the noninterest expense section of the consolidated statements of income for the three-months ended March 31, 2011 and September 30, 2010, respectively.
Note 16. Variable Interest Entities
The Company holds ownership interests in certain special-purpose entities formed to provide affordable housing. The Company evaluates its interest in these entities to determine whether they meet the definition of a VIE and whether the Company is required to consolidate these entities. The Company is not the primary beneficiary of the affordable housing VIEs in which it holds interests and is therefore not required to consolidate these entities. The investment in these entities is initially recorded at cost, which approximates the maximum exposure to loss as a result of the Companys involvement with these unconsolidated entities. Subsequently, the carrying value is amortized over the stream of available tax credits and benefits. The Company expects to recover its investments over time, primarily through realization of federal low-income
Note 16. Variable Interest Entities (Continued)
housing tax credits. The balance of the investments in these entities was $111.6 million, $99.7 million and $90.3 million at March 31, 2011, December 31, 2010 and March 31, 2010, respectively, and is included in Affordable housing investments in the consolidated balance sheets. Unfunded commitments for affordable housing investments were $33.1 million at March 31, 2011. These unfunded commitments are recorded in Other liabilities in the consolidated balance sheets.
Of the affordable housing investments held as of March 31, 2011, the Company had a significant variable interest in four affordable housing partnerships. These interests were acquired at various times from 1998 to 2001. The Companys maximum exposure to loss as a result of its involvement with these entities is limited to the $4.3 million aggregate carrying value of these investments at March 31, 2011. There were no unfunded commitments for these affordable housing investments at March 31, 2011.
The Company also has ownership interests in several private equity investment funds that are VIEs. The Company is not a primary beneficiary and, therefore, is not required to consolidate these VIEs. The investment in these entities is carried at cost, which approximates the maximum exposure to loss as a result of the Companys involvement with these entities. The Company expects to recover its investments over time, primarily through the allocation of fund income, gains or losses on the sale of fund assets, dividends or interest income. The balance in these entities was $38.0 million, $37.5 million and $37.4 million at March 31, 2011, December 31, 2010 and March 31, 2010, respectively, and is included in Other assets in the consolidated balance sheets. Income associated with these investments is reported in Other noninterest income in the consolidated statements of income.
Note 17. Noncontrolling Interest
In accordance with ASC Topic 810, Consolidation, and EITF Topic D-98, Classification and Measurement of Redeemable Securities (Topic D-98), the Company reports noncontrolling interest in its majority-owned affiliates as either a separate component of equity in Noncontrolling interest in the consolidated balance sheets or as Redeemable noncontrolling interest in the mezzanine section between liabilities and equity in the consolidated financial statements. Topic D-98 specifies that securities that are redeemable at the option of the holder or outside the control of the issuer are not considered permanent equity and should be classified in the mezzanine section.
Redeemable Noncontrolling Interest
The Corporation holds a majority ownership interest in six investment management and wealth advisory affiliates that it consolidates and a noncontrolling interest in two other firms. In general, the management of each majority-owned affiliate has a significant noncontrolling ownership position in its firm and supervises the day-to-day operations of the affiliate. The Corporation is in regular contact with each affiliate regarding its operations and is an active participant in the management of the affiliates through its position on each firms board.
The Corporations investment in each affiliate is governed by operating agreements and other arrangements which provide the Corporation certain rights, benefits and obligations. The Corporation determines the appropriate method of accounting based upon these agreements and the factors contained therein. All majority-owned affiliates that have met the criteria for consolidation are included in the consolidated financial statements. All material intercompany balances and transactions are eliminated. The Corporation applies the equity method of accounting to investments where it holds a noncontrolling interest. For equity method investments, the Corporations portion of income before taxes is included in Trust and investment fees in the consolidated statements of income.
As of March 31, 2011, affiliate noncontrolling owners held equity interests with an estimated fair value of $46.0 million. This estimate reflects the maximum obligation to purchase equity interests in the affiliates. The events which would require the Company to purchase the equity interests may occur in the near term or over a longer period of time. The terms of the put provisions vary by agreement, but the value of the put is at the approximate fair value of the interests. The parent company carries key man life insurance policies to fund a portion of these conditional purchase obligations in the event of the death of an interest holder.
Note 17. Noncontrolling Interest (Continued)
The following is a rollforward of redeemable noncontrolling interest for the three months ended March 31, 2011 and 2010:
|
|
For the three months ended |
| ||||
(in thousands) |
|
2011 |
|
2010 |
| ||
Balance, beginning of period |
|
$ |
45,676 |
|
$ |
51,381 |
|
Net income |
|
558 |
|
793 |
| ||
Distributions to redeemable noncontrolling interest |
|
(484 |
) |
(560 |
) | ||
Additions and redemptions, net |
|
(559 |
) |
(4,771 |
) | ||
Adjustments to fair value |
|
822 |
|
(178 |
) | ||
Balance, end of period |
|
$ |
46,013 |
|
$ |
46,665 |
|
Note 18. Segment Results
The Company has three reportable segments: Commercial and Private Banking, Wealth Management and Other. The factors considered in determining whether individual operating segments could be aggregated include that the operating segments: (i) offer the same products and services, (ii) offer services to the same types of clients, (iii) provide services in the same manner and (iv) operate in the same regulatory environment. The management accounting process measures the performance of the operating segments based on the Companys management structure and is not necessarily comparable with similar information for other financial services companies. If the management structures and/or the allocation process changes, allocations, transfers and assignments may change.
The Commercial and Private Banking reportable segment is the aggregation of the Commercial and Private Banking, Real Estate, Entertainment, Corporate Banking and Core Branch Banking operating segments. The Commercial and Private Banking segment provides banking products and services, including commercial and mortgage loans, lines of credit, deposits, cash management services, international trade finance and letters of credit to small and medium-sized businesses, entrepreneurs and affluent individuals. This segment primarily serves clients in California, New York and Nevada.
The Wealth Management segment includes the Corporations investment advisory affiliates and the Banks Wealth Management Services. The asset management affiliates and the Wealth Management division of the Bank make the following investment advisory and wealth management resources and expertise available to individual and institutional clients: investment management, wealth advisory services, brokerage, estate and financial planning and personal, business, custodial and employee trust services. The Wealth Management segment also advises and makes available mutual funds under the name of CNI Charter Funds. Both the asset management affiliates and the Banks Wealth Management division provide proprietary and nonproprietary products to offer a full spectrum of investment solutions in all asset classes and investment styles, including fixed-income instruments, mutual funds, domestic and international equities and alternative investments such as hedge funds.
The Other segment includes all other subsidiaries of the Company, the corporate departments, including the Treasury Department and the Asset Liability Funding Center, that have not been allocated to the other segments, and inter-segment eliminations for revenue recognized in multiple segments for management reporting purposes. The Company uses traditional matched-maturity funds transfer pricing methodology. However, both positive and negative variances occur over time when transfer pricing non-maturing balance sheet items such as demand deposits. These variances, offset in the Funding Center, are evaluated annually by management and allocated back to the business segments as deemed necessary.
Business segment earnings are the primary measure of the segments performance as evaluated by management. Business segment earnings include direct revenue and expenses of the segment as well as corporate and inter-company cost allocations. Allocations of corporate expenses, such as data processing and human resources, are calculated based on estimated activity levels for the fiscal year. Costs associated with intercompany support and services groups, such as Operational Services, are allocated to each business segment based on actual services used. Capital is allocated based on the estimated risk within each business segment. The methodology of allocating capital is based on each business segments credit, market, and operational risk profile. If applicable, any provision for credit losses is allocated based on various credit factors, including but not limited to, credit risk ratings, credit rating fluctuation, charge-offs and recoveries and loan growth.
Note 18. Segment Results (Continued)
Income taxes are charged to the business segments at the statutory rate. The Other segment includes an adjustment to reconcile to the Companys overall effective tax rate.
Exposure to market risk is managed in the Companys Treasury department. Interest rate risk is mostly removed from the Commercial and Private Banking segment and transferred to the Funding Center through a fund transfer pricing (FTP) methodology and allocating model. The FTP model records a cost of funds or credit for funds using a combination of matched maturity funding for fixed term assets and liabilities and a blended rate for the remaining assets and liabilities with varying maturities.
The Banks investment portfolio and unallocated equity are included in the Other segment. Amortization expense associated with customer-relationship intangibles is charged to the affected operating segments.
Selected financial information for each segment is presented in the following tables. Commercial and Private Banking includes all revenue and costs from products and services utilized by clients of Commercial and Private Banking, including both revenue and costs for Wealth Management products and services. The revenues and costs associated with Wealth Management products and services that are allocated to Commercial and Private Banking for management reporting purposes are eliminated in the Other segment. The current period reflects any changes made in the process or methodology for allocations to the reportable segments. Prior period segment results have been revised to conform with current period presentation.
|
|
For the three months ended March 31, 2011 |
| ||||||||||
|
|
Commercial and |
|
Wealth |
|
|
|
Consolidated |
| ||||
(in thousands) |
|
Private Banking |
|
Management |
|
Other |
|
Company |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Earnings Summary: |
|
|
|
|
|
|
|
|
| ||||
Net interest income |
|
$ |
178,891 |
|
$ |
558 |
|
$ |
1,841 |
|
$ |
181,290 |
|
Provision for losses on covered loans |
|
19,116 |
|
|
|
|
|
19,116 |
| ||||
Noninterest income |
|
62,300 |
|
41,877 |
|
(10,284 |
) |
93,893 |
| ||||
Depreciation and amortization |
|
3,630 |
|
1,449 |
|
3,837 |
|
8,916 |
| ||||
Noninterest expense |
|
165,089 |
|
38,604 |
|
(15,212 |
) |
188,481 |
| ||||
Income before income taxes |
|
53,356 |
|
2,382 |
|
2,932 |
|
58,670 |
| ||||
Provision (benefit) for income taxes |
|
22,409 |
|
766 |
|
(5,289 |
) |
17,886 |
| ||||
Net income |
|
30,947 |
|
1,616 |
|
8,221 |
|
40,784 |
| ||||
Less: Net income attributable to noncontrolling interest |
|
|
|
558 |
|
534 |
|
1,092 |
| ||||
Net income attributable to City National Corporation |
|
$ |
30,947 |
|
$ |
1,058 |
|
$ |
7,687 |
|
$ |
39,692 |
|
|
|
|
|
|
|
|
|
|
| ||||
Selected Average Balances: |
|
|
|
|
|
|
|
|
| ||||
Loans and leases, excluding covered loans |
|
$ |
11,197,583 |
|
$ |
|
|
$ |
58,304 |
|
$ |
11,255,887 |
|
Covered loans |
|
1,810,986 |
|
|
|
|
|
1,810,986 |
| ||||
Total assets |
|
13,525,675 |
|
551,729 |
|
7,300,500 |
|
21,377,904 |
| ||||
Deposits |
|
17,750,931 |
|
46,566 |
|
386,071 |
|
18,183,568 |
| ||||
Goodwill |
|
318,343 |
|
161,642 |
|
6,868 |
|
486,853 |
| ||||
Customer-relationship intangibles, net |
|
10,971 |
|
28,941 |
|
1,440 |
|
41,352 |
|
Note 18. Segment Results (Continued)
|
|
For the three months ended March 31, 2010 |
| ||||||||||
|
|
Commercial and |
|
Wealth |
|
|
|
Consolidated |
| ||||
(in thousands) |
|
Private Banking |
|
Management |
|
Other |
|
Company |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Earnings Summary: |
|
|
|
|
|
|
|
|
| ||||
Net interest income |
|
$ |
168,990 |
|
$ |
333 |
|
$ |
6,182 |
|
$ |
175,505 |
|
Provision for credit losses on loans and leases, excluding covered loans |
|
55,000 |
|
|
|
|
|
55,000 |
| ||||
Noninterest income |
|
46,535 |
|
40,073 |
|
(9,735 |
) |
76,873 |
| ||||
Depreciation and amortization |
|
3,313 |
|
1,958 |
|
3,523 |
|
8,794 |
| ||||
Noninterest expense |
|
145,624 |
|
35,268 |
|
(13,752 |
) |
167,140 |
| ||||
Income before income taxes |
|
11,588 |
|
3,180 |
|
6,676 |
|
21,444 |
| ||||
Provision (benefit) for income taxes |
|
4,867 |
|
1,003 |
|
(1,452 |
) |
4,418 |
| ||||
Net income |
|
6,721 |
|
2,177 |
|
8,128 |
|
17,026 |
| ||||
Less: Net income attributable to noncontrolling interest |
|
|
|
793 |
|
535 |
|
1,328 |
| ||||
Net income attributable to City National Corporation |
|
$ |
6,721 |
|
$ |
1,384 |
|
$ |
7,593 |
|
$ |
15,698 |
|
|
|
|
|
|
|
|
|
|
| ||||
Selected Average Balances: |
|
|
|
|
|
|
|
|
| ||||
Loans and leases, excluding covered loans |
|
$ |
11,907,992 |
|
$ |
|
|
$ |
36,334 |
|
$ |
11,944,326 |
|
Covered loans |
|
1,833,131 |
|
|
|
|
|
1,833,131 |
| ||||
Total assets |
|
14,487,037 |
|
547,229 |
|
5,232,982 |
|
20,267,248 |
| ||||
Deposits |
|
16,240,882 |
|
47,367 |
|
575,906 |
|
16,864,155 |
| ||||
Goodwill |
|
318,340 |
|
161,642 |
|
|
|
479,982 |
| ||||
Customer-relationship intangibles, net |
|
12,682 |
|
32,174 |
|
|
|
44,856 |
|
Note 19. Subsequent Event
On April 8, 2011, the Bank acquired the banking operations of Nevada Commerce Bank, based in Las Vegas, Nevada, in a purchase and assumption agreement with the FDIC. Excluding the effects of acquisition accounting adjustments, the Bank acquired approximately $139 million in assets and assumed $118 million of deposits. At the issuance date of these financial statements, the Company had not completed its initial accounting for this business combination.
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
CITY NATIONAL CORPORATION
FINANCIAL HIGHLIGHTS
|
|
|
|
|
|
|
|
Percent change |
| |||||
|
|
At or for the three months ended |
|
March 31, 2011 from |
| |||||||||
|
|
March 31, |
|
December 31, |
|
March 31, |
|
December 31, |
|
March 31, |
| |||
(in thousands, except per share amounts) |
|
2011 |
|
2010 |
|
2010 |
|
2010 |
|
2010 |
| |||
|
|
(Unaudited) |
|
(Unaudited) |
|
(Unaudited) |
|
|
|
|
| |||
For The Quarter |
|
|
|
|
|
|
|
|
|
|
| |||
Net income attributable to City National Corporation |
|
$ |
39,692 |
|
$ |
39,743 |
|
$ |
15,698 |
|
(0 |
)% |
153 |
% |
Net income available to common shareholders |
|
39,692 |
|
39,743 |
|
9,996 |
|
(0 |
) |
297 |
| |||
Net income per common share, basic |
|
0.75 |
|
0.75 |
|
0.19 |
|
|
|
295 |
| |||
Net income per common share, diluted |
|
0.74 |
|
0.74 |
|
0.19 |
|
|
|
289 |
| |||
Dividends per common share |
|
0.20 |
|
0.10 |
|
0.10 |
|
100 |
|
100 |
| |||
|
|
|
|
|
|
|
|
|
|
|
| |||
At Quarter End |
|
|
|
|
|
|
|
|
|
|
| |||
Assets |
|
$ |
21,635,932 |
|
$ |
21,353,118 |
|
$ |
20,066,475 |
|
1 |
|
8 |
|
Securities |
|
5,930,677 |
|
5,976,072 |
|
3,996,886 |
|
(1 |
) |
48 |
| |||
Loans and leases, excluding covered loans |
|
11,269,684 |
|
11,386,628 |
|
11,689,536 |
|
(1 |
) |
(4 |
) | |||
Covered loans (1) |
|
1,766,085 |
|
1,857,522 |
|
1,803,048 |
|
(5 |
) |
(2 |
) | |||
Deposits |
|
18,477,939 |
|
18,176,862 |
|
16,963,729 |
|
2 |
|
9 |
| |||
Common shareholders equity |
|
1,985,538 |
|
1,959,579 |
|
1,838,222 |
|
1 |
|
8 |
| |||
Total equity |
|
2,010,627 |
|
1,984,718 |
|
1,863,411 |
|
1 |
|
8 |
| |||
Book value per common share |
|
37.86 |
|
37.51 |
|
35.43 |
|
1 |
|
7 |
| |||
|
|
|
|
|
|
|
|
|
|
|
| |||
Average Balances |
|
|
|
|
|
|
|
|
|
|
| |||
Assets |
|
$ |
21,377,904 |
|
$ |
21,922,240 |
|
$ |
20,267,248 |
|
(2 |
) |
5 |
|
Securities |
|
5,693,322 |
|
5,430,152 |
|
4,036,435 |
|
5 |
|
41 |
| |||
Loans and leases, excluding covered loans |
|
11,255,887 |
|
11,372,463 |
|
11,944,326 |
|
(1 |
) |
(6 |
) | |||
Covered loans (1) |
|
1,810,986 |
|
1,907,875 |
|
1,833,131 |
|
(5 |
) |
(1 |
) | |||
Deposits |
|
18,183,568 |
|
18,687,152 |
|
16,864,155 |
|
(3 |
) |
8 |
| |||
Common shareholders equity |
|
1,972,896 |
|
1,974,327 |
|
1,843,808 |
|
(0 |
) |
7 |
| |||
Total equity |
|
1,998,006 |
|
1,999,494 |
|
2,003,150 |
|
(0 |
) |
(0 |
) | |||
|
|
|
|
|
|
|
|
|
|
|
| |||
Selected Ratios |
|
|
|
|
|
|
|
|
|
|
| |||
Return on average assets (annualized) |
|
0.75 |
% |
0.72 |
% |
0.31 |
% |
4 |
|
142 |
| |||
Return on average common shareholders equity (annualized) |
|
8.16 |
|
7.99 |
|
2.20 |
|
2 |
|
271 |
| |||
Corporations tier 1 leverage |
|
7.09 |
|
6.74 |
|
8.03 |
|
5 |
|
(12 |
) | |||
Corporations tier 1 risk-based capital |
|
10.91 |
|
10.52 |
|
11.44 |
|
4 |
|
(5 |
) | |||
Corporations total risk-based capital |
|
13.68 |
|
13.28 |
|
14.42 |
|
3 |
|
(5 |
) | |||
Period-end common shareholders equity to period-end assets |
|
9.18 |
|
9.18 |
|
9.16 |
|
|
|
0 |
| |||
Period-end equity to period-end assets |
|
9.29 |
|
9.29 |
|
9.29 |
|
|
|
|
| |||
Dividend payout ratio, per common share |
|
26.65 |
|
13.27 |
|
52.16 |
|
101 |
|
(49 |
) | |||
Net interest margin |
|
3.84 |
|
3.71 |
|
3.97 |
|
4 |
|
(3 |
) | |||
Expense to revenue ratio (2) |
|
65.62 |
|
66.39 |
|
62.24 |
|
(1 |
) |
5 |
| |||
|
|
|
|
|
|
|
|
|
|
|
| |||
Asset Quality Ratios (3) |
|
|
|
|
|
|
|
|
|
|
| |||
Nonaccrual loans to total loans and leases |
|
1.40 |
% |
1.68 |
% |
2.82 |
% |
(17 |
) |
(50 |
) | |||
Nonaccrual loans and OREO to total loans and leases and OREO |
|
1.89 |
|
2.17 |
|
3.30 |
|
(13 |
) |
(43 |
) | |||
Allowance for loan and lease losses to total loans and leases |
|
2.34 |
|
2.26 |
|
2.50 |
|
4 |
|
(6 |
) | |||
Allowance for loan and lease losses to nonaccrual loans |
|
167.32 |
|
134.61 |
|
88.72 |
|
24 |
|
89 |
| |||
Net recoveries/(charge-offs) to average total loans and leases (annualized) |
|
0.24 |
|
(0.66 |
) |
(1.68 |
) |
NM |
|
NM |
| |||
|
|
|
|
|
|
|
|
|
|
|
| |||
At Quarter End |
|
|
|
|
|
|
|
|
|
|
| |||
Assets under management (4) |
|
$ |
37,852,450 |
|
$ |
36,753,673 |
|
$ |
35,783,366 |
|
3 |
|
6 |
|
Assets under management or administration (4) |
|
60,113,143 |
|
58,470,832 |
|
55,844,305 |
|
3 |
|
8 |
|
NM - Not meaningful | |
(1) |
Covered loans represent acquired loans that are covered under a loss sharing agreement with the Federal Deposit Insurance Corporation (FDIC). |
(2) |
The expense to revenue ratio is defined as noninterest expense excluding other real estate owned (OREO) expense divided by total revenue (net interest income on a fully taxable-equivalent basis and noninterest income). |
(3) |
Excludes covered assets, which consists of acquired loans and OREO that are covered under a loss sharing agreement with the FDIC. |
(4) |
Excludes $20.43 billion, $21.32 billion and $14.79 billion of assets under management for asset managers in which the Company held a noncontrolling ownership interest as of March 31, 2011, December 31, 2010, and March 31, 2010, respectively. |
See Cautionary Statement for Purposes of the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995, on page 89 in connection with forward-looking statements included in this report.
CRITICAL ACCOUNTING POLICIES
The accounting and reporting policies of the Company conform with U.S. generally accepted accounting principles. The Companys accounting policies are fundamental to understanding managements discussion and analysis of results of operations and financial condition. The Company has identified eleven policies as being critical because they require management to make estimates, assumptions and judgments that affect the reported amount of assets and liabilities, contingent assets and liabilities, and revenues and expenses included in the consolidated financial statements. The judgments and assumptions used by management are based on historical experience and other factors, which are believed to be reasonable under the circumstances. Circumstances and events that differ significantly from those underlying the Companys estimates, assumptions and judgments could cause the actual amounts reported to differ significantly from these estimates.
The Companys critical accounting policies include those that address accounting for business combinations, noncontrolling interest, financial assets and liabilities reported at fair value, securities, acquired impaired loans, allowance for loan and lease losses and reserve for off-balance sheet credit commitments, OREO, goodwill and other intangible assets, share-based compensation plans, income taxes and derivatives and hedging activities. The Company has not made any significant changes in its critical accounting policies or its estimates and assumptions from those disclosed in its 2010 Annual Report.
References to net income and earnings per share in the discussion that follows are based on net income attributable to the Company after deducting net income attributable to noncontrolling interest.
RECENT DEVELOPMENTS
On February 11, 2011, the Company acquired a branch in San Jose, California. The company assumed $8.4 million of deposits. The acquisition did not include the branchs loan portfolio.
On April 8, 2011, the Bank acquired the banking operations of Nevada Commerce Bank, based in Las Vegas, Nevada, in a purchase and assumption agreement with the FDIC. Excluding the effects of acquisition accounting adjustments, the Bank acquired approximately $139 million in assets and assumed $118 million of deposits.
HIGHLIGHTS
· For the quarter ended March 31, 2011, consolidated net income available to common shareholders was $39.7 million, or $0.74 per diluted common share. For the year-earlier quarter, consolidated net income attributable to City National Corporation was $15.7 million and consolidated net income available to common shareholders was $10.0 million, or $0.19 per diluted common share. The increase in net income available to common shareholders is primarily attributable to the Company recognizing no provision expense on non-FDIC-covered loans in the first quarter of 2011, compared to $55.0 million of provision expense in the first quarter of 2010. The increase in net income available to common shareholders is also attributed to higher non-interest income related to FDIC-acquired bank activity, offset by higher provision for losses on covered loans, noninterest expense and income tax expense.
· Revenue, which consists of net interest income and noninterest income, was $275.2 million for the first quarter of 2011, an increase of 9 percent from $252.4 million in the year-earlier quarter. Revenue was down 2 percent from the fourth quarter of 2010.
· Fully taxable-equivalent net interest income, including dividend income, was $185.5 million for the first quarter of 2011, up 4 percent from $178.8 million for the same period last year and down 1 percent from $188.3 million for the fourth quarter of 2010. Fully taxable equivalent net interest income amounted to $184.8 million for the first quarter of 2011, compared to $187.6 million in the fourth quarter of 2010 and $178.2 million in the first quarter of 2010.
· The Companys net interest margin was 3.84 percent for the first quarter of 2011, compared with 3.71 percent for the fourth quarter of 2010 and 3.97 percent for the first quarter of 2010. The decline from the year-ago period was due primarily to strong growth in deposits, which were invested in securities available-for-sale and other liquid assets, as well as lower loan balances. The increase from the fourth quarter of 2010 reflects increased yield on covered loans as well as a seasonal decline in average deposit balances that had been invested in lower-yielding short-term securities.
· Noninterest income was $93.9 million for the first quarter of 2011, an increase of 22 percent from the year-earlier quarter, and a decrease of 1 percent from the fourth quarter of 2010. The increase from the year-earlier quarter was due primarily to FDIC-acquired bank activity.
· Noninterest expense for the first quarter of 2011 was $197.4 million, up 12 percent from the year-earlier quarter and down 3 percent from the fourth quarter of 2010. The increase from the first quarter of 2010 was due largely to increased compensation costs, higher FDIC assessments, the resolution of two dispute-related claims, and increased legal and professional fees.
· The Companys effective tax rate was 30.5 percent for the first quarter of 2011 compared with 20.6 percent for the year-earlier quarter. The higher tax rate for the first quarter of 2011 is attributable to higher pretax income.
· Total assets were $21.64 billion at March 31, 2011, up 1 percent from $21.35 billion at December 31, 2010, and up 8 percent from $20.07 billion at March 31, 2010. Total average assets were $21.38 billion for the first quarter of 2011 from $21.92 billion for the fourth quarter of 2010 and $20.27 billion for the first quarter of 2010.
· Loans and leases, excluding covered loans, were $11.27 billion at March 31, 2011, a decrease of 1 percent from December 31, 2010 and 4 percent from March 31, 2010. Average loans for the first quarter of 2011, on the same basis, were $11.26 billion, down 1 percent from the fourth quarter of 2010 and 6 percent from the year-earlier quarter. However, average commercial loan balances grew 1 percent from the fourth quarter of 2010.
· Year-over-year credit trends showed strong improvement. In the first quarter of 2011, the Company realized $6.5 million in net loan recoveries, or 0.24 percent of average total loans and leases, excluding covered loans, on an annualized basis, compared with net loan charge-offs of $19.0 million, or 0.66 percent, for the fourth quarter of 2010, and $49.5 million, or 1.68 percent, in the year-earlier quarter. Nonaccrual loans, excluding covered loans, totaled $157.4 million at March 31, 2011, down from $190.9 million at December 31, 2010 and $330.0 million at March 31, 2010. At March 31, 2011, nonperforming assets, excluding covered assets, were $213.7 million, compared with $248.2 million at December 31, 2010, and $388.0 million at March 31, 2010. Nonperforming assets declined 14 percent from the fourth quarter of 2010, falling below 2 percent of total loans.
· The allowance for loan and lease losses on non-FDIC-covered loans was $263.4 million at March 31, 2011, compared with $257.0 million at December 31, 2010 and $292.8 million at March 31, 2010. The Companys allowance equals 2.34 percent of total loans and leases, excluding covered loans, at March 31, 2011, compared with 2.26 percent at December 31, 2010 and 2.50 percent at March 31, 2010.
· Average securities for the first quarter of 2011 totaled $5.69 billion, an increase of 5 percent from $5.43 billion for the fourth quarter of 2010 and 41 percent from $4.04 billion for the first quarter of 2010. The increases reflect the Companys strong deposit growth and lack of loan growth.
· Period-end deposits at March 31, 2011 were $18.48 billion, up 2 percent from $18.18 billion at December 31, 2010 and 9 percent from $16.96 billion at March 31, 2010. Average deposit balances for the first quarter of 2011 grew to $18.18 billion, down 3 percent from $18.69 billion for the fourth quarter of 2010 and up 8 percent from $16.86 billion for the first quarter of 2010. Average core deposits decreased 2 percent from the fourth quarter of 2010 and grew 11 percent from the first quarter of 2010, and now amount to approximately 95 percent of total average deposit balances.
· The Companys ratio of Tier 1 common shareholders equity to risk-based assets was 10.7 percent at March 31, 2011 compared with 9.4 percent at March 31, 2010 and 10.3 percent at December 31, 2010. Refer to the Capital section of Managements Discussion and Analysis for further discussion of this non-GAAP measure.
OUTLOOK
The Companys management continues to anticipate increased profitability in 2011, as asset quality continues to improve and annual credit costs move lower (excluding provisions related to FDIC-covered loans). However, it is likely that moderate economic growth, limited loan demand and the continuing decline of covered assets will limit overall average loan growth. Low interest rates will continue to place modest pressure on the companys net interest margin and wealth management income. Management expects to increase the Companys already-strong capital ratios in 2011.
RESULTS OF OPERATIONS
Net Interest Income
Net interest income is the difference between interest income (which includes yield-related loan fees) and interest expense. Net interest income on a fully taxable-equivalent basis expressed as a percentage of average total earning assets is referred to as the net interest margin, which represents the average net effective yield on earning assets. The following tables present the components of net interest income on a fully taxable-equivalent basis for the three months ended March 31, 2011 and 2010:
Net Interest Income Summary
|
|
For the three months ended |
|
For the three months ended |
| ||||||||||||
|
|
March 31, 2011 |
|
March 31, 2010 |
| ||||||||||||
|
|
|
|
Interest |
|
Average |
|
|
|
Interest |
|
Average |
| ||||
|
|
Average |
|
income/ |
|
interest |
|
Average |
|
income/ |
|
interest |
| ||||
(in thousands) |
|
balance |
|
expense (1)(3) |
|
rate |
|
balance |
|
expense (1)(3) |
|
rate |
| ||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Interest-earning assets |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Loans and leases |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Commercial |
|
$ |
4,437,164 |
|
$ |
46,998 |
|
4.30 |
% |
$ |
4,559,223 |
|
$ |
48,643 |
|
4.33 |
% |
Commercial real estate mortgages |
|
1,924,463 |
|
26,367 |
|
5.56 |
|
2,150,897 |
|
29,117 |
|
5.49 |
| ||||
Residential mortgages |
|
3,562,525 |
|
42,875 |
|
4.81 |
|
3,522,135 |
|
47,497 |
|
5.39 |
| ||||
Real estate construction |
|
448,089 |
|
5,034 |
|
4.56 |
|
807,539 |
|
7,372 |
|
3.70 |
| ||||
Equity lines of credit |
|
733,128 |
|
6,460 |
|
3.57 |
|
734,710 |
|
6,443 |
|
3.56 |
| ||||
Installment |
|
150,518 |
|
1,786 |
|
4.81 |
|
169,822 |
|
2,152 |
|
5.14 |
| ||||
Total loans and leases, excluding covered loans (2) |
|
11,255,887 |
|
129,520 |
|
4.67 |
|
11,944,326 |
|
141,224 |
|
4.80 |
| ||||
Covered loans |
|
1,810,986 |
|
35,240 |
|
7.78 |
|
1,833,131 |
|
29,506 |
|
6.44 |
| ||||
Total loans and leases |
|
13,066,873 |
|
164,760 |
|
5.11 |
|
13,777,457 |
|
170,730 |
|
5.03 |
| ||||
Due from banks - interest-bearing |
|
490,352 |
|
297 |
|
0.25 |
|
274,749 |
|
346 |
|
0.51 |
| ||||
Federal funds sold and securities purchased under resale agreements |
|
231,399 |
|
154 |
|
0.27 |
|
45,658 |
|
22 |
|
0.20 |
| ||||
Securities available-for-sale |
|
5,630,938 |
|
39,023 |
|
2.77 |
|
3,974,164 |
|
33,690 |
|
3.39 |
| ||||
Trading securities |
|
62,384 |
|
131 |
|
0.85 |
|
62,271 |
|
(51 |
) |
-0.33 |
| ||||
Other interest-earning assets |
|
138,972 |
|
700 |
|
2.04 |
|
146,743 |
|
635 |
|
1.76 |
| ||||
Total interest-earning assets |
|
19,620,918 |
|
205,065 |
|
4.24 |
|
18,281,042 |
|
205,372 |
|
4.56 |
| ||||
Allowance for loan and lease losses |
|
(328,838 |
) |
|
|
|
|
(294,691 |
) |
|
|
|
| ||||
Cash and due from banks |
|
201,040 |
|
|
|
|
|
298,922 |
|
|
|
|
| ||||
Other non-earning assets |
|
1,884,784 |
|
|
|
|
|
1,981,975 |
|
|
|
|
| ||||
Total assets |
|
$ |
21,377,904 |
|
|
|
|
|
$ |
20,267,248 |
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Liabilities and Equity |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Interest-bearing deposits |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Interest checking accounts |
|
$ |
1,771,724 |
|
$ |
813 |
|
0.19 |
|
$ |
2,235,418 |
|
$ |
1,320 |
|
0.24 |
|
Money market accounts |
|
6,452,245 |
|
7,153 |
|
0.45 |
|
4,853,162 |
|
7,444 |
|
0.62 |
| ||||
Savings deposits |
|
302,995 |
|
257 |
|
0.34 |
|
386,727 |
|
630 |
|
0.66 |
| ||||
Time deposits - under $100,000 |
|
325,421 |
|
450 |
|
0.56 |
|
556,078 |
|
852 |
|
0.62 |
| ||||
Time deposits - $100,000 and over |
|
822,464 |
|
1,517 |
|
0.75 |
|
1,238,808 |
|
2,918 |
|
0.96 |
| ||||
Total interest-bearing deposits |
|
9,674,849 |
|
10,190 |
|
0.43 |
|
9,270,193 |
|
13,164 |
|
0.58 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Federal funds purchased and securities sold under repurchase agreements |
|
|
|
|
|
0.00 |
|
300,210 |
|
1,936 |
|
2.62 |
| ||||
Other borrowings |
|
858,550 |
|
9,330 |
|
4.41 |
|
811,810 |
|
11,461 |
|
5.73 |
| ||||
Total interest-bearing liabilities |
|
10,533,399 |
|
19,520 |
|
0.75 |
|
10,382,213 |
|
26,561 |
|
1.04 |
| ||||
Noninterest-bearing deposits |
|
8,508,719 |
|
|
|
|
|
7,593,962 |
|
|
|
|
| ||||
Other liabilities |
|
337,780 |
|
|
|
|
|
287,923 |
|
|
|
|
| ||||
Total equity |
|
1,998,006 |
|
|
|
|
|
2,003,150 |
|
|
|
|
| ||||
Total liabilities and equity |
|
$ |
21,377,904 |
|
|
|
|
|
$ |
20,267,248 |
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Net interest spread |
|
|
|
|
|
3.49 |
% |
|
|
|
|
3.52 |
% | ||||
Fully taxable-equivalent net interest and dividend income |
|
|
|
$ |
185,545 |
|
|
|
|
|
$ |
178,811 |
|
|
| ||
Net interest margin |
|
|
|
|
|
3.84 |
% |
|
|
|
|
3.97 |
% | ||||
Less: Dividend income included in other income |
|
|
|
700 |
|
|
|
|
|
635 |
|
|
| ||||
Fully taxable-equivalent net interest income |
|
|
|
$ |
184,845 |
|
|
|
|
|
$ |
178,176 |
|
|
|
(1) Net interest income is presented on a fully taxable-equivalent basis.
(2) Includes average nonaccrual loans of $171,229 and $365,595 for 2011 and 2010, respectively.
(3) Loan income includes loan fees of $4,241 and $4,874 for 2011 and 2010, respectively.
Net interest income is impacted by the volume (changes in volume multiplied by prior rate), interest rate (changes in rate multiplied by prior volume), and mix of interest-earning assets and interest-bearing liabilities. The following table provides a breakdown of the changes in net interest income on a fully taxable-equivalent basis and dividend income due to volume and rate between the first quarter of 2011 and 2010. The impact of interest rate swaps, which affect interest income on loans and leases and interest expense on deposits and borrowings, is included in rate changes.
Changes In Net Interest Income
|
|
For the three months ended March 31, |
|
For the three months ended March 31, |
| ||||||||||||||
|
|
2011 vs 2010 |
|
2010 vs 2009 |
| ||||||||||||||
|
|
Increase (decrease) |
|
Net |
|
Increase (decrease) |
|
Net |
| ||||||||||
|
|
due to |
|
increase |
|
due to |
|
increase |
| ||||||||||
(in thousands) |
|
Volume |
|
Rate |
|
(decrease) |
|
Volume |
|
Rate |
|
(decrease) |
| ||||||
Interest earned on: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Total loans and leases (1) |
|
$ |
(8,716 |
) |
$ |
2,746 |
|
$ |
(5,970 |
) |
$ |
16,633 |
|
$ |
8,786 |
|
$ |
25,419 |
|
Securities available-for-sale |
|
12,154 |
|
(6,821 |
) |
5,333 |
|
15,450 |
|
(8,545 |
) |
6,905 |
| ||||||
Due from banks - interest-bearing |
|
184 |
|
(233 |
) |
(49 |
) |
177 |
|
14 |
|
191 |
| ||||||
Trading securities |
|
|
|
182 |
|
182 |
|
(15 |
) |
(91 |
) |
(106 |
) | ||||||
Federal funds sold and securities purchased under resale agreements |
|
121 |
|
11 |
|
132 |
|
17 |
|
(1 |
) |
16 |
| ||||||
Other interest-earning assets |
|
(35 |
) |
100 |
|
65 |
|
414 |
|
(422 |
) |
(8 |
) | ||||||
Total interest-earning assets |
|
3,708 |
|
(4,015 |
) |
(307 |
) |
32,676 |
|
(259 |
) |
32,417 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Interest paid on: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Interest checking deposits |
|
(253 |
) |
(254 |
) |
(507 |
) |
715 |
|
(261 |
) |
454 |
| ||||||
Money market deposits |
|
2,065 |
|
(2,356 |
) |
(291 |
) |
2,032 |
|
(4,300 |
) |
(2,268 |
) | ||||||
Savings deposits |
|
(115 |
) |
(258 |
) |
(373 |
) |
360 |
|
4 |
|
364 |
| ||||||
Time deposits |
|
(1,185 |
) |
(618 |
) |
(1,803 |
) |
473 |
|
(5,420 |
) |
(4,947 |
) | ||||||
Total borrowings |
|
(2,842 |
) |
(1,225 |
) |
(4,067 |
) |
(611 |
) |
8,975 |
|
8,364 |
| ||||||
Total interest-bearing liabilities |
|
(2,330 |
) |
(4,711 |
) |
(7,041 |
) |
2,969 |
|
(1,002 |
) |
1,967 |
| ||||||
|
|
$ |
6,038 |
|
$ |
696 |
|
$ |
6,734 |
|
$ |
29,707 |
|
$ |
743 |
|
$ |
30,450 |
|
(1) Includes covered loans.
Net interest income was $181.3 million for the first quarter of 2011, an increase from $175.5 million for the first quarter of 2010 and a decrease from $185.1 million for the fourth quarter of 2010. Interest income on total loans was $162.9 million for the first quarter of 2011, down 4 percent from the first quarter of 2010 and fourth quarter of 2010. The decrease from prior periods reflects lower average loans and leases, excluding covered loans, due to moderate loan demand, as well as the Companys continued progress in reducing the number of problem loans. The decrease in interest income on non-covered loans was partially offset by an increase in interest income on covered loans driven by $7.4 million of income from the accelerated accretable yield recognition on covered loans that were paid off or fully charged off during the period compared to none in the first quarter of 2010. The decline in loan interest income from the year-earlier quarter was offset by an increase in interest income on securities available-for-sale resulting from a significant increase in average securities from the first quarter of 2010.
Total interest expense was $19.5 million for the first quarter of 2011 and $26.6 million and $21.2 million for the first quarter of 2010 and the fourth quarter of 2010, respectively. Interest expense on deposits was $10.2 million for the first quarter of 2011, down 23 percent from the year-earlier quarter and 6 percent from the fourth quarter of 2010 due mostly to lower interest rates. Interest expense on borrowings decreased to $9.3 million for the first quarter of 2011 from $13.4 million for the same period in 2010 and $10.3 million for the fourth quarter of 2010. The lower interest expense reflects a decrease in average borrowings due to the extinguishment of structured repurchase agreements in the third quarter of 2010 and redemption of trust preferred securities in the fourth quarter of 2010.
The net settlement of interest-rate swaps increased interest income by $4.8 million for the first quarter of 2011, and by $7.4 million for the year-earlier quarter.
The fully taxable net interest margin declined to 3.84 percent for the first quarter of 2011 from 3.97 percent for the first quarter of 2010, but increased from 3.71 percent for the fourth quarter of 2010. Fully taxable-equivalent net interest income, which includes amounts to convert nontaxable income to fully taxable-equivalent amounts, was $184.8 million for the first quarter of 2011 compared to $178.2 million for the year-earlier quarter and $187.6 million for the fourth quarter of 2010. Fully taxable-equivalent net interest income and dividend income, was $185.5 million for the first quarter of 2011 compared with $178.8 million for the same period in 2010 and $188.3 million for the fourth quarter of 2010. The average yield on earning assets for the first quarter of 2011 decreased to 4.24 percent, or by 32 basis points, compared with 4.56 percent for the year-earlier quarter and increased 11 basis points from 4.13 percent for the fourth quarter of 2010. The average cost of interest-bearing liabilities decreased to 0.75 percent, or by 29 basis points, from 1.04 percent for the same period of 2010 and down from 0.77 percent for the fourth quarter of 2010. Of the total $6.7 million increase in fully taxable-equivalent net interest and dividend income for the first quarter compared with the year earlier period, approximately $6.0 million was generated through securities growth and lower interest-bearing liabilities, offset by lower loan balances (volume variance). The remaining $0.7 million increase was attributable to a favorable rate variance largely due to the acceleration of accretable yield on acquired loans as discussed above, as well as lower rates paid on interest-bearing deposits.
Average loans and leases, excluding covered loans, totaled $11.26 billion for the first quarter of 2011, a decrease of 6 percent from $11.94 billion for the first quarter of 2010 and a decrease of 1 percent from $11.37 billion for the fourth quarter of 2010. Average commercial loans were down 3 percent from the same period last year, but up 1 percent from the fourth quarter of 2010. Average commercial real estate mortgages decreased by 11 percent from the prior year quarter and 2 percent from the fourth quarter of 2010. Average residential mortgage loans, nearly all of which are made to the Companys private banking clients, increased 1 percent from the same quarter in 2010 and were virtually unchanged from the fourth quarter of 2010. Average construction loans decreased 44 percent and 17 percent from the prior year quarter and fourth quarter of 2010, respectively. Average covered loans decreased 1 percent and 5 percent to $1.81 billion for the first quarter of 2011 from $1.83 billion for the year ago quarter and $1.91 billion in the fourth quarter of 2010, respectively.
Average total securities, which include trading securities, were $5.69 billion for the first quarter of 2011, an increase of 41 percent from the first quarter of 2010 and 5 percent from the fourth quarter of 2010. The increase in average securities from prior periods reflects the Companys deposit growth and lack of loan growth.
Average deposits increased 8 percent to $18.18 billion for the first quarter of 2011 from $16.86 billion for the first quarter of 2010, but were down 3 percent from $18.69 billion for the fourth quarter of 2010. Average core deposits, which do not include certificates of deposits of $100,000 or more, were $17.36 billion for the first quarter of 2010 and represented 95 percent of the total average deposit balance, compared to 93 percent in the year-earlier quarter and 95 percent in the fourth quarter of 2010. Average interest-bearing deposits increased 4 percent from the same quarter in 2010, but were down 4 percent from the fourth quarter of 2010.
Provision for Credit Losses
The Company accounts for the credit risk associated with lending activities through its allowance for loan and lease losses, reserve for off-balance sheet credit commitments and provision for credit losses. The provision for credit losses on loans and leases, excluding covered loans, is the expense recognized in the consolidated statements of income to adjust the allowance and the reserve for off-balance sheet credit commitments to the levels deemed appropriate by management, as determined through application of the Companys allowance methodology procedures. See Critical Accounting Policies Allowance for Loan and Lease Losses and Reserve for Off-Balance Sheet Credit Commitments in the Companys Form 10-K for the year ended December 31, 2010.
The Company recorded no provision for credit losses on loans and leases, excluding covered loans, for the quarter ended March 31, 2011, compared to $55.0 million in the quarter ended March 31, 2010. The provision reflects managements continuing assessment of the credit quality of the Companys loan portfolio, which is affected by a broad range of economic factors. Additional factors affecting the provision include net loan charge-offs, nonaccrual loans, specific reserves, risk rating migration and changes in the portfolio size and composition. See Balance Sheet AnalysisAllowance for Loan and Lease Losses and Reserve for Off-Balance Sheet Credit Commitments for further information on factors considered by the Company in assessing the credit quality of the loan portfolio and establishing the allowance for loan and lease losses.
Credit trends showed significant improvement from prior periods. Nonaccrual loans, excluding covered loans, decreased to $157.4 million at March 31, 2011, down from $190.9 million at December 31, 2010 and $330.0 million at March 31, 2010. The decrease in nonaccrual loans relates primarily to the real estate construction and commercial real estate mortgage loan portfolios. Net loan recoveries on non-covered loans were $6.5 million, or 0.24 percent of total loans and leases, excluding covered loans, on an annualized basis for the quarter ended March 31, 2011. The Company recognized net loan charge-offs on non-covered loans of $49.5 million, or 1.68 percent, for the year-earlier quarter and $19.0 million, or 0.66 percent, for the fourth quarter of 2010. The change from net charge-offs to net recoveries during the first quarter of 2011 occurred primarily in the Companys real estate construction and commercial real estate mortgage loan portfolios.
Covered loans represent loans acquired from the FDIC that are subject to a loss-sharing agreement, and are primarily accounted for as acquired impaired loans under ASC Topic 310-30. The provision for losses on covered loans is the expense recognized in the consolidated statements of income related primarily to impairment losses resulting from the Companys quarterly review and update of cash flow projections on its covered loan portfolio. The Company recorded a provision for losses on covered loans of $19.1 million during the first quarter of 2011, compared to $21.5 million in the fourth quarter of 2010. There was no provision for losses on covered loans recorded in the first quarter of 2010. The provision for losses on covered loans is mainly the result of lower projected interest cash flows due to loan prepayments and the Companys revised default forecasts, though credit losses decreased slightly as compared with previous expectations. The revisions of the default forecasts were based on the results of managements review of the credit quality of the outstanding covered loans and the analysis of the loan performance data since the acquisition of covered loans. The Company will continue updating cash flow projections on the covered loans on a quarterly basis. Due to the uncertainty in the future performance of the covered loans, additional impairments may be recognized in the future.
Credit quality will be influenced by underlying trends in the economic cycle, particularly in California and Nevada, and other factors which are beyond managements control. Consequently, no assurances can be given that the Company will not sustain loan or lease losses, in any particular period, that are sizable in relation to the allowance for loan and lease losses.
Refer to Loans and LeasesAsset Quality on page 73 for further discussion of credit quality.
Noninterest Income
Noninterest income was $93.9 million in the first quarter of 2011, an increase of 22 percent from the first quarter of 2010 and a decrease of 1 percent from the fourth quarter of 2010. The increase from the fourth quarter of 2010 was largely due to FDIC-acquired bank activity. Noninterest income accounted for 34 percent of the Companys revenue in the first quarter of 2011, an increase from 30 percent for the year-earlier quarter and unchanged from the fourth quarter of 2010.
Wealth Management
The Company provides various trust, investment and wealth advisory services to its individual and business clients. The Company delivers these services through the Banks wealth management division as well as through its wealth management affiliates. Trust services are provided only by the Bank. Trust and investment fee revenue includes fees from trust, investment and asset management, and other wealth advisory services. The majority of these fees are based on the market value of client assets managed, advised, administered or held in custody. The remaining portion of these fees is based on the specific service provided, such as estate and financial planning services, or may be fixed fees. For those fees based on market valuations, the mix of assets held in client accounts, as well as the type of managed account, impacts how closely changes in trust and investment fee income correlate with changes in the financial markets. Trust and investment fees were $35.6 million for the first quarter of 2011, an increase of 6 percent from the first quarter of 2010 and 3 percent from the fourth quarter of 2010. Money market mutual fund and brokerage fees were $5.7 million for the quarter, up 7 percent from $5.3 million for the year-earlier quarter, and down 13 percent from $6.5 million for the fourth quarter of 2010. The decline in money market mutual fund and brokerage fees from the prior quarter was due primarily to the impact of low short-term interest rates.
Assets under management (AUM) include assets for which the Company makes investment decisions on behalf of its clients and assets under advisement for which the Company receives advisory fees from its clients. Assets under administration (AUA) are assets the Company holds in a fiduciary capacity or for which it provides non-advisory services. The table below provides a summary of AUM and AUA for the dates indicated:
|
|
March 31, |
|
% |
|
December 31, |
|
% |
| |||||
(in millions) |
|
2011 |
|
2010 |
|
Change |
|
2010 |
|
Change |
| |||
|
|
|
|
|
|
|
|
|
|
|
| |||
Assets Under Management |
|
$ |
37,852 |
|
$ |
35,783 |
|
6 |
% |
$ |
36,754 |
|
3 |
% |
|
|
|
|
|
|
|
|
|
|
|
| |||
Assets Under Administration |
|
|
|
|
|
|
|
|
|
|
| |||
Brokerage |
|
6,114 |
|
5,005 |
|
22 |
|
5,929 |
|
3 |
| |||
Custody and other fiduciary |
|
16,147 |
|
15,056 |
|
7 |
|
15,788 |
|
2 |
| |||
Subtotal |
|
22,261 |
|
20,061 |
|
11 |
|
21,717 |
|
3 |
| |||
Total assets under management or administration (1) |
|
$ |
60,113 |
|
$ |
55,844 |
|
8 |
|
$ |
58,471 |
|
3 |
|
(1) Excludes $20.43 billion, $21.32 billion and $14.79 billion of assets under management for asset managers in which the Company held a noncontrolling ownership interest as of March 31, 2011, December 31, 2010 and March 31, 2010, respectively.
AUM increased 6 percent from the year-earlier quarter and 3 percent from the fourth quarter of 2010. AUA increased 8 percent from the year-earlier quarter and 3 percent from the fourth quarter of 2010. The increase in AUM and AUA compared with the year-earlier quarter and fourth quarter of 2010 was due in part to higher equity market values.
A distribution of AUM by type of investment is provided in the following table:
|
|
% of AUM |
| ||||
Investment |
|
March 31, |
|
December 31, |
|
March 31, |
|
Equities |
|
42 |
% |
36 |
% |
33 |
% |
U.S. fixed income |
|
24 |
|
27 |
|
27 |
|
Cash and cash equivalents |
|
20 |
|
21 |
|
21 |
|
Other (1) |
|
14 |
|
16 |
|
19 |
|
|
|
100 |
% |
100 |
% |
100 |
% |
(1) Includes private equity and other alternative investments.
Other Noninterest Income
Cash management and deposit transaction fees for the first quarter of 2011 were $11.7 million, down 7 percent from the first quarter of 2010 and up 3 percent from the fourth quarter of 2010. The year-over-year decline was due to higher deposit balances used to offset service charge fees.
International services income for the first quarter of 2011 was $8.3 million, up 28 percent from the year-earlier quarter and down 2 percent from the fourth quarter of 2010. International services income includes foreign exchange fees, fees on commercial letters of credit and standby letters of credit, foreign collection fees and gains and losses associated with fluctuations in foreign currency exchange rates. The increase from the first quarter of 2010 was due to greater demand for foreign exchange services, as well as the addition of new export trade finance clients and increased volume from existing clients.
Net FDIC loss sharing income was $8.6 million for the first quarter of 2011, $9.1 million for the year-earlier quarter and $26.3 million for the fourth quarter of 2010. See Noninterest Income and Expense Related to Covered Assets for further discussion of FDIC loss sharing income.
The Company recognized $0.1 million of net gains on the sale of securities in the first quarter of 2011, compared with net gains of $2.1 million and a net loss of $2.5 million for the first quarter of 2010 and fourth quarter of 2010, respectively.
Impairment losses on securities available-for-sale recognized in earnings were $0.2 million for the first quarter of 2011, compared with $1.0 million for the first quarter of 2010 and $0.4 million for the fourth quarter of 2010. See Balance Sheet Analysis Securities for a discussion of impairment on securities available-for-sale.
Net gain on disposal of assets was a $2.4 million in the first quarter of 2011, compared with a $1.4 million net gain in the year-earlier quarter and a $1.7 million net gain in the fourth quarter of 2010. The net gain for all periods is primarily due to gains recognized on the sale of OREO.
Other income for the first quarter of 2011 was $21.6 million, an increase of 192 percent from $7.4 million during the first quarter of 2010 and 137 percent from $9.1 million during the fourth quarter of 2010. The increase in other income from the first quarter of 2010 was attributable to $10.3 million of net gains recorded on the transfer of covered loans to OREO, as well as additional income from the amortization of the fair value on unfunded loan commitments acquired in FDIC-assisted acquisitions and recoveries on loans from FDIC-acquired banks that were disposed of prior to acquisition date. The increase also reflects income from Datafaction, Inc., a software company that was acquired by the Company in November 2010. The increase in other income from the fourth quarter of 2010 was primarily due to charges of $6.8 million recognized on the early extinguishment of debt and a $5.9 million loss related to one of the Companys affiliated investment advisors in the fourth quarter of 2010.
Noninterest Expense
Noninterest expense was $197.4 million for the first quarter of 2011, an increase of 12 percent from $175.9 million for the first quarter of 2010 and a decrease of 3 percent from $204.0 million the fourth quarter of 2010.
Salaries and employee benefits expense was $111.0 million for the first quarter of 2011, an increase of 16 percent from $95.5 million for the year-earlier quarter and a decrease of 1 percent from $111.9 million for the fourth quarter of 2010. The increase in expense from the year-earlier quarter was primarily due to an increase in personnel as well as an increase in bonus and incentive compensation expense. Full-time equivalent staff increased to 3,258 at March 31, 2011, from 2,983 at March 31, 2010 and 3,178 at December 31, 2010.
Salaries and employee benefits expense for the first quarter of 2011 includes $4.7 million related to share-based compensation plans compared with $3.9 million for the year-earlier quarter and $4.3 million for the fourth quarter of 2010. At March 31, 2011, there were $18.6 million of unrecognized compensation cost related to unvested stock options granted under the Companys plans. That cost is expected to be recognized over a weighted average period of 2.9 years. At March 31, 2011, there were $33.2 million of unrecognized compensation cost related to restricted shares granted under the Companys plans. That cost is expected to be recognized over a weighted average period of 4.0 years.
The remaining noninterest expense categories totaled $86.4 million for the first quarter of 2011, up from $80.5 million for the first quarter of 2010 and down from $92.2 million for the fourth quarter of 2010. The increase from the year-earlier quarter was due primarily to higher FDIC assessments and the resolution of two dispute-related legal claims, and was partially offset by lower OREO expense. The decrease of 6 percent from the fourth quarter of 2010 was attributable to lower OREO expense and lower legal and professional fees. OREO expense was $14.5 million for the first quarter of 2011 and was comprised mostly of expense related to covered OREO. Refer to the following table for further detail on OREO expense. Of the qualified covered asset-related expenses, 80 percent is reimbursed by the FDIC and reflected in FDIC loss sharing income, net in the noninterest income section of the consolidated statements of income.
The following table provides OREO expense for non-covered OREO and covered OREO:
|
|
For the three months ended |
| ||||
|
|
March 31, |
| ||||
(in thousands) |
|
2011 |
|
2010 |
| ||
Non-covered OREO expense |
|
|
|
|
| ||
Valuation write-downs |
|
$ |
907 |
|
$ |
9,756 |
|
Holding costs and foreclosure expense |
|
784 |
|
746 |
| ||
Total non-covered OREO expense |
|
$ |
1,691 |
|
$ |
10,502 |
|
Covered OREO expense |
|
|
|
|
| ||
Valuation write-downs |
|
$ |
8,305 |
|
$ |
4,024 |
|
Holding costs and foreclosure expense |
|
4,493 |
|
2,671 |
| ||
Total covered OREO expense |
|
$ |
12,798 |
|
$ |
6,695 |
|
|
|
|
|
|
| ||
Total OREO expense |
|
$ |
14,489 |
|
$ |
17,197 |
|
Legal and professional fees were $10.1 million for the first quarter of 2011, up 10 percent from $9.2 million in the year-earlier quarter and down 28 percent from $14.1 million in the fourth quarter of 2010. The increase from the year-earlier quarter was due primarily to increases in legal expenses related to covered assets. Legal and professional fees associated with covered loans and OREO were approximately $1.8 million for the first quarter of 2011, $3.0 million for the fourth quarter of 2010 and $0.2 million for the first quarter of 2010. Qualifying legal and professional fees for covered assets are also reimbursable by the FDIC at 80 percent.
Net income attributable to noncontrolling interest, representing noncontrolling ownership interests in the net income of affiliates, was $1.1 million for the first quarter of 2011, compared to $1.3 million for the year-earlier quarter and $0.9 million for the fourth quarter of 2010.
Noninterest Income and Expense Related to Covered Assets
The following table summarizes the components of noninterest income and noninterest expense related to covered assets. The table does not include personnel and other corporate overhead expenses that the Company incurred to service covered assets, nor does it include costs associated with the FDIC-acquired branches.
|
|
For the three months ended |
| |||||||
|
|
March 31, |
|
December 31, |
|
March 31, |
| |||
(in thousands) |
|
2011 |
|
2010 |
|
2010 |
| |||
|
|
|
|
|
|
|
| |||
Noninterest income related to covered assets |
|
|
|
|
|
|
| |||
|
|
|
|
|
|
|
| |||
FDIC loss sharing income, net |
|
|
|
|
|
|
| |||
Indemnification asset accretion |
|
$ |
(3,624 |
) |
$ |
73 |
|
$ |
3,714 |
|
Gain on indemnification asset |
|
15,048 |
|
26,616 |
|
|
| |||
Removal of indemnification asset |
|
(11,186 |
) |
(9,616 |
) |
|
| |||
Net FDIC reimbursement for OREO and loan expenses |
|
11,118 |
|
15,078 |
|
5,893 |
| |||
Net reimbursement to FDIC for gains and losses on OREO sales |
|
(1,282 |
) |
(1,119 |
) |
(521 |
) | |||
Loan recoveries shared with FDIC |
|
(1,971 |
) |
(1,481 |
) |
|
| |||
Increase in FDIC clawback liability |
|
(276 |
) |
(3,264 |
) |
|
| |||
Other |
|
778 |
|
|
|
|
| |||
Total FDIC loss sharing income, net |
|
$ |
8,605 |
|
$ |
26,287 |
|
$ |
9,086 |
|
|
|
|
|
|
|
|
| |||
Gain on disposal of assets |
|
|
|
|
|
|
| |||
Net gain on sale of OREO |
|
$ |
1,628 |
|
$ |
815 |
|
$ |
650 |
|
|
|
|
|
|
|
|
| |||
Other income |
|
|
|
|
|
|
| |||
Net gain on transfers of covered loans to OREO |
|
$ |
10,330 |
|
$ |
10,135 |
|
$ |
|
|
Amortization of fair value on acquired unfunded loan commitments |
|
692 |
|
145 |
|
|
| |||
Recoveries on loans not covered by FDIC |
|
638 |
|
240 |
|
|
| |||
OREO income |
|
661 |
|
180 |
|
154 |
| |||
Total other income |
|
$ |
12,321 |
|
$ |
10,700 |
|
$ |
154 |
|
|
|
|
|
|
|
|
| |||
Noninterest expense related to covered assets (1) |
|
|
|
|
|
|
| |||
|
|
|
|
|
|
|
| |||
Other real estate owned |
|
|
|
|
|
|
| |||
Valuation write-downs |
|
$ |
8,305 |
|
$ |
8,551 |
|
$ |
4,024 |
|
Holding costs and foreclosure expense |
|
4,493 |
|
6,877 |
|
2,671 |
| |||
Total other real estate owned |
|
$ |
12,798 |
|
$ |
15,428 |
|
$ |
6,695 |
|
|
|
|
|
|
|
|
| |||
Legal and professional fees |
|
$ |
1,819 |
|
$ |
3,030 |
|
$ |
246 |
|
|
|
|
|
|
|
|
| |||
Other operating expense |
|
|
|
|
|
|
| |||
Other covered asset expenses |
|
$ |
701 |
|
$ |
1,064 |
|
$ |
758 |
|
(1) OREO, legal and professional fees and other expenses related to covered assets must meet certain FDIC criteria in order for the expense amounts to be reimbursed. Certain amounts reflected in these categories may not be reimbursed by the FDIC.
Noninterest Income
Income and expense from FDIC loss-sharing agreements is reflected in FDIC loss sharing income, net. This balance includes discount accretion and gain on the FDIC indemnification asset and expense from the reduction of the FDIC indemnification asset upon the removal of loans, OREO and unfunded loan commitments. Loans are removed when they have been fully paid off, fully charged off, sold or transferred to OREO. Net FDIC loss sharing income also includes income recognized on the portion of expenses related to covered assets that are reimbursable by the FDIC, net of income due to the FDIC, as well as the income statement effects of other loss-share transactions.
Net FDIC loss sharing income was $8.6 million for the first quarter of 2011, a decrease of 5 percent from $9.1 million for the year-earlier quarter and 67 percent from $26.3 million for the fourth quarter of 2010. The decrease in FDIC loss sharing income from the fourth quarter of 2010 was attributable to lower gains on the indemnification asset from a revision of the Companys projected cash flows forecast on its covered loans in the current quarter. The decrease was also due to lower reimbursable OREO and legal and professional expense incurred by the Company and higher loan recoveries that are shared with the FDIC.
The Company recognized net gain on sales of covered OREO of $1.6 million in the first quarter of 2011 compared to $0.8 million in the fourth quarter of 2010 and $0.7 million in the first quarter of 2010. Other income related to covered assets was $12.3 million in the current quarter and included net gain on transfers of covered loans to OREO, the amortization of fair value on acquired unfunded loan commitments, recoveries on loans that were disposed of prior to the FDIC-acquisition date, and OREO income. The balance increased significantly from the $0.2 million recognized in the year-earlier quarter, primarily because of higher gains on transfers of covered loans to OREO.
Noninterest expense
Noninterest expense related to covered assets include OREO expense, legal and professional expense and other covered asset-related expenses, and may be subject to FDIC reimbursement. Expenses must meet certain FDIC criteria in order for the expense amounts to be reimbursed. Certain amounts reflected in these balances may not be reimbursed by the FDIC if they do not meet the criteria. Total OREO expense, which includes valuation write-downs, holding costs and foreclosure expenses was $12.8 million for the first quarter of 2011, down from $15.4 million in the fourth quarter of 2010 and up from $6.7 million for the year-earlier quarter. Legal and professional expense was $1.8 million during the first quarter of 2011, compared to $3.0 million in the fourth quarter of 2010 and $0.2 million in the first quarter of 2010.
Segment Operations
The Companys reportable segments are Commercial and Private Banking, Wealth Management and Other. For a more complete description of the segments, including summary financial information, see Note 18 to the Unaudited Consolidated Financial Statements.
Commercial and Private Banking
Net income for the Commercial and Private Banking segment increased to $30.9 million for the first quarter of 2011 from $6.7 million for the first quarter of 2010. The increase in net income compared with the prior year quarter was due to growth in net interest income, a lower provision for losses on total loans and higher noninterest income. Increases in revenue were offset in part by increased expenses due largely to increased compensation cost and higher FDIC assessments. Net interest income increased to $178.9 million for the first quarter of 2011 from $169.0 million for the year-earlier quarter. The increase in net interest income was primarily due to an increase in interest income from the accelerated yield recognition on covered loans that were paid off or charged off during the quarter, as well as lower interest bearing liabilities. Average loans, excluding covered loans, decreased to $11.20 billion, or by 6 percent, for the first quarter of 2011 compared with the year-earlier quarter. The decrease in average loans for the year reflects moderate loan demand, along with the Companys continued progress in reducing the number of problem loans. Average covered loans were $1.81 billion for the first quarter of 2011 and $1.83 billion for the first quarter of 2010. Average deposits increased by 9 percent to $17.75 billion for the first quarter of 2011 from $16.24 billion for the year-earlier quarter. The growth in average deposits compared with the prior year period was driven by the FDIC-assisted acquisitions, new clients and growth in liquidity of existing clients.
There was no provision for credit losses on loans and leases, excluding covered loans, for the first quarter of 2011. The provision for credit losses on loans and leases, excluding covered loans, was $55.0 million for the first quarter of 2010. Provision for losses on covered loans was $19.1 million for first quarter of 2011. There was no provision recorded on covered loans in the year-earlier quarter. Refer to Results of OperationsProvision for Credit Losses for further discussion of the provision.
Noninterest income for the first quarter of 2011 increased by 34 percent to $62.3 million from $46.5 million for the prior-year quarter. The increase is primarily due to $10.3 million of net gains recorded on the transfer of covered loans to OREO, and to growth in international services income due to higher transaction volumes and the addition of new clients. Noninterest expense, including depreciation and amortization, increased to $168.7 million, or by 13 percent, for the first quarter of 2011 from $148.9 million for the year-earlier quarter.
Wealth Management
The Wealth Management segment had net income attributable to City National Corporation (CNC) of $1.1 million for first quarter of 2011 down from $1.4 million for the year-earlier quarter. Increases in fee income for the current-year quarter resulting from improving conditions in the financial markets were partially offset by increases in noninterest expense. Refer to Results of OperationsNoninterest IncomeWealth Management for a discussion of the factors impacting fee income for the Wealth Management segment. Noninterest expense, including depreciation and amortization, increased by 8 percent to $40.1 million for the first quarter of 2011 from $37.2 million for the year-earlier quarter. Noninterest expense for 2011 reflects higher incentive compensation expense compared with the year-earlier quarter.
Other
Net income attributable to CNC for the Other segment was $7.7 million for the first quarter of 2011 and $7.6 million for the first quarter of 2010. Net interest income decreased to $1.8 million for the current quarter from $6.2 million for the year-earlier quarter. The decrease in total average loans coupled with the increase in total average deposits for the first quarter of 2011 compared with the year-earlier quarter contributed to the decrease in net interest income in the Other segment. The Asset Liability Funding Center, which is included in the Other segment, is used for funds transfer pricing. The Funding Center charges the business line units for loans and pays them for generating deposits. When loan balances decrease or deposit balances increase, net interest income in Other declines. Noninterest income (loss) was ($10.3) million for the current quarter compared with ($9.7) million for the year-earlier quarter. The current quarter reflects lower gains on sales of investment securities and an increase the elimination of intersegment revenue (recorded in the Other segment) due to higher trust and investment fee income, and lower impairment losses on investment securities compared with the prior-year quarter. Impairment losses on securities available-for-sale decreased to $0.2 million for the first quarter of 2011 from $1.0 million in the a year earlier quarter.
Income Taxes
The Company recognized income tax expense of $17.9 million during the first quarter of 2011, compared with $4.4 million in the year-earlier quarter and $11.0 million in the fourth quarter of 2010. The increase in income tax expense from the year-earlier quarter was attributable to higher pretax income. The effective tax rate was 30.5 percent of pretax income for the first quarter of 2011, compared with 21.4 percent and 20.6 percent for the fourth quarter of 2010 and first quarter of 2010, respectively. The effective tax rates differ from the applicable statutory federal and state tax rates due to various factors, including tax benefits from investments in affordable housing partnerships, tax-exempt income on municipal bonds, bank-owned life insurance, and other adjustments. The Company and its subsidiaries file a consolidated federal income tax return and also file income tax returns in various state jurisdictions. The Company is currently being audited by the Internal Revenue Service for 2010. The Company is also currently under audit with the California Franchise Tax Board for the tax years 2005 to 2007. The potential financial statement impact, if any, resulting from completion of these audits is expected to be minimal.
The Company recognizes accrued interest and penalties relating to uncertain tax positions as an income tax provision expense. The Company recognized interest and penalties expense of approximately $0.3 million and $61 thousand for the three months ended March 31, 2011 and 2010, respectively. The Company had approximately $3.2 million, $2.9 million and $7.4 million of accrued interest and penalties as of March 31, 2011, December 31, 2010 and March 31, 2010, respectively.
From time to time, there may be differences in opinion with respect to the tax treatment of certain transactions. If a tax position which was previously recognized on the consolidated financial statements is no longer more likely than not to be sustained upon a challenge from the taxing authorities, the tax benefit from the tax position will be derecognized. As of March 31, 2011, the Company does not have any tax positions which dropped below a more likely than not threshold.
See Note 13 to the Consolidated Financial Statements for further discussion of income taxes.
BALANCE SHEET ANALYSIS
Total assets were $21.64 billion at March 31, 2011, an increase of 8 percent from $20.07 billion at March 31, 2010 and 1 percent from $21.35 billion at December 31, 2010. Average assets for the first quarter of 2011 increased to $21.38 billion from $20.27 billion for the first quarter of 2010, but decreased from $21.92 billion from the fourth quarter of 2010. The increase in period-end and average assets from the year-earlier quarter reflects the Companys strong growth in deposits which were invested in securities available-for-sale.
Total average interest-earning assets for the first quarter of 2011 were $19.62 billion, down from $20.13 billion for the fourth quarter of 2010 and up from $18.28 billion for the first quarter of 2010.
Securities
The following is a summary of amortized cost and estimated fair value for the major categories of securities available- for-sale:
Securities Available-for-Sale
|
|
March 31, 2011 |
|
December 31, 2010 |
|
March 31, 2010 |
| ||||||||||||
|
|
Amortized |
|
|
|
Amortized |
|
|
|
Amortized |
|
|
| ||||||
(in thousands) |
|
Cost |
|
Fair Value |
|
Cost |
|
Fair Value |
|
Cost |
|
Fair Value |
| ||||||
U.S. Treasury |
|
$ |
14,051 |
|
$ |
14,091 |
|
$ |
14,070 |
|
$ |
14,113 |
|
$ |
15,097 |
|
$ |
15,100 |
|
Federal agency - Debt |
|
1,542,122 |
|
1,538,090 |
|
1,142,520 |
|
1,142,328 |
|
610,506 |
|
611,317 |
| ||||||
Federal agency - MBS |
|
511,829 |
|
520,571 |
|
540,768 |
|
551,346 |
|
440,082 |
|
448,293 |
| ||||||
CMOs - Federal agency |
|
3,236,969 |
|
3,275,555 |
|
3,442,238 |
|
3,497,147 |
|
2,137,606 |
|
2,174,217 |
| ||||||
CMOs - Non-agency |
|
113,482 |
|
106,676 |
|
126,819 |
|
118,295 |
|
252,343 |
|
228,930 |
| ||||||
State and municipal |
|
332,190 |
|
341,405 |
|
334,596 |
|
343,380 |
|
356,076 |
|
365,826 |
| ||||||
Other debt securities |
|
48,816 |
|
43,885 |
|
50,564 |
|
43,630 |
|
75,869 |
|
70,600 |
| ||||||
Total debt securities |
|
5,799,459 |
|
5,840,273 |
|
5,651,575 |
|
5,710,239 |
|
3,887,579 |
|
3,914,283 |
| ||||||
Equity securities and mutual funds |
|
4,164 |
|
9,117 |
|
6,545 |
|
10,436 |
|
10,171 |
|
14,198 |
| ||||||
Total securities |
|
$ |
5,803,623 |
|
$ |
5,849,390 |
|
$ |
5,658,120 |
|
$ |
5,720,675 |
|
$ |
3,897,750 |
|
$ |
3,928,481 |
|
The fair value of securities available-for-sale totaled $5.85 billion, $5.72 billion and $3.93 billion at March 31, 2011, December 31, 2010 and March 31, 2010, respectively. The average duration of total securities available-for-sale at March 31, 2011 was 2.7 years, down from 2.8 years at December 31, 2010 and 2.9 years at March 31, 2010.
At March 31, 2011, the available-for-sale securities portfolio had a net unrealized gain of $45.8 million, comprised of $86.1 million of unrealized gains and $40.3 million of unrealized losses. At December 31, 2010, the available-for-sale securities portfolio had a net unrealized loss of $62.6 million, comprised of $100.4 million of unrealized gains and $37.8 million of unrealized losses. At March 31, 2010, the available-for-sale securities portfolio had a net unrealized gain of $30.7 million, comprised of $65.7 million of unrealized gains and $35.0 million of unrealized losses.
Of the total securities available-for-sale portfolio of $5.85 billion at March 31, 2011, approximately 91 percent of the portfolio is invested in securities issued by the U.S. Treasury or U.S. government agencies. Two percent of the portfolio is invested in non-agency collateralized mortgage obligation securities (CMOs) and 6 percent is invested in state and municipal securities.
The municipal bond market experienced significant volatility in late 2010, mainly due to technical factors and certain highly publicized events. A heavy calendar of new issues and elimination of federal tax incentives combined with growing concerns about the financial health of U.S. municipalities put pressure on municipal bond prices. At March 31, 2011, the Company had $341.4 million of state and municipal securities, of which all rated bonds are investment grade, and over 95 percent are rated at least A2/A by Moodys Investor Service or Standard and Poors. The Companys holdings in state and municipal securities are well diversified by issuer and geographic area, which lessens the Companys exposure to any single adverse event. There were no other-than-temporary impairment losses recognized in this portfolio in 2011 or 2010. The Company continues to monitor the municipal bond market and its state and municipal securities portfolio.
The following table provides the gross realized gains and losses on the sales of securities for the three months ended March 31, 2011 and 2010:
|
|
For the three months ended |
| ||||
|
|
March 31, |
| ||||
(in thousands) |
|
2011 |
|
2010 |
| ||
Gross realized gains |
|
$ |
160 |
|
$ |
4,502 |
|
Gross realized losses |
|
(30 |
) |
(2,368 |
) | ||
Net realized gains |
|
$ |
130 |
|
$ |
2,134 |
|
Interest income on securities available-for-sale for the three months ended March 31, 2011 and 2010 is comprised of: (i) taxable interest income of $34.2 million and $28.8 million, respectively, (ii) nontaxable interest income of $2.9 million and $3.1 million, respectively, and (iii) dividend income of $0.2 million and $0.3 million, respectively.
The following table provides the expected remaining maturities of debt securities included in the securities portfolio at March 31, 2011, except for mortgage-backed securities which are allocated according to the average life of expected cash flows. Average expected maturities will differ from contractual maturities because mortgage debt issuers may have the right to repay obligations prior to contractual maturity.
Debt Securities Available-for-Sale
(in thousands) |
|
One year or |
|
Over 1 year |
|
Over 5 years |
|
Over 10 years |
|
Total |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
U.S. Treasury |
|
$ |
9,035 |
|
$ |
5,056 |
|
$ |
|
|
$ |
|
|
$ |
14,091 |
|
Federal agency - Debt |
|
414,419 |
|
994,072 |
|
129,599 |
|
|
|
1,538,090 |
| |||||
Federal agency - MBS |
|
2,469 |
|
334,454 |
|
125,535 |
|
58,113 |
|
520,571 |
| |||||
CMOs - Federal agency |
|
468,437 |
|
2,365,152 |
|
372,379 |
|
69,587 |
|
3,275,555 |
| |||||
CMOs - Non-agency |
|
25,305 |
|
45,777 |
|
35,594 |
|
|
|
106,676 |
| |||||
State and municipal |
|
36,099 |
|
154,220 |
|
93,391 |
|
57,695 |
|
341,405 |
| |||||
Other |
|
4,901 |
|
10,193 |
|
28,791 |
|
|
|
43,885 |
| |||||
Total debt securities |
|
$ |
960,665 |
|
$ |
3,908,924 |
|
$ |
785,289 |
|
$ |
185,395 |
|
$ |
5,840,273 |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Amortized cost |
|
$ |
956,701 |
|
$ |
3,858,949 |
|
$ |
795,129 |
|
$ |
188,680 |
|
$ |
5,799,459 |
|
Impairment Assessment
The Company performs a quarterly assessment of the debt and equity securities in its investment portfolio that have an unrealized loss to determine whether the decline in the fair value of these securities below their cost is other-than-temporary. Impairment is considered other-than-temporary when it becomes probable that an investor will be unable to recover the cost of an investment. The Companys impairment assessment takes into consideration factors such as the length of time and the extent to which the market value has been less than cost; the financial condition and near-term prospects of the issuer, including events specific to the issuer or industry; defaults or deferrals of scheduled interest, principal or dividend payments; external credit ratings and recent downgrades; and whether the Company intends to sell the security and whether it is more likely than not it will be required to sell the security prior to recovery of its amortized cost basis. If a decline in fair value is judged to be other than temporary, the cost basis of the individual security is written down to fair value which then becomes the new cost basis. The new cost basis is not adjusted for subsequent recoveries in fair value.
When there are credit losses associated with an impaired debt security and the Company does not have the intent to sell the security and it is more likely than not that it will not have to sell the security before recovery of its cost basis, the Company will separate the amount of the impairment into the amount that is credit-related and the amount related to non-credit factors. The credit-related impairment is recognized in Net impairment loss recognized in earnings in the consolidated statements of income. The non-credit-related impairment is recognized in accumulated other comprehensive income (AOCI).
Securities Deemed to be Other-Than-Temporarily Impaired
Through the impairment assessment process, the Company determined that certain investments were other-than-temporarily impaired at March 31, 2011. The Company recorded impairment losses in earnings on securities available-for-sale of $0.2 million for the three months ended March 31, 2011. The non-credit portion of impairment of $0.5 million at March 31, 2011 was recorded in AOCI. The Company recorded impairment losses in earnings on securities available-for-sale of $1.0 million for the three months ended March 31, 2010. All impairment losses for the three months ending March 31, 2011 and 2010 related to non-agency CMOs.
The following table provides a rollforward of cumulative credit-related other-than-temporary impairment recognized in earnings for debt securities for the three months ended March 31, 2011 and 2010. Credit-related other-than-temporary impairment that was recognized in earnings is reflected as an Initial credit-related impairment if the period reported is the first time the security had a credit impairment. A credit related other-than-temporary impairment is reflected as a Subsequent credit-related impairment if the period reported is not the first time the security had a credit impairment. There were no initial credit-related impairments for the three months ended March 31, 2011 and 2010.
|
|
For the three months ended |
| ||||
(in thousands) |
|
2011 |
|
2010 |
| ||
Balance, beginning of period |
|
$ |
19,445 |
|
$ |
17,707 |
|
Subsequent credit-related impairment |
|
164 |
|
1,003 |
| ||
Balance, end of period |
|
$ |
19,609 |
|
$ |
18,710 |
|
Non-Agency CMOs
The Company identified certain non-agency CMOs that were considered to be other-than-temporarily impaired because the present value of expected cash flows was less than cost. These CMOs have a fixed interest rate for an initial period after which they become variable-rate instruments with annual rate resets. For purposes of projecting future cash flows, the current fixed coupon was used through the reset date for each security. The prevailing LIBOR/Treasury forward curve as of the measurement date was used to project all future floating-rate cash flows based on the characteristics of each security. Other factors considered in the projection of future cash flows include the current level of subordination from other CMO classes, anticipated prepayment rates, cumulative defaults and loss given default. The Company recognized credit-related impairment losses in earnings on its investments in certain non-agency CMOs totaling $0.2 million in the first quarter of 2011. The remaining other-than-temporary impairment for these securities at March 31, 2011 was recognized in AOCI. This non-credit portion of other-than-temporary impairment is attributed to external market conditions, primarily the lack of liquidity in these securities and increases in interest rates.
The following tables provide a summary of the gross unrealized losses and fair value of investment securities aggregated by investment category and length of time that the securities have been in a continuous unrealized loss position as of March 31, 2011, December 31, 2010 and March 31, 2010. The table includes investments for which an other-than-temporary impairment has not been recognized in earnings, along with investments that had a non-credit-related impairment recognized in AOCI:
|
|
Less than 12 months |
|
12 months or greater |
|
Total |
| ||||||||||||
(in thousands) |
|
Fair Value |
|
Estimated |
|
Fair Value |
|
Estimated |
|
Fair Value |
|
Estimated |
| ||||||
March 31, 2011 |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Federal agency - Debt |
|
$ |
1,032,448 |
|
$ |
8,172 |
|
$ |
|
|
$ |
|
|
$ |
1,032,448 |
|
$ |
8,172 |
|
Federal agency - MBS |
|
123,602 |
|
3,452 |
|
|
|
|
|
123,602 |
|
3,452 |
| ||||||
CMOs - Federal agency |
|
994,856 |
|
12,823 |
|
|
|
|
|
994,856 |
|
12,823 |
| ||||||
CMOs - Non-agency |
|
2,683 |
|
1 |
|
53,214 |
|
7,876 |
|
55,897 |
|
7,877 |
| ||||||
State and municipal |
|
24,738 |
|
613 |
|
691 |
|
75 |
|
25,429 |
|
688 |
| ||||||
Other debt securities |
|
|
|
|
|
16,010 |
|
7,279 |
|
16,010 |
|
7,279 |
| ||||||
Total securities |
|
$ |
2,178,327 |
|
$ |
25,061 |
|
$ |
69,915 |
|
$ |
15,230 |
|
$ |
2,248,242 |
|
$ |
40,291 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
December 31, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
U.S. Treasury |
|
$ |
5,028 |
|
$ |
4 |
|
$ |
|
|
$ |
|
|
$ |
5,028 |
|
$ |
4 |
|
Federal agency - Debt |
|
561,205 |
|
5,221 |
|
|
|
|
|
561,205 |
|
5,221 |
| ||||||
Federal agency - MBS |
|
109,381 |
|
2,801 |
|
|
|
|
|
109,381 |
|
2,801 |
| ||||||
CMOs - Federal agency |
|
755,751 |
|
10,585 |
|
|
|
|
|
755,751 |
|
10,585 |
| ||||||
CMOs - Non-agency |
|
7,718 |
|
18 |
|
61,571 |
|
9,653 |
|
69,289 |
|
9,671 |
| ||||||
State and municipal |
|
25,845 |
|
558 |
|
700 |
|
57 |
|
26,545 |
|
615 |
| ||||||
Other debt securities |
|
|
|
|
|
14,407 |
|
8,952 |
|
14,407 |
|
8,952 |
| ||||||
Total securities |
|
$ |
1,464,928 |
|
$ |
19,187 |
|
$ |
76,678 |
|
$ |
18,662 |
|
$ |
1,541,606 |
|
$ |
37,849 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
March 31, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
U.S. Treasury |
|
$ |
5,031 |
|
$ |
5 |
|
$ |
|
|
$ |
|
|
$ |
5,031 |
|
$ |
5 |
|
Federal agency - Debt |
|
168,703 |
|
585 |
|
|
|
|
|
168,703 |
|
585 |
| ||||||
Federal agency - MBS |
|
111,762 |
|
647 |
|
|
|
|
|
111,762 |
|
647 |
| ||||||
CMOs - Federal agency |
|
299,262 |
|
2,151 |
|
|
|
|
|
299,262 |
|
2,151 |
| ||||||
CMOs - Non-agency |
|
19,947 |
|
104 |
|
155,810 |
|
24,074 |
|
175,757 |
|
24,178 |
| ||||||
State and municipal |
|
13,208 |
|
245 |
|
5,828 |
|
287 |
|
19,036 |
|
532 |
| ||||||
Other debt securities |
|
|
|
|
|
31,367 |
|
6,887 |
|
31,367 |
|
6,887 |
| ||||||
Total securities |
|
$ |
617,913 |
|
$ |
3,737 |
|
$ |
193,005 |
|
$ |
31,248 |
|
$ |
810,918 |
|
$ |
34,985 |
|
At March 31, 2011, total securities available-for-sale had a fair value of $5.85 billion, which included $2.25 billion of securities available-for-sale in an unrealized loss position as of March 31, 2011. This balance consists of $2.23 billion of temporarily impaired securities and $22.6 million of securities that had non-credit related impairment recognized in AOCI. At March 31, 2011, the Company had 132 debt securities in an unrealized loss position. The debt securities in an unrealized loss position include 33 Federal agency debt securities, 8 Federal agency MBS, 46 Federal agency CMOs, 9 non-agency CMOs, 35 state and municipal securities and 1 other debt security. The Company does not consider the debt securities in the table above to be other than temporarily impaired at March 31, 2011.
The increase in unrealized losses on Federal agency securities and CMOs at March 31, 2011 compared with the earlier periods presented is primarily the result of higher market interest rates. Additionally, the unrealized loss on Non-agency CMOs reflects the lack of liquidity in this sector of the market. The Company only holds the most senior tranches of each non-agency issue which provides protection against defaults. Other than the $0.2 million credit loss recognized in 2011 on Non-agency CMOs, the Company expects to receive principal and interest payments equivalent to or greater than the current cost basis of its portfolio of debt securities. Additionally, the Company does not intend to sell the securities, and it is not more likely than not that it will be required to sell the securities before it recovers the cost basis of its investment. The mortgages in these asset pools are relatively large and have been made to borrowers with strong credit history and significant equity invested in their homes. They are well diversified geographically. Over the past year, the real estate market has
stabilized somewhat, though performance varies substantially by geography and borrower. Though reduced, a significant weakening of economic fundamentals coupled with a return to elevated unemployment rates and substantial deterioration in the value of high-end residential properties could increase the probability of default and related credit losses. These conditions could cause the value of these securities to decline and trigger the recognition of further other-than-temporary impairment charges.
Other debt securities include the Companys investments in highly rated corporate debt and collateralized bond obligations backed by trust preferred securities (CDOs) issued by a geographically diverse pool of small- and medium-sized financial institutions. The CDOs held in securities available-for-sale at March 31, 2011 are the most senior tranches of each issue. The market for CDOs has been inactive since 2008, accordingly, the fair values of these securities were determined using an internal pricing model that incorporates assumptions about discount rates in an illiquid market, projected cash flows and collateral performance. The CDOs had a $7.2 million net unrealized loss at March 31, 2011 which the Company attributes to the illiquid credit markets. The CDOs have collateral that well exceeds the outstanding debt. Security valuations reflect the current and prospective performance of the issuers whose debt is contained in these asset pools. The Company expects to receive all contractual principal and interest payments due on its CDOs. Additionally, the Company does not intend to sell the securities, and it is not more likely than not that it will be required to sell the securities before it recovers the cost basis of its investment.
At December 31, 2010, total securities available-for-sale had a fair value of $5.72 billion, which included $1.54 billion of securities available-for-sale in an unrealized loss position as of December 31, 2010. This balance consisted of $1.51 billion of temporarily impaired securities and $27.4 million of securities that had non-credit related impairment recognized in AOCI. At December 31, 2010, the Company had 109 debt securities in an unrealized loss position. The debt securities in an unrealized loss position included 1 U.S. Treasury note, 22 Federal agency debt securities, 7 Federal agency MBS, 30 Federal agency CMOs, 12 non-agency CMOs, 36 state and municipal securities and 1 other debt securities.
At March 31, 2010, total securities available-for-sale had a fair value of $3.93 billion, which included $810.9 million of securities available-for-sale in an unrealized loss position as of March 31, 2010. This balance consisted of $768.3 million of temporarily impaired securities and $42.6 million of securities that had non-credit related impairment recognized in AOCI. At March 31, 2010, the Company had 88 debt securities in an unrealized loss position. The debt securities in an unrealized loss position included 1 U. S. Treasury note, 9 Federal agency debt securities, 8 Federal agency MBS, 17 Federal agency CMOs, 24 non-agency CMOs, 26 state and municipal securities and 3 other debt securities.
Loan and Lease Portfolio
A comparative period-end loan and lease table is presented below:
Loans and Leases
|
|
March 31, |
|
December 31, |
|
March 31, |
| |||
(in thousands) |
|
2011 |
|
2010 |
|
2010 |
| |||
Commercial |
|
$ |
4,096,507 |
|
$ |
4,136,874 |
|
$ |
4,063,613 |
|
Commercial real estate mortgages |
|
1,902,862 |
|
1,958,317 |
|
2,121,941 |
| |||
Residential mortgages |
|
3,603,058 |
|
3,552,312 |
|
3,514,149 |
| |||
Real estate construction |
|
415,241 |
|
467,785 |
|
730,734 |
| |||
Equity lines of credit |
|
733,567 |
|
733,741 |
|
733,550 |
| |||
Installment |
|
146,779 |
|
160,144 |
|
164,929 |
| |||
Lease financing |
|
371,670 |
|
377,455 |
|
360,620 |
| |||
Loans and leases, excluding covered loans |
|
11,269,684 |
|
11,386,628 |
|
11,689,536 |
| |||
Less: Allowance for loan and lease losses |
|
(263,356 |
) |
(257,007 |
) |
(292,799 |
) | |||
Loans and leases, excluding covered loans, net |
|
11,006,328 |
|
11,129,621 |
|
11,396,737 |
| |||
|
|
|
|
|
|
|
| |||
Covered loans |
|
1,766,084 |
|
1,857,522 |
|
1,803,048 |
| |||
Less: Allowance for loan losses |
|
(82,016 |
) |
(67,389 |
) |
|
| |||
Covered loans, net |
|
1,684,068 |
|
1,790,133 |
|
1,803,048 |
| |||
|
|
|
|
|
|
|
| |||
Total loans and leases |
|
$ |
13,035,768 |
|
$ |
13,244,150 |
|
$ |
13,492,584 |
|
Total loans and leases, net |
|
$ |
12,690,396 |
|
$ |
12,919,754 |
|
$ |
13,199,785 |
|
Total loans and leases were $13.04 billion, $13.24 billion and $13.49 billion at March 31, 2011, December 31, 2010 and March 31, 2010, respectively. Total loans, excluding covered loans, were $11.27 billion, $11.39 billion and $11.69 billion at March 31, 2011, December 31, 2010 and March 31, 2010, respectively.
Total loans and leases at March 31, 2011 decreased 2 percent from December 31, 2010 and 3 percent from March 31, 2010. The decrease from prior periods reflects moderate loan demand, as well as the Companys continued progress in reducing the number of problem loans. Commercial loans, including lease financing, decreased by 1 percent from year-end 2010, but increased 1 percent from the year-earlier quarter. Commercial real estate mortgage loans decreased by 3 percent from year-end 2010 and 10 percent from the year-earlier quarter. Residential mortgages increased by 1 percent from year-end 2010 and 3 percent from the year-earlier quarter. Real estate construction loans declined by 11 percent and 43 percent for the same periods, respectively.
Covered Loans
Covered loans represent loans acquired from the FDIC that are subject to loss-sharing agreements and were $1.77 billion at March 31, 2011, $1.86 billion as of December 31, 2010 and $1.80 billion as of March 31, 2010. Covered loans, net of allowance for loan losses, were $1.68 billion as of March 31, 2011 and $1.79 billion as of December 31, 2010. There was no allowance for loan losses on covered loans as of March 31, 2010.
The following is a summary of the major categories of covered loans:
|
|
March 31, |
|
December 31, |
|
March 31, |
| |||
(in thousands) |
|
2011 |
|
2010 |
|
2010 |
| |||
Commercial |
|
$ |
43,450 |
|
$ |
55,082 |
|
$ |
16,721 |
|
Commercial real estate mortgages |
|
1,508,551 |
|
1,569,739 |
|
1,600,201 |
| |||
Residential mortgages |
|
18,210 |
|
18,380 |
|
7,445 |
| |||
Real estate construction |
|
188,344 |
|
204,945 |
|
178,681 |
| |||
Equity lines of credit |
|
5,944 |
|
6,919 |
|
|
| |||
Installment |
|
1,585 |
|
2,457 |
|
|
| |||
Total covered loans |
|
1,766,084 |
|
1,857,522 |
|
1,803,048 |
| |||
Less: Allowance for loan losses |
|
(82,016 |
) |
(67,389 |
) |
|
| |||
Total covered loans, net |
|
$ |
1,684,068 |
|
$ |
1,790,133 |
|
$ |
1,803,048 |
|
The Company evaluated the loans acquired from its FDIC-assisted acquisitions in 2009 and 2010 and concluded that all loans, with the exception of a small population of acquired loans, would be accounted for under ASC 310-30. Loans are accounted for under ASC 310-30 when there is evidence of credit deterioration since origination and for which it is probable, at acquisition, that the Company would be unable to collect all contractually required payments. Interest income is recognized on all acquired impaired loans through accretion of the difference between the carrying amount and the expected cash flows of the loans.
At acquisition date, the Company recorded an indemnification asset for its FDIC-assisted acquisitions in 2009 and 2010. The FDIC indemnification asset represents the present value of the expected reimbursement from the FDIC related to expected losses on acquired loans, OREO and unfunded loan commitments. The FDIC indemnification asset from all three acquisitions was $270.6 million at March 31, 2011, $295.5 million at December 31, 2010 and $325.4 million as of March 31, 2010.
Other
As reported in the Companys Annual Report on Form 10-K for the year ended December 31, 2010, the federal banking regulatory agencies issued final guidance on December 6, 2006 on risk management practices for financial institutions with high or increasing concentrations of commercial real estate (CRE) loans on their balance sheets. The regulatory guidance reiterates the need for sound internal risk management practices for those institutions that have experienced rapid growth in CRE lending, have notable exposure to specific types of CRE, or are approaching or exceeding the supervisory criteria used to evaluate the CRE concentration risk, but the guidance is not to be construed as a limit for CRE exposures. The supervisory criteria are: total reported loans for construction, land development and other land represent 100 percent of the institutions total risk-based capital, and both total CRE loans represent 300 percent or more of the institutions total risk-based capital and the institutions CRE loan portfolio has increased 50 percent or more within the last 36 months. As of March 31, 2011, total loans for construction, land development and other land represented 28 percent of total risk-based capital; total CRE loans represented 153 percent of total risk-based capital and the total portfolio of loans for construction, land development, other land and CRE increased 8 percent over the last 36 months.
The Companys policy defines subprime loans as loans to applicants who typically have impaired credit histories, reduced repayment capacity, and a relatively higher default probability. Subprime credit risk characteristics may include:
· Two or more 30-day delinquencies in the last 12 months, or one or more 60-day delinquencies in the last 24 months;
· A judgment, foreclosure, repossession, or charge-off in the prior 24 months;
· A bankruptcy in the last five years;
· A credit bureau risk score (FICO) of 660 or less; and/or
· Debt-to-income ratio of 50 percent or greater
The Company does not, and has not, offered a subprime loan program. All loans are judgmentally underwritten by reviewing the clients credit history, payment capacity and collateral value. The Company does not consider loans with the above characteristics to be subprime if strong and verifiable mitigating factors exist. Mitigating factors include guarantees, low LTV ratios and verified liquidity. As of March 31, 2011, the Company did not have any subprime loans in its loan portfolio based on the Companys definition.
Asset Quality
Credit Risk Management
The Company has a comprehensive methodology to monitor credit quality and prudently manage credit concentration within each portfolio. The methodology includes establishing concentration limits to ensure that the loan portfolio is diversified. The limits are evaluated quarterly and are intended to mitigate the impact of any segment on the Companys capital and earnings. The limits cover major industry groups, geography, product type, loan size and customer relationship. Additional sub-limits are established for certain industries where the bank has higher exposure. The concentration limits are approved by the banks Credit Policy Committee and approved annually by the Audit & Risk Committee of the Board of Directors.
The loan portfolios are monitored through delinquency tracking and a dynamic risk rating process that is designed to detect early signs of deterioration. In addition, once a loan has shown signs of deterioration, it is transferred to a Special Assets Department that consists of professionals who specialize in managing problem assets. An oversight group meets monthly to review the progress of problem loans and OREO. Also, the Company has established portfolio review requirements that include a periodic review and risk assessment by the Risk Management Division that reports to the Audit & Risk Committee of the Board of Directors.
Geographic Concentrations and Economic Trends by Geographic Region
The Companys lending activities are predominately in California, and to a lesser extent, New York and Nevada. Excluding covered loans, at March 31, 2011, California represented 86 percent of total loans outstanding and Nevada and New York represented 1 percent and 6 percent, respectively. The remaining 7 percent of total loans outstanding represented other states. Concentrations of credit risk arise when a number of clients are engaged in similar business activities, or activities in the same geographic region, or have similar economic features that would cause their ability to meet contractual obligations to be similarly affected by changes in economic conditions. Although the Company has a diversified loan portfolio, a substantial portion of the loan portfolio and credit performance depends on the economic stability of Southern California. California has experienced significant declines in real estate values and adverse effects of the recession. Californias unemployment rate in March 2011 was 12 percent. The Companys loan portfolio has been affected by the economy, but the impact is lessened by the Company having most of its loans in large metropolitan California cities such as Los Angeles, San Francisco and San Diego rather than in the outlying suburban communities that have seen higher declines in real estate values. Within the Companys Commercial loan portfolio, the five California counties with the largest exposures are Los Angeles (54 percent), Orange (6 percent), San Diego (5 percent), Ventura (3 percent) and Riverside (2 percent). Within the Commercial Real Estate Mortgage loan portfolio, the five California counties with the largest exposures are Los Angeles (38 percent), Orange (11 percent), Ventura (6 percent), San Diego (6 percent) and Contra Costa (3 percent). For the Real Estate Construction loan portfolio, the concentration in California is predominately in Los Angeles (46 percent), Santa Barbara (10 percent), Orange (5 percent), Contra Costa (5 percent), and San Diego (4 percent).
Generally, loan portfolios related to borrowers or properties located within Nevada have fared worse than California and New York. The Nevada economy continues to struggle and the recovery is anticipated to be protracted and it is dependent on economic improvement at the national level such that Nevada tourism increases to a level that supports new jobs and real estate development. In March 2011, the Nevada unemployment rate was approximately 13 percent. The consensus outlook for 2011 is that the Nevada economy will remain challenged in part due to its troubled real estate and tourism sectors. The Companys Nevada portfolio has been broadly affected with the most significant stress in the construction and land portfolios. The Company has very few residential mortgage loans in Nevada. The New York loan portfolio primarily relates to private banking clients in the Entertainment and Legal industries, which continue to perform well.
Within the Companys covered loan portfolio at March 31, 2011, the five states with the largest concentration were California (41 percent), Texas (12 percent), Nevada (6 percent), New York (5 percent) and Arizona (4 percent). The remaining 32 percent of total covered loans outstanding represented other states.
Allowance for Loan and Lease Losses and Reserve for Off-Balance Sheet Credit Commitments
A consequence of lending activities is that losses may be experienced. The amount of such losses will vary from time to time depending upon the risk characteristics of the loan portfolio as affected by economic conditions, changing interest rates, and the financial performance of borrowers. The allowance for loan and lease losses and the reserve for off-balance sheet credit commitments which provide for the risk of losses inherent in the credit extension process, are increased by the provision for credit losses charged to operating expense. The allowance for loan and lease losses is decreased by the amount of charge-offs, net of recoveries. There is no exact method of predicting specific losses or amounts that ultimately may be charged off on particular segments of the loan portfolio.
The Company has an internal credit risk analysis and review staff that issues reports to the Audit & Risk Committee of the Board of Directors and continually reviews loan quality. This analysis includes a detailed review of the classification and categorization of problem loans, potential problem loans and loans to be charged off, an assessment of the overall quality and collectibility of the portfolio, consideration of the credit loss experience, trends in problem loans and concentration of credit risk, as well as current economic conditions, particularly in California and Nevada. Management then evaluates the allowance, determines its appropriate level and the need for additional provisions, and presents its analysis to the Audit and Risk Committee which ultimately reviews and approves managements recommendation.
The provision is the expense recognized in the consolidated statements of income to adjust the allowance and reserve to the level deemed appropriate by management, as determined through application of the Companys allowance methodology procedures. See Critical Accounting PoliciesAllowance for Loan and Lease Losses and Reserve for Off-Balance Sheet Credit Commitments in the Companys 2010 Annual Report on Form 10-K. The process used for determining the adequacy of the reserve for off-balance sheet credit commitments is consistent with the process for the allowance for loan and lease losses.
The following table summarizes the activity in the allowance for loan and lease losses and the reserve for off-balance sheet credit commitments, excluding covered loans, for the three months ended March 31, 2011 and 2010:
Changes in Allowance for Loan and Lease Losses
|
|
For the three months ended |
| ||||
|
|
March 31, |
| ||||
(in thousands) |
|
2011 |
|
2010 |
| ||
|
|
|
|
|
| ||
Loans and leases outstanding, excluding covered loans |
|
$ |
11,269,684 |
|
$ |
11,689,536 |
|
Average loans and leases outstanding, excluding covered loans |
|
$ |
11,255,887 |
|
$ |
11,944,326 |
|
Allowance for loan and lease losses (1) |
|
|
|
|
| ||
Balance, beginning of period |
|
$ |
257,007 |
|
$ |
288,493 |
|
Loans charged-off: |
|
|
|
|
| ||
Commercial |
|
(3,238 |
) |
(18,070 |
) | ||
Commercial real estate mortgages |
|
(2,799 |
) |
(14,975 |
) | ||
Residential mortgages |
|
(647 |
) |
(1,460 |
) | ||
Real estate construction |
|
(566 |
) |
(14,225 |
) | ||
Equity lines of credit |
|
(793 |
) |
(213 |
) | ||
Installment |
|
(324 |
) |
(1,496 |
) | ||
Total loans charged-off |
|
(8,367 |
) |
(50,439 |
) | ||
Recoveries of loans previously charged-off: |
|
|
|
|
| ||
Commercial |
|
1,301 |
|
445 |
| ||
Commercial real estate mortgages |
|
9,011 |
|
7 |
| ||
Residential mortgages |
|
32 |
|
69 |
| ||
Real estate construction |
|
4,392 |
|
43 |
| ||
Equity lines of credit |
|
36 |
|
3 |
| ||
Installment |
|
122 |
|
336 |
| ||
Total recoveries |
|
14,894 |
|
903 |
| ||
Net loans charged-off |
|
6,527 |
|
(49,536 |
) | ||
Provision for credit losses |
|
|
|
55,000 |
| ||
Transfers to reserve for off-balance sheet credit commitments |
|
(178 |
) |
(1,158 |
) | ||
Balance, end of period |
|
$ |
263,356 |
|
$ |
292,799 |
|
|
|
|
|
|
| ||
Net recoveries (charge-offs) to average loans and leases, excluding covered loans (annualized) |
|
0.24 |
% |
(1.68 |
)% | ||
Allowance for loan and lease losses to total period-end loans and leases, excluding covered loans |
|
2.34 |
% |
2.50 |
% | ||
|
|
|
|
|
| ||
Reserve for off-balance sheet credit commitments |
|
|
|
|
| ||
Balance, beginning of period |
|
$ |
21,529 |
|
$ |
17,340 |
|
Provision for credit losses/transfers |
|
178 |
|
1,158 |
| ||
Balance, end of period |
|
$ |
21,707 |
|
$ |
18,498 |
|
(1) The allowance for loan and lease losses does not include any amounts related to covered loans.
The following table summarizes the activity in the allowance for loan losses on covered loans for the three months ended March 31, 2011 and 2010:
|
|
For the three months ended |
| ||||
(in thousands) |
|
2011 |
|
2010 |
| ||
Balance, beginning of period |
|
$ |
67,389 |
|
$ |
|
|
Provision for losses |
|
19,116 |
|
|
| ||
Reduction in allowance due to loan removals |
|
(4,489 |
) |
|
| ||
Balance, end of period |
|
$ |
82,016 |
|
$ |
|
|
The allowance for loan losses on covered loans was $82.0 million as of March 31, 2011. The Company recorded provision expense of $19.1 million for the three months ended March 31, 2011. There was no allowance for loan losses or provision expense on covered loans at March 31, 2010. The Company updates its cash flow projections for covered loans accounted for under ASC 310-30 on a quarterly basis, and may recognize provision expense and an allowance for loan losses as a result of that analysis. The loss on covered loans is mainly the result of lower projected interest cash flows due to loan prepayments and the Companys revised default forecasts, though credit losses decreased slightly as compared with previous expectations. The revisions of the default forecasts were based on the results of managements review of the credit quality of the covered loans and the analysis of the loan performance data since the acquisition of covered loans. The allowance for loan losses on covered loans is reduced for any loan removals. A loan is removed when it has been fully paid-off, fully charged off, sold or transferred to OREO.
Impaired Loans
Loans, other than those included in large groups of smaller-balance homogeneous loans, are considered impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement, including scheduled interest payments. The assessment for impairment occurs when and while such loans are on nonaccrual, or when the loan has been restructured. When a loan with unique risk characteristics has been identified as being impaired, the amount of impairment will be measured by the Company using discounted cash flows, except when it is determined that the primary (remaining) source of repayment for the loan is the operation or liquidation of the underlying collateral. In these cases, the current fair value of the collateral, reduced by costs to sell, will be used in place of discounted cash flows. As a final alternative, the observable market price of the debt may be used to assess impairment. Impaired loans with commitments of less than $500,000 are aggregated for the purpose of measuring impairment using historical loss factors as a means of measurement.
If the measurement of the impaired loan is less than the recorded investment in the loan (including accrued interest, net deferred loan fees or costs and unamortized premium or discount), an impairment allowance is recognized by creating or adjusting the existing allocation of the allowance for loan and lease losses. Interest payments received on impaired loans are generally applied as follows: (1) to principal if the loan is on nonaccrual principal recapture status, (2) to interest income if the loan is on cash basis nonaccrual and (3) to interest income if the impaired loan has been returned to accrual status.
The following table presents information on impaired loans as of March 31, 2011, December 31, 2010 and March 31, 2010:
|
|
March 31, |
|
December 31, |
|
March 31, |
| ||||||||||||
|
|
2011 |
|
2010 |
|
2010 |
| ||||||||||||
(in thousands) |
|
Loans and |
|
Related |
|
Loans and |
|
Related |
|
Loans and |
|
Related |
| ||||||
Impaired loans, excluding covered loans: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Nonaccrual loans (1) |
|
$ |
145,113 |
|
|
|
$ |
179,578 |
|
|
|
$ |
318,963 |
|
|
| |||
Troubled debt restructured loans on accrual |
|
|
|
|
|
10,834 |
|
|
|
|
|
|
| ||||||
Total impaired loans, excluding covered loans |
|
$ |
145,113 |
|
|
|
$ |
190,412 |
|
|
|
$ |
318,963 |
|
|
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Total impaired loans with an allowance |
|
$ |
33,853 |
|
$ |
8,655 |
|
$ |
41,279 |
|
$ |
5,444 |
|
$ |
232,982 |
|
$ |
44,515 |
|
Total impaired loans with no related allowance |
|
111,260 |
|
|
|
149,133 |
|
|
|
85,981 |
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Total impaired loans by loan type: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Commercial |
|
$ |
13,334 |
|
$ |
2,291 |
|
$ |
15,860 |
|
$ |
2,592 |
|
$ |
68,729 |
|
$ |
14,950 |
|
Commercial real estate mortgages |
|
25,670 |
|
1,060 |
|
42,580 |
|
1,889 |
|
64,816 |
|
6,743 |
| ||||||
Residential mortgages |
|
12,415 |
|
384 |
|
16,889 |
|
342 |
|
10,576 |
|
78 |
| ||||||
Real estate construction |
|
81,448 |
|
334 |
|
108,221 |
|
366 |
|
164,239 |
|
20,540 |
| ||||||
Equity lines of credit |
|
4,234 |
|
72 |
|
4,859 |
|
255 |
|
2,099 |
|
552 |
| ||||||
Installment |
|
6,938 |
|
4,514 |
|
1,148 |
|
|
|
7,649 |
|
1,652 |
| ||||||
Lease financing |
|
1,074 |
|
|
|
855 |
|
|
|
855 |
|
|
| ||||||
Total impaired loans, excluding covered loans |
|
$ |
145,113 |
|
$ |
8,655 |
|
$ |
190,412 |
|
$ |
5,444 |
|
$ |
318,963 |
|
$ |
44,515 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Impaired covered loans |
|
$ |
2,343 |
|
$ |
|
|
$ |
2,557 |
|
$ |
|
|
$ |
|
|
$ |
|
|
(1) Impaired loans exclude $12.3 million, $11.3 million and $11.0 million of nonaccrual loans under $500,000 that are not individually evaluated for impairment at March 31, 2011, December 31, 2010 and March 31, 2010, respectively.
Impaired loans, excluding covered loans, were $145.1 million at March 31, 2011, $190.4 million at December 31, 2010 and $319.0 million at March 31, 2010. Impaired covered loans were $2.3 million at March 31, 2011 and $2.6 million at December 31, 2010, and are included in the Companys population of acquired covered loans that are accounted for outside the scope of ASC 310-30.
Nonaccrual, Past Due and Restructured Loans
Total nonperforming assets (nonaccrual loans and OREO), excluding covered assets, were $213.7 million, or 1.89 percent of total loans and OREO, excluding covered assets, at March 31, 2011, compared with $248.2 million, or 2.17 percent, at December 31, 2010, and $388.0 million, or 3.30 percent, at March 31, 2010. The Company had non-covered OREO of $56.3 million, $57.3 million and $58.0 million at March 31, 2011, December 31, 2010 and March 31, 2010, respectively.
Total nonperforming covered assets were $124.2 million at March 31, 2011, $123.4 million at December 31, 2010 and $77.5 million at March 31, 2010. Nonperforming covered assets consisted of nonaccrual covered loans of $2.3 million and covered OREO of $121.8 million at March 31, 2011. At December 31, 2010, nonperforming covered assets consisted of nonaccrual covered loans of $2.6 million and covered OREO of $120.8 million. Nonperforming covered assets at March 31, 2010 consisted of covered OREO of $77.5 million.
Troubled debt restructured loans were $10.1 million, before specific reserves of $1.6 million, at March 31, 2011. Troubled debt restructured loans were $32.5 million, before specific reserves of $1.6 million, at December 31, 2010. At March 31, 2010, troubled debt restructured loans were $17.1 million, before specific reserves of $2.2 million. As of December 31, 2010, there were $10.8 million of restructured loans that had been returned to accrual status. These loans were no longer reported as impaired at March 31, 2011. There were no troubled debt restructured loans on accrual status at March 31, 2011 or March 31, 2010. There were no commitments to lend additional funds on restructured loans at March 31, 2011.
The following table presents information about nonaccrual loans and OREO:
Nonaccrual Loans and OREO
|
|
March 31, |
|
December 31, |
|
March 31, |
| |||
(in thousands) |
|
2011 |
|
2010 |
|
2010 |
| |||
|
|
|
|
|
|
|
| |||
Nonperforming assets, excluding covered assets |
|
|
|
|
|
|
| |||
Nonaccrual loans, excluding covered loans |
|
|
|
|
|
|
| |||
Commercial |
|
$ |
17,944 |
|
$ |
19,498 |
|
$ |
72,983 |
|
Commercial real estate mortgages |
|
28,028 |
|
44,882 |
|
66,194 |
| |||
Residential mortgages |
|
14,544 |
|
18,721 |
|
12,045 |
| |||
Real estate construction |
|
81,448 |
|
98,209 |
|
164,985 |
| |||
Equity lines of credit |
|
6,676 |
|
6,782 |
|
4,089 |
| |||
Installment |
|
7,399 |
|
1,696 |
|
8,865 |
| |||
Lease Financing |
|
1,353 |
|
1,135 |
|
855 |
| |||
Total nonaccrual loans, excluding covered loans |
|
157,392 |
|
190,923 |
|
330,016 |
| |||
OREO, excluding covered OREO |
|
56,342 |
|
57,317 |
|
58,025 |
| |||
Total nonperforming assets, excluding covered assets |
|
$ |
213,734 |
|
$ |
248,240 |
|
$ |
388,041 |
|
|
|
|
|
|
|
|
| |||
Nonperforming covered assets |
|
|
|
|
|
|
| |||
Nonaccrual loans |
|
$ |
2,343 |
|
$ |
2,557 |
|
$ |
|
|
OREO |
|
121,822 |
|
120,866 |
|
77,526 |
| |||
Total nonperforming covered assets |
|
$ |
124,165 |
|
$ |
123,423 |
|
$ |
77,526 |
|
|
|
|
|
|
|
|
| |||
Ratios (excluding covered assets): |
|
|
|
|
|
|
| |||
Nonaccrual loans as a percentage of total loans |
|
1.40 |
% |
1.68 |
% |
2.82 |
% | |||
Nonperforming assets as a percentage of total loans and OREO |
|
1.89 |
|
2.17 |
|
3.30 |
| |||
Allowance for loan and lease losses to nonaccrual loans |
|
167.32 |
|
134.61 |
|
88.72 |
| |||
Allowance for loan and lease losses to total nonperforming assets |
|
123.22 |
|
103.53 |
|
75.46 |
| |||
Allowance for loan and lease losses to total loans and leases |
|
2.34 |
|
2.26 |
|
2.50 |
|
Company policy requires that a loan be placed on nonaccrual status if either principal or interest payments are 90 days past due, unless the loan is both well secured and in process of collection, or if full collection of interest or principal becomes uncertain, regardless of the time period involved. Covered loans accounted for under ASC 310-30 are generally considered accruing and performing loans as the loans accrete interest income over the estimated life of the loan when cash flows are reasonably estimable. Accordingly, acquired impaired loans that are contractually past due are still considered to be accruing and performing loans. If the timing and amount of future cash flows is not reasonably estimable, the loans may be classified as nonaccrual loans and interest income is not recognized until the timing and amount of future cash flows can be reasonably estimated.
Loans are considered past due following the date when either interest or principal is contractually due and unpaid. A summary of past due loans at March 31, 2011, December 31, 2010 and March 31, 2010 is provided below:
(in thousands) |
|
March 31, |
|
December 31, |
|
March 31, |
| |||
Past due loans, excluding covered loans: |
|
|
|
|
|
|
| |||
30-89 days past due |
|
$ |
26,854 |
|
$ |
35,377 |
|
$ |
41,997 |
|
90 days or more past due on accrual status: |
|
|
|
|
|
|
| |||
Commercial |
|
2,556 |
|
2,120 |
|
165 |
| |||
Residential mortgages |
|
1,123 |
|
379 |
|
1,547 |
| |||
Total 90 days or more past due on accrual status |
|
3,679 |
|
2,499 |
|
1,712 |
| |||
|
|
|
|
|
|
|
| |||
Past due covered loans |
|
|
|
|
|
|
| |||
30-89 days past due |
|
$ |
89,263 |
|
$ |
99,506 |
|
$ |
65,173 |
|
90 days or more past due on accrual status |
|
390,267 |
|
399,019 |
|
323,620 |
|
Nonaccrual loans, excluding covered loans, were $157.4 million at March 31, 2011, a decrease from $190.9 million at December 31, 2010 and $330.0 million at March 31, 2010. Net loan recoveries in the first quarter of 2011 were $6.5 million, or 0.24 percent of average loans and leases, excluding covered loans, on an annualized basis, compared with net loan charge-offs of $19.0 million, or 0.66 percent, for the fourth quarter of 2010 and $49.5 million, or 1.68 percent, for the first quarter of 2010. In accordance with the Companys allowance for loan and lease losses methodology and in response to significant improvements in nonaccrual loans and net charge-offs, the Company recorded no provision for loan and lease losses for the three months ended March 31, 2011. The Company recognized provision for loan and lease losses of $3.0 million and $55.0 million for the fourth quarter of 2010 and first quarter of 2010, respectively.
The allowance for loan and lease losses, excluding covered loans, was $263.4 million as of March 31, 2011, compared with $257.0 million as of December 31, 2010 and $292.8 million as of March 31, 2010. The ratio of the allowance for loan and lease losses as a percentage of total loans and leases, excluding covered loans, was 2.34 percent at March 31, 2011 from 2.26 percent at December 31, 2010 and 2.50 percent at March 31, 2010. The allowance for loan and lease losses as a percentage of nonperforming assets, excluding covered assets, was 123.2 percent, 103.5 percent, and 75.5 percent at March 31, 2011, December 31, 2010 and March 31, 2010, respectively. The Company believes that its allowance for loan and lease losses continues to be adequate.
All nonaccrual loans greater than $500,000 are considered impaired and are individually analyzed. The Company does not maintain a reserve for impaired loans where the carrying value of the loan is less than the fair value of the collateral, reduced by costs to sell. Where the carrying value of the impaired loan is greater than the fair value of the collateral, less costs to sell, the Company specifically establishes an allowance for loan and lease losses to cover the deficiency. This analysis ensures that the non-accruing loans have been adequately reserved.
Covered loans accounted for under ASC 310-30 are generally considered accruing and performing loans as the loans accrete interest income over the estimated life of the loan when cash flows are reasonably estimable. Accordingly, acquired impaired loans that are contractually past due are still considered to be accruing and performing loans. If the timing and amount of future cash flows is not reasonably estimable, the loans may be classified as nonaccrual loans and interest income is not recognized until the timing and amount of future cash flows can be reasonably estimated. At March 31, 2011, there were no acquired impaired covered loans accounted for under ASC 310-30 that were on nonaccrual basis. Of the population of covered loans that are accounted for outside the scope of ASC 310-30, the Company had $2.3 million and $2.6 million of acquired covered loans that were on nonaccrual status at March 31, 2011 and December 31, 2010, respectively.
The table below summarizes the total activity in non-covered and covered nonaccrual loans:
Nonaccrual Loans
|
|
For the three months ended |
| ||||
|
|
March 31, |
| ||||
(in thousands) |
|
2011 |
|
2010 |
| ||
Balance, beginning of the year |
|
$ |
193,480 |
|
$ |
388,707 |
|
Loans placed on nonaccrual |
|
18,695 |
|
68,121 |
| ||
Charge-offs |
|
(5,694 |
) |
(45,319 |
) | ||
Loans returned to accrual status |
|
(5,208 |
) |
(488 |
) | ||
Repayments (including interest applied to principal) |
|
(33,584 |
) |
(59,942 |
) | ||
Transfers to OREO |
|
(7,954 |
) |
(21,063 |
) | ||
Balance, end of the period |
|
$ |
159,735 |
|
$ |
330,016 |
|
In addition to loans disclosed above as past due or nonaccrual, management has also identified approximately $29.6 million of loans to 14 borrowers as of April 28, 2011, where the ability to comply with the present loan payment terms in the future is questionable. However, the inability of the borrowers to comply with repayment terms was not sufficiently probable to place the loan on nonaccrual status at March 31, 2011, and the identification of these loans is not necessarily indicative of whether the loans will be placed on nonaccrual status. This amount was determined based on analysis of information known to management about the borrowers financial condition and current economic conditions. As of February 16, 2011, management had identified $18.2 million of loans to 29 borrowers where the ability to comply with the loan payment terms in the future was questionable. Managements classification of credits as nonaccrual, restructured or problems does not necessarily indicate that the principal is uncollectible in whole or part.
Through the recent economic down-turn, the Company has taken and continues to take steps to address deterioration in credit quality in various segments of its loan portfolio. Deterioration has been centered in the land, acquisition and development and construction portfolios with lesser deterioration in its commercial loans portfolio. These steps have included modifying underwriting standards, implementation of loss mitigation actions including curtailment of certain commitments and lending to certain sectors, and proactively identifying, managing, and resolving problem loans.
Other Real Estate Owned
The following table provides a summary of OREO activity:
|
|
For the three months ended |
|
For the three months ended |
| ||||||||||||||
(in thousands) |
|
Non-Covered |
|
Covered |
|
Total |
|
Non-Covered |
|
Covered |
|
Total |
| ||||||
Balance, beginning of period |
|
$ |
57,317 |
|
$ |
120,866 |
|
$ |
178,183 |
|
$ |
53,308 |
|
$ |
60,558 |
|
$ |
113,866 |
|
Additions |
|
6,562 |
|
27,577 |
|
34,139 |
|
21,097 |
|
24,827 |
|
45,924 |
| ||||||
Sales |
|
(6,064 |
) |
(18,317 |
) |
(24,381 |
) |
(5,403 |
) |
(3,835 |
) |
(9,238 |
) | ||||||
Valuation adjustments |
|
(1,473 |
) |
(8,304 |
) |
(9,777 |
) |
(10,977 |
) |
(4,024 |
) |
(15,001 |
) | ||||||
Balance, end of period |
|
$ |
56,342 |
|
$ |
121,822 |
|
$ |
178,164 |
|
$ |
58,025 |
|
$ |
77,526 |
|
$ |
135,551 |
|
OREO was $178.2 million at March 31, 2011 and December 31 2010 and $135.6 million at March 31, 2010. The OREO balance at March 31, 2011 includes covered OREO of $121.8 million compared with $120.9 million at December 31, 2010 and $77.5 million at March 31, 2010. Covered OREO represents OREO from FDIC-assisted acquisitions that are subject to loss sharing agreements. The Company recognized $2.5 million in total net gain on the sale of OREO in the first quarter of 2011, compared with $1.2 million in total net gain in the year-earlier quarter. Net gain on the sale of OREO included $1.6 million and $0.6 million of net gain related to the sale of covered OREO for the three months ended March 31, 2011 and 2010, respectively.
Covered OREO expenses and valuation write-downs are recorded in the noninterest expense section of the consolidated statements of income and gains or losses on sale of covered OREO is recognized in the noninterest income section. Under the loss sharing agreements, 80 percent of covered OREO expenses, valuation write-downs, and losses on sales are reimbursable to the Company from the FDIC and 80 percent of covered gains on sales are payable to the FDIC. The portion of these expenses that is reimbursable or income that is payable is recorded in FDIC loss sharing income, net in the noninterest income section of the consolidated statements of income.
Other Assets
The following table presents information on other assets:
|
|
March 31, |
|
December 31, |
|
March 31, |
| |||
(in thousands) |
|
2011 |
|
2010 |
|
2010 |
| |||
Accrued interest receivable |
|
$ |
63,042 |
|
$ |
60,492 |
|
$ |
72,585 |
|
Other accrued income |
|
12,117 |
|
12,943 |
|
12,468 |
| |||
Deferred compensation fund assets |
|
56,466 |
|
49,902 |
|
44,084 |
| |||
Stock in government agencies |
|
117,097 |
|
120,660 |
|
123,217 |
| |||
Private equity and alternative investments |
|
37,958 |
|
37,454 |
|
37,363 |
| |||
Bank-owned life insurance |
|
80,257 |
|
79,570 |
|
77,512 |
| |||
Mark-to-market on derivatives |
|
39,860 |
|
46,712 |
|
51,039 |
| |||
Income tax receivable |
|
51,836 |
|
71,130 |
|
61,952 |
| |||
Prepaid FDIC assessment |
|
51,567 |
|
59,818 |
|
79,582 |
| |||
FDIC receivable |
|
39,914 |
|
60,018 |
|
93,148 |
| |||
Other |
|
83,687 |
|
86,412 |
|
93,654 |
| |||
Total other assets |
|
$ |
633,801 |
|
$ |
685,111 |
|
$ |
746,604 |
|
Deposits
Deposits totaled $18.48 billion, $18.18 billion and $16.96 billion at March 31, 2011, December 31, 2010 and March 31, 2010, respectively. The increase in deposits from the year-earlier quarter was partly attributable to the Companys FDIC-assisted acquisitions in May 2010. Average deposits totaled $18.18 billion for the first quarter of 2011, a decrease of 3 percent from $18.69 billion for the fourth quarter of 2010, and an increase of 8 percent from $16.86 billion the first quarter of 2010. The decrease from the fourth quarter of 2010 reflects a seasonal decline in deposit balances. Core deposits, which include noninterest-bearing deposits and interest-bearing deposits excluding time deposits of $100,000 and over, provide a stable source of low cost funding. Average core deposits totaled $17.36 billion, $17.72 billion and $15.63 billion at March 31, 2011, December 31, 2010 and March 31, 2010, respectively, and represented 95 percent, 95 percent and 93 percent of total deposits for the same periods. Average non-interest bearing deposits for the first quarter of 2011 decreased 2 percent from the fourth quarter of 2010 and increased 12 percent from the first quarter of 2010.
Treasury Services deposit balances, which consists primarily of title, escrow, community association and property management deposits, averaged $1.51 billion in the first quarter of 2011, compared with $1.53 billion in the fourth quarter of 2010 and $1.08 billion for the first quarter of 2010. The increase from the year-ago period was due largely to the addition of new clients and an increase in residential and commercial real estate activity by the Companys title and escrow clients.
Borrowed Funds
Total borrowed funds were $854.8 million, $858.4 million and $996.2 million at March 31, 2011, December 31, 2010 and March 31, 2010, respectively. Total average borrowed funds was $858.6 million, $899.8 million and $1.11 billion for the quarters ended March 31, 2011, December 31, 2010 and March 31, 2010, respectively.
Short-term borrowings consist of funds with remaining maturities of one year or less. At March 31, 2011, short-term borrowings were $151.7 million as of March 31, 2011 compared to $153.4 million as of December 31, 2010 and $9.6 million as of March 31, 2010. Short-term borrowings at March 31, 2011 and December 31, 2010 primarily related to the current portion of subordinated debt.
Long-term debt consists of borrowings with remaining maturities greater than one year and is primarily comprised of senior notes, subordinated debt and junior subordinated debt. Long-term debt was $703.2 million, $705.0 million and $986.6 million as of March 31, 2011, December 31, 2010 and March 31, 2010, respectively. The decrease in long-term debt from the year-earlier quarter was primarily attributable to the redemption of trust preferred securities in the fourth quarter of 2010. The Companys long-term borrowings have maturity dates ranging from September 2011 to November 2034.
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; and to invest in private equity and affordable housing funds. These instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount reflected in the consolidated balance sheets.
Exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit, letters of credit, and financial guarantees written is represented by the contractual notional amount of those instruments. The Company uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments.
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 clients creditworthiness on a case-by-case basis.
The Company had off-balance sheet credit commitments totaling $4.73 billion at March 31, 2011, compared with $4.52 billion and $4.79 billion at December 31, 2010 and March 31, 2010, respectively. Substantially all of the Companys loan commitments are on a variable rate basis and are comprised primarily of real estate and commercial loan commitments. In addition, the Company had $602.6 million outstanding in bankers acceptances and letters of credit of which $589.2 million relate to standby letters of credit at March 31, 2011. At December 31, 2010, the Company had $603.8 million outstanding in bankers acceptances and letters of credit of which $588.9 million relate to standby letters of credit. At March 31, 2010, the Company had $575.1 million outstanding in bankers acceptances and letters of credit of which $561.3 million relate to standby letters of credit.
As of March 31, 2011, the Company had private equity and alternative investment fund commitments of $65.9 million, of which $53.0 million was funded. As of December 31, 2010 and March 31, 2010, the Company had private equity and alternative investment fund commitments of $65.9 million and $68.4 million, respectively, of which $52.3 million and $51.6 million was funded.
In connection with the liquidation of an investment acquired in a previous bank merger, the Company has an outstanding long-term indemnity. The maximum liability under the indemnity is $23 million, but the Company does not expect to make any significant payments under the terms of this indemnity.
Fair Value Measurements
Management employs market standard valuation techniques in determining the fair value of assets and liabilities. Inputs used in valuation techniques are based on assumptions that market participants would use in pricing an asset or liability. The Company utilizes quoted market prices to measure fair value to the extent available (Level 1). If market prices are not available, fair value measurements are based on models that use primarily market-based assumptions including interest rate yield curves, anticipated prepayment rates, default rates and foreign currency rates (Level 2). In certain circumstances, market observable inputs for model-based valuation techniques may not be available and the Company is required to make judgments about assumptions that market participants would use in estimating the fair value of a financial instrument (Level 3). Refer to Note 3, Fair Value Measurements, to the Consolidated Financial Statements for additional information on fair value measurements.
At March 31, 2011, $5.97 billion, or approximately 28 percent, of the Companys total assets were recorded at fair value on a recurring basis. The majority of these financial assets were valued using Level 1 or Level 2 inputs. Less one percent of total assets are measured using Level 3 inputs. At March 31, 2011, $22.3 million of the Companys total liabilities were recorded at fair value on a recurring basis using Level 1 or Level 2 inputs.
At March 31, 2011, $49.6 million, or less than one percent of the Companys total assets, were recorded at fair value on a nonrecurring basis. These assets were measured using Level 2 and Level 3 inputs. No liabilities were measured at fair value on a nonrecurring basis at March 31, 2011.
Capital
The ratio of period-end equity to period-end assets was 9.29 percent as of March 31, 2011, December 31, 2010 and March 31, 2010.
The following table presents the regulatory standards for well capitalized institutions and the capital ratios for the Corporation and the Bank at March 31, 2011, December 31, 2010 and March 31, 2010:
|
|
Regulatory |
|
March 31, |
|
December 31, |
|
March 31, |
|
City National Corporation |
|
|
|
|
|
|
|
|
|
Tier 1 leverage |
|
N/A |
% |
7.09 |
% |
6.74 |
% |
8.03 |
% |
Tier 1 risk-based capital |
|
6.00 |
|
10.91 |
|
10.52 |
|
11.44 |
|
Total risk-based capital |
|
10.00 |
|
13.68 |
|
13.28 |
|
14.42 |
|
Tangible equity to tangible assets (1) |
|
N/A |
|
7.03 |
|
6.99 |
|
6.86 |
|
Tier 1 common shareholders equity to risk-based assets (2) |
|
N/A |
|
10.69 |
|
10.29 |
|
9.44 |
|
|
|
|
|
|
|
|
|
|
|
City National Bank |
|
|
|
|
|
|
|
|
|
Tier 1 leverage |
|
5.00 |
% |
8.62 |
% |
8.28 |
% |
8.28 |
% |
Tier 1 risk-based capital |
|
6.00 |
|
13.30 |
|
12.91 |
|
11.83 |
|
Total risk-based capital |
|
10.00 |
|
15.91 |
|
15.50 |
|
14.62 |
|
(1) Tangible equity to tangible assets is a non-GAAP financial measure that represents total equity less identifiable intangible assets and goodwill divided by total assets less identifiable assets and goodwill. Management reviews tangible equity to tangible assets in evaluating the Companys capital levels and has included this ratio in response to market participant interest in tangible equity as a measure of capital. See reconciliation of the GAAP financial measure to this non-GAAP financial measure below.
(2) Tier 1 common shareholders equity to risk-based assets is calculated by dividing (a) Tier 1 capital less non-common components including qualifying perpetual preferred stock, qualifying noncontrolling interest in subsidiaries and qualifying trust preferred securities by (b) risk-weighted assets. Tier 1 capital and risk-weighted assets are calculated in accordance with applicable bank regulatory guidelines. This ratio is a non-GAAP measure that is used by investors, analysts and bank regulatory agencies to assess the capital position of financial services companies. Management reviews this measure in evaluating the Companys capital levels and has included this measure in response to market participant interest in the Tier 1 common shareholders equity to risk based assets ratio. See reconciliation of the GAAP financial measure to this non-GAAP financial measure below.
Reconciliation of GAAP financial measure to non-GAAP financial measure:
(in thousands) |
|
March 31, |
|
December 31, |
|
March 31, |
| |||
Total equity |
|
$ |
2,010,627 |
|
$ |
1,984,718 |
|
$ |
1,863,411 |
|
Less: Goodwill and other intangible assets |
|
(527,419 |
) |
(528,634 |
) |
(523,135 |
) | |||
Tangible equity (A) |
|
$ |
1,483,208 |
|
$ |
1,456,084 |
|
$ |
1,340,276 |
|
|
|
|
|
|
|
|
| |||
Total assets |
|
$ |
21,635,932 |
|
$ |
21,353,118 |
|
$ |
20,066,475 |
|
Less: Goodwill and other intangible assets |
|
(527,419 |
) |
(528,634 |
) |
(523,135 |
) | |||
Tangible assets (B) |
|
$ |
21,108,513 |
|
$ |
20,824,484 |
|
$ |
19,543,340 |
|
|
|
|
|
|
|
|
| |||
Tangible equity to tangible assets (A)/(B) |
|
7.03 |
% |
6.99 |
% |
6.86 |
% | |||
|
|
|
|
|
|
|
| |||
Tier 1 capital |
|
1,478,820 |
|
1,441,837 |
|
1,585,727 |
| |||
Less: Noncontrolling interest |
|
(25,089 |
) |
(25,139 |
) |
(25,088 |
) | |||
Less: Trust preferred securities |
|
(5,155 |
) |
(5,155 |
) |
(252,062 |
) | |||
Tier 1 common shareholders equity (C) |
|
$ |
1,448,576 |
|
$ |
1,411,543 |
|
$ |
1,308,577 |
|
|
|
|
|
|
|
|
| |||
Risk-weighted assets (D) |
|
$ |
13,551,318 |
|
$ |
13,712,097 |
|
$ |
13,856,028 |
|
|
|
|
|
|
|
|
| |||
Tier 1 common shareholders equity to risk-based assets (C)/(D) |
|
10.69 |
% |
10.29 |
% |
9.44 |
% |
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ASSET/LIABILITY MANAGEMENT
Market risk results from the variability of future cash flows and earnings due to changes in the financial markets. These changes may also impact the fair values of loans, securities and borrowings. The values of financial instruments may fluctuate because of interest rate changes, foreign currency exchange rate changes or other market changes. The Companys asset/liability management process entails the evaluation, measurement and management of market risk and liquidity risk. The principal objective of asset/liability management is to optimize net interest income subject to margin volatility and liquidity constraints over the long term. Margin volatility results when the rate reset (or repricing) characteristics of assets are materially different from those of the Companys liabilities. The Board of Directors approves asset/liability policies and annually reviews and approves the limits within which the risks must be managed. The Asset/Liability Management Committee (ALCO), which is comprised of senior management and key risk management individuals, sets risk management guidelines within the broader limits approved by the Board, monitors the risks and periodically reports results to the Board.
A quantitative and qualitative discussion about market risk is included on pages 67 to 73 of the Corporations Form 10-K for the year ended December 31, 2010.
Liquidity Risk
Liquidity risk results from the mismatching of asset and liability cash flows. Funds for this purpose can be obtained in cash markets, by borrowing, or by selling certain assets. The objective of liquidity management is to manage cash flow and liquidity reserves so that they are adequate to fund the Companys operations and meet obligations and other commitments on a timely basis and at a reasonable cost. The Company achieves this objective through the selection of asset and liability maturity mixes that it believes best meet its needs. The Companys liquidity position is enhanced by its ability to raise additional funds as needed in the wholesale markets. Liquidity risk management is an important element in the Companys ALCO process, and is managed within limits approved by the Board of Directors and guidelines set by management. Attention is also paid to potential outflows resulting from disruptions in the financial markets or to unexpected credit events. These factors are incorporated into the Companys contingency funding analysis, and provide the basis for the identification of primary and secondary liquidity reserves.
In recent years, the Companys core deposit base has provided the majority of the Companys funding requirements. This relatively stable and low-cost source of funds, along with shareholders equity, provided 90 percent and 87 percent of funding for average total assets in the first quarter of 2011 and 2010, respectively. Strong core deposits are indicative of the strength of the Companys franchise in its chosen markets and reflect the confidence that clients have in the Company. The Company places a very high priority in maintaining this confidence through conservative credit and capital management practices and by maintaining significant on-balance sheet liquidity reserves.
Reliance on short-term wholesale or market sources of funds declined steadily throughout 2010 and ended the first quarter of 2011 near zero. These funding sources, on average, totaled $0.7 million and $105.4 million in the first quarter of 2011 and 2010, respectively. The Companys liquidity position was further supported through longer-term borrowings which were $857.8 million on average for the first quarter of 2011 from $1.01 billion for the year-earlier quarter. Market sources of funds comprise a modest portion of total Bank funding and are managed within concentration and maturity guidelines reviewed by management and implemented by the Companys treasury department.
Liquidity is further provided by assets such as federal funds sold, balances held at the Federal Reserve Bank, and trading account securities, which may be immediately converted to cash at minimal cost. The aggregate of these assets averaged $703.1 million during the first quarter of 2011 compared with $279.8 million in the year-earlier quarter. In addition, the Company has committed and unutilized borrowing capacity of $3.32 billion as of March 31, 2011, secured by collateral, from the Federal Home Loan Bank of San Francisco, of which the Bank is a member. The Companys investment portfolio also provides a substantial secondary liquidity reserve. The portfolio of securities available-for-sale averaged $5.63 billion and $3.97 billion for the quarters ended March 31, 2011 and 2010, respectively. The unpledged portion of securities available-for-sale at March 31, 2011 totaled $4.84 billion. These securities could be used as collateral for borrowing or a portion could be sold. Maturing loans provide additional liquidity.
Interest Rate Risk
Net Interest Simulation: As part of its overall interest rate risk management process, the Company performs stress tests on net interest income projections based on a variety of factors, including interest rate levels, changes in the relationship between the prime rate and short-term interest rates, and the shape of the yield curve. The Company uses a simulation model to estimate the severity of this risk and to develop mitigation strategies, including interest-rate hedges. The magnitude of the change is determined from historical volatility analysis. The assumptions used in the model are updated periodically and reviewed and approved by ALCO. In addition, the Board of Directors has adopted limits within which interest rate exposure must be contained. Within these broader limits, ALCO sets management guidelines to further contain interest rate risk exposure.
The Company is naturally asset-sensitive due to its large portfolio of rate-sensitive commercial loans that are funded in part by noninterest bearing and rate-stable core deposits. As a result, if there are no significant changes in the mix of assets and liabilities, the net interest margin increases when interest rates increase and decreases when interest rates decrease. The Company uses on and off-balance sheet hedging vehicles to manage risk. The Company uses a simulation model to estimate the impact of changes in interest rates on net interest income. Interest rate scenarios include stable rates and a 400 basis point parallel shift in the yield curve occurring gradually over a two-year period. The model is used to project net interest income assuming no changes in loans or deposit mix as it stood at March 31, 2011, as well as a dynamic simulation that includes changes to balance sheet mix in response to changes in interest rates. In the dynamic simulation, loans and deposit balances are modeled based on experience in previous vigorous economic recovery cycles. Loans, excluding covered loans, increase 10 percent per year compared to the base case,while deposits decline 5 percent per year. Loan yields and deposit rates change over the simulation horizon based on current spreads and adjustment factors that are statistically derived using historical rate and balance sheet data.
As of March 31, 2011, the Federal funds target rate was at a range of zero percent to 0.25 percent. Further declines in interest rates are not expected to significantly reduce earning asset yields or liability costs, nor have a meaningful effect on net interest margin. At March 31, 2011, a gradual 400 basis point parallel increase in the yield curve over the next 24 months assuming a static balance sheet would result in an increase in projected net interest income of approximately 3.0 percent in year one and a 14.7 percent increase in year two. This compares to an increase in projected net interest income of 0.9 percent in year one and a 6.1 percent increase in year two at March 31, 2010. Interest rate sensitivity has increased due to changes in the mix of the balance sheet, primarily significant growth in non-rate sensitive deposits, TARP repayment and other balance sheet changes related to the recent acquisitions. The dynamic simulation incorporates balance sheet changes resulting from a gradual 400 basis point increase in rates. In combination, these rate and balance sheet effects result in an increase in
projected net interest income of approximately 4.2 percent in year one and 17.3 percent increase in year two. The Companys interest rate risk exposure remains within Board limits and ALCO guidelines.
The Companys loan portfolio includes floating rate loans which are tied to short-term market index rates, adjustable rate loans for which the initial rate is fixed for a period from one year to as much as ten years, and fixed-rate loans whose interest rate does not change through the life of the transaction. The following table shows the composition of the Companys loan portfolio by major loan category as of March 31, 2011. Each loan category is further divided into Floating, Adjustable and Fixed rate components. Floating rate loans are generally tied to either the Prime rate or to a LIBOR based index.
|
|
Floating Rate |
|
|
|
|
|
Total |
| ||||||||||
(in millions) |
|
Prime |
|
LIBOR |
|
Total |
|
Adjustable |
|
Fixed |
|
Loans |
| ||||||
Commercial |
|
$ |
1,851 |
|
$ |
1,494 |
|
$ |
3,345 |
|
$ |
66 |
|
$ |
1,057 |
|
$ |
4,468 |
|
Commercial real estate mortgages |
|
215 |
|
428 |
|
643 |
|
76 |
|
1,184 |
|
1,903 |
| ||||||
Residential mortgages |
|
32 |
|
4 |
|
36 |
|
1,894 |
|
1,673 |
|
3,603 |
| ||||||
Real estate construction |
|
272 |
|
113 |
|
385 |
|
|
|
30 |
|
415 |
| ||||||
Equity lines of credit |
|
734 |
|
|
|
734 |
|
|
|
|
|
734 |
| ||||||
Installment |
|
80 |
|
|
|
80 |
|
|
|
67 |
|
147 |
| ||||||
Covered loans |
|
151 |
|
44 |
|
195 |
|
1,199 |
|
372 |
|
1,766 |
| ||||||
Total loans and leases |
|
$ |
3,335 |
|
$ |
2,083 |
|
$ |
5,418 |
|
$ |
3,235 |
|
$ |
4,383 |
|
$ |
13,036 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Percentage of portfolio |
|
26 |
% |
16 |
% |
42 |
% |
25 |
% |
33 |
% |
100 |
% |
Certain floating rate loans to have a floor rate which is absolute and below which the loan rate will not fall even though market rates may be unusually low. At March 31, 2011, $5.42 billion (42 percent) of the Companys loan portfolio was floating rate, of which $2.94 billion (54 percent) was not impacted by rate floors. This is because either the loan contract does not specify a minimum or floor rate, or because the contractual loan rate is above the minimum rate specified in the loan contract. Of the loans which were at their contractual minimum rate, $1.50 billion (28 percent) were within 0.75 percent of the contractual loan rate absent the effects of the floor. Thus, the rate on these loans will be relatively responsive to increases in the underlying Prime or LIBOR index, and all will adjust upwards should the underlying index increase by more than 0.75 percent. Only $155 million of floating rate loans have floors that are more than 2.00 percent above the contractual rate formula. Thus, the yield on the Companys floating rate loan portfolio is expected to be highly responsive to changes in market rates. The following table shows the balance of loans in the Floating Rate portfolio stratified by spread between the current loan rate and the floor rate as of March 31, 2011:
|
|
Loans with No |
|
Interest Rate Increase Needed for Loans |
|
|
| |||||||||
(in millions) |
|
Floor |
|
< 0.75% |
|
0.76% - 2.00% |
|
> 2.00% |
|
Total |
| |||||
Prime |
|
$ |
1,409 |
|
$ |
1,172 |
|
$ |
677 |
|
$ |
77 |
|
$ |
3,335 |
|
LIBOR |
|
1,535 |
|
323 |
|
148 |
|
78 |
|
2,084 |
| |||||
Total floating rate loans |
|
$ |
2,944 |
|
$ |
1,495 |
|
$ |
825 |
|
$ |
155 |
|
$ |
5,419 |
|
% of total floating rate loans |
|
54 |
% |
28 |
% |
15 |
% |
3 |
% |
100 |
% |
Economic Value of Equity: The economic value of equity (EVE) model is used to evaluate the vulnerability of the market value of shareholders equity to changes in interest rates. The EVE model calculates the expected cash flow of all of the Companys assets and liabilities under sharply higher and lower interest rate scenarios. The present value of these cash flows is calculated by discounting them using the interest rates for that scenario. The difference between the present value of assets and the present value of liabilities in each scenario is the EVE. The assumptions about the timing of cash flows, level of interest rates and shape of the yield curve are the same as those used in the net interest income simulation. They are updated periodically and are reviewed by ALCO at least annually.
The model indicates that the EVE is somewhat vulnerable to a sudden and substantial increase in interest rates. As of March 31, 2011, an instantaneous 200 basis point increase in interest rates results in a 3.5 percent decline in EVE. This compares to a 5.3 percent decline a year-earlier. Measurement of a 200 basis point decrease in rates as of March 31, 2011 and March 31, 2010 is not meaningful due to the current low rate environment.
Interest-Rate Risk Management
The following table presents the notional amount and fair value of the Companys interest rate swap agreements according to the specific asset or liability hedged:
|
|
March 31, 2011 |
|
March 31, 2010 |
| ||||||||||||
(in millions) |
|
Notional |
|
Fair |
|
Duration |
|
Notional |
|
Fair |
|
Duration |
| ||||
Fair Value Hedge Interest Rate Swap |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Certificates of deposit |
|
$ |
10.0 |
|
$ |
0.3 |
|
0.2 |
|
$ |
20.0 |
|
$ |
1.0 |
|
0.7 |
|
Long-term and subordinated debt |
|
355.9 |
|
17.2 |
|
1.1 |
|
358.2 |
|
28.2 |
|
2.0 |
| ||||
Total fair value hedge swaps |
|
365.9 |
|
17.5 |
|
1.1 |
|
378.2 |
|
29.2 |
|
1.9 |
| ||||
Cash Flow Hedge Interest Rate Swap |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
US Dollar LIBOR based loans |
|
|
|
|
|
|
|
50.0 |
|
1.0 |
|
0.2 |
| ||||
Prime based loans |
|
|
|
|
|
|
|
75.0 |
|
1.0 |
|
0.3 |
| ||||
Total cash flow hedge swaps |
|
|
|
|
|
|
|
125.0 |
|
2.0 |
|
0.3 |
| ||||
Fair Value and Cash Flow Hedge Interest Rate Swaps |
|
$ |
365.9 |
|
$ |
17.5 |
(1) |
1.1 |
|
$ |
503.2 |
|
$ |
31.2 |
(1) |
1.5 |
|
(1) Net fair value is the estimated net gain (loss) to settle derivative contracts. The net fair value is the sum of the mark-to-market asset net of cash collateral received, mark-to-market liability (if applicable), and net interest receivable or payable.
Interest-rate swap agreements involve the exchange of fixed and variable-rate interest payments based upon a notional principal amount and maturity date. The Companys interest-rate swaps had $5.7 million and $7.6 million of credit risk exposure at March 31, 2011 and 2010, respectively. The credit exposure represents the cost to replace, on a present value basis and at current market rates, all contracts outstanding by trading counterparty having an aggregate positive market value, net of margin collateral received. The Companys swap agreements require the deposit of cash or marketable debt securities as collateral for this risk if it exceeds certain market value thresholds. These requirements apply individually to the Corporation and to the Bank. As of March 31, 2011, collateral valued at $9.5 million, comprised of securities valued at $7.7 million and cash of $1.8 million, had been received from swap counterparties. At March 31, 2010, collateral valued at $13.0 million had been received from swap counterparties. Additionally, the Company delivered collateral valued at $8.6 million on swap agreements at March 31, 2011.
As of March 31, 2011, the Company had $365.9 million notional amount of interest-rate swap hedge transactions, all of which of which were designated as fair value hedges. There were no cash flow hedges outstanding at March 31, 2011. The $17.5 million positive fair value of the fair value hedges includes a mark-to-market asset of $17.4 million and net interest receivable of $1.9 million, less $1.8 million of cash collateral received from a counterparty. The balance of deposits and borrowings reported in the consolidated balance sheet include a $17.4 million mark-to-market adjustment associated with interest-rate hedge transactions.
The hedged subordinated debt and other long-term debt consists of City National Bank 10-year subordinated notes with a face value of $147.8 million due on September 1, 2011 and City National Corporation senior notes with a face value of $208.2 million due on February 15, 2013.
Other Derivatives
The Company also offers various derivative products to clients and enters into derivative transactions in due course. These derivative contracts are offset by paired trades with unrelated bank counterparties. These transactions are not linked to specific Company assets or liabilities in the consolidated balance sheets or to forecasted transactions in a hedge relationship and, therefore, do not qualify for hedge accounting. The contracts are marked-to-market each reporting period with changes in fair value recorded as part of Other noninterest income in the consolidated statements of income. Fair values are determined from verifiable third-party sources that have considerable experience with the derivative markets. The Company provides client data to the third-party source for purposes of calculating the credit valuation component of the fair value measurement of client derivative contracts. At March 31, 2011 and 2010, the Company had entered into derivative contracts with clients (and offsetting derivative contracts with counterparties) having a notional balance of $1.08 billion and $1.09 billion, respectively.
ITEM 4. CONTROL AND PROCEDURES
DISCLOSURE CONTROLS AND PROCEDURES
Under the supervision and with the participation of the Companys management, including its Chief Executive Officer and Chief Financial Officer, the Company has evaluated the effectiveness of the design and operation of its disclosure controls and procedures (as defined in Rules 13a - 15(e) under the Securities and Exchange Act of 1934 (the Exchange Act). Based upon this evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of the period covered by this report, the Companys disclosure controls and procedures were effective.
INTERNAL CONTROL OVER FINANCIAL REPORTING
There was no change in the Companys internal control over financial reporting that occurred during the Companys first fiscal quarter that has materially affected, or was reasonably likely to materially affect, the Companys internal control over financial reporting.
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 about the Company, for which the Company claims the protection of the safe harbor provisions contained in the Private Securities Litigation Reform Act of 1995.
A number of factors, many of which are beyond the Companys ability to control or predict, could cause future results to differ materially from those contemplated by such forward-looking statements. These factors include (1) changes in general economic, political or industry conditions and the related credit and market conditions, (2) changes in the pace of economic recovery and related changes in employment levels, (3) the effect of the enactment of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 and the new rules and regulations to be promulgated by supervisory and oversight agencies implementing the new legislation, taking into account that the precise timing, extent and nature of such rules and regulations and the impact on the Company is uncertain, (4) significant changes in applicable laws and regulations, including those concerning taxes, banking and securities, (5) volatility in the municipal bond market, (6) changes in the level of nonperforming assets, charge-offs, other real estate owned and provision expense, (7) incorrect assumptions in the value of the loans acquired in FDIC assisted acquisitions resulting in greater than anticipated losses in the acquired loan portfolios exceeding the losses covered by the loss-sharing agreements with the FDIC, (8) the effects of and changes in trade and monetary and fiscal policies and laws, including the interest rate policies of the Federal Reserve Board, (9) changes in inflation, energy and other commodity costs, interest rates, and market liquidity which may impact interest margins and impact funding sources, (10) adequacy of the Companys enterprise risk management framework, (11) the Companys ability to increase market share and control expenses, (12) the Companys ability to attract new employees and retain and motivate existing employees, (13) increased competition in the Companys markets, (14) changes in the financial performance and/or condition of the Companys borrowers, including adverse impact on loan utilization rates, delinquencies, defaults and customers ability to meet certain credit obligations, changes in customers suppliers, and other counterparties performance and creditworthiness, (15) a substantial and permanent loss of either client accounts and/or assets under management at the Companys investment advisory affiliates or its wealth management division, (16) changes in consumer spending, borrowing and savings habits, (17) soundness of other financial institutions which could adversely affect the Company, (18) protracted labor disputes in the Companys markets, (19) earthquake, fire or other natural disasters affecting the condition of real estate collateral, (20) the effect of acquisitions and integration of acquired businesses and de novo branching efforts, (21) the impact of changes in regulatory, judicial or legislative tax treatment of business transactions, (22) changes in accounting policies or procedures as may be required by the Financial Accounting Standards Board or regulatory agencies, and (23) the success of the Company at managing the risks involved in the foregoing.
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 after the date the statements are made, or to update earnings guidance, including the factors that influence earnings.
For a more complete discussion of these risks and uncertainties, see the Companys Annual Report on Form 10-K for the year ended December 31, 2010 and particularly, Item 1A, titled Risk Factors.
A number of factors, many of which are beyond the Companys ability to control or predict, could cause future results to differ materially from those contemplated by such forward-looking statements. These factors include (1) changes in general economic, political or industry conditions and the related credit and market conditions, (2) changes in the pace of economic recovery and related changes in employment levels, (3) the effect of the enactment of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 and the new rules and regulations to be promulgated by supervisory and oversight agencies implementing the new legislation, taking into account that the precise timing, extent and nature of such rules and regulations and the impact on the Company is uncertain, (4) significant changes in applicable laws and regulations, including those concerning taxes, banking and securities, (5) volatility in the municipal bond market, (6) changes in the level of nonperforming assets, charge-offs, other real estate owned and provision expense, (7) incorrect assumptions in the value of the loans acquired in FDIC assisted acquisitions resulting in greater than anticipated losses in the acquired loan portfolios exceeding the losses covered by the loss-sharing agreements with the FDIC, (8) the effects of and changes in trade and monetary and fiscal policies and laws, including the interest rate policies of the Federal Reserve Board, (9) changes in inflation, energy and other commodity costs, interest rates, and market liquidity which may impact interest margins and impact funding sources, (10) adequacy of the Companys enterprise risk management framework, (11) the Companys ability to increase market share and control expenses, (12) the Companys ability to attract new employees and retain and motivate existing employees, (13) increased competition in the Companys markets, (14) changes in the financial performance and/or condition of the Companys borrowers, including adverse impact on loan utilization rates, delinquencies, defaults and customers ability to meet certain credit obligations, changes in customers suppliers, and other counterparties performance and creditworthiness, (15) a substantial and permanent loss of either client accounts and/or assets under management at the Companys investment advisory affiliates or its wealth management division, (16) changes in consumer spending, borrowing and savings habits, (17) soundness of other financial institutions which could adversely affect the Company, (18) protracted labor disputes in the Companys markets, (19) earthquake, fire or other natural disasters affecting the condition of real estate collateral, (20) the effect of acquisitions and integration of acquired businesses and de novo branching efforts, (21) the impact of changes in regulatory, judicial or legislative tax treatment of business transactions, (22) changes in accounting policies or procedures as may be required by the Financial Accounting Standards Board or regulatory agencies, and (23) the success of the Company at managing the risks involved in the foregoing.
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 after the date the statements are made, or to update earnings guidance, including the factors that influence earnings.
For a more complete discussion of these risks and uncertainties, see the Companys Annual Report on Form 10-K for the year ended December 31, 2010 and particularly, Item 1A, titled Risk Factors.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
(c) Purchase of Equity Securities by the Issuer and Affiliated Purchaser.
The information required by subsection (c) of this item regarding purchases by the Company during the quarter ended March 31, 2011 of equity securities that are registered by the Company pursuant to Section 12 of the Exchange Act is incorporated by reference from that portion of Part I, Item 1 of the report under Note 9.
No. |
|
|
|
|
|
10.48* |
|
City National Corporation 2008 Omnibus Plan, As Amended and Restated (Incorporated by reference from Appendix A to the Registrants Proxy Statement filed with the SEC for the Annual Meeting of Stockholders held on April 20, 2011.) |
|
|
|
10.49* |
|
City National Corporation 2011 Variable Bonus Plan (Incorporated by reference from Appendix B to the Registrants Proxy Statement filed with the SEC for the Annual Meeting of Stockholders held on April 20, 2011.) |
|
|
|
10.50* |
|
Form of Restricted Stock Award Agreement Under the City National Corporation 2008 Omnibus Plan |
|
|
|
10.51* |
|
Form of Restricted Stock Unit Award Agreement Under the City National Corporation 2008 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. |
|
|
|
101.INS |
|
XBRL Instance Document |
|
|
|
101.SCH |
|
XBRL Taxonomy Extension Schema Document |
|
|
|
101.CAL |
|
XBRL Taxonomy Extension Calculation Linkbase Document |
|
|
|
101.LAB |
|
XBRL Taxonomy Extension Label Linkbase Document |
|
|
|
101.PRE |
|
XBRL Taxonomy Extension Presentation Linkbase Document |
|
|
|
101.DEF |
|
XBRL Taxonomy Extension Definition Linkbase Document |
* Management contract or compensatory plan or arrangement
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.
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CITY NATIONAL CORPORATION |
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(Registrant) |
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DATE: May 6, 2011 |
/s/ Christopher J. Carey |
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CHRISTOPHER J. CAREY |
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Executive Vice President and |
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Chief Financial Officer |
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(Authorized Officer and |
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Principal Financial Officer) |
Exhibit 10.50
RESTRICTED STOCK AWARD AGREEMENT
UNDER THE
CITY NATIONAL CORPORATION
2008 OMNIBUS PLAN
RESTRICTED STOCK AWARD AGREEMENT made as of , between CITY NATIONAL CORPORATION, a Delaware corporation (the Company), and , an employee of the Company or a subsidiary of the Company (Colleague), with reference to the following:
A. On April 23, 2008 the shareholders of the Company adopted the City National Corporation 2008 Omnibus Plan as amended from time to time thereafter, (the Plan), pursuant to which the Compensation, Nominating & Governance Committee of the Board of Directors (the Committee) may award selected officers and other Company or Company subsidiary employees restricted shares of the Companys common stock, (the Common Stock).
B. The Committee has determined to grant to Colleague an award of restricted shares of Stock pursuant to the terms and conditions of this Agreement.
NOW, THEREFORE, in consideration of the foregoing recitals and the performance of the mutual covenants contained herein, it is hereby agreed as follows:
1. Grant of Restricted Stock Award.
(a) Details of Award. The Company hereby grants a Restricted Stock Award (as defined in the Plan), upon the terms and conditions set forth in this Agreement, with the following terms:
(i) Number of Shares to be issued: Shares (the Restricted Shares) of Stock;
(ii) The date of issuance: (the Award Date); and
(iii) The consideration, if any, for the Restricted Shares: Colleagues employment with the Company.
(b) Issuance of Restricted Shares. The Restricted Shares shall be issued upon acceptance hereof by Colleague and upon satisfaction of the conditions of this Agreement.
2. Restricted Shares. Colleague hereby accepts the Restricted Shares when issued and agrees with respect thereto as follows:
(a) Forfeiture Restrictions. The Restricted Shares may not be sold, assigned, pledged, exchanged, hypothecated or otherwise transferred, encumbered or disposed of (the Forfeiture Restrictions) to the extent that Forfeiture Restrictions have not lapsed. In the event of termination of Colleagues employment with the Company or employing subsidiary for any reason other than (i) death or (ii) Total Disability, except as otherwise provided in the last sentence of subparagraph (b) of this Paragraph 2, Colleague shall, for no consideration, forfeit to the Company all Restricted Shares to the extent then subject to the Forfeiture Restrictions. The Forfeiture Restrictions shall be binding upon and enforceable against any transferee of Restricted Shares.
(b) Lapse of Forfeiture Restrictions. The Forfeiture Restrictions shall lapse as to the Restricted Shares in accordance with Exhibit A provided that Colleague has been continuously employed by the Company from the Award Date through the lapse date.
Notwithstanding the foregoing, the Forfeiture Restrictions shall lapse as to all of the Restricted Shares on the earlier of (i) subject to the discretion of the Committee, the occurrence of a Change in Control Event (as such term is defined in the Plan), or (ii) the date Colleagues employment with the Company is terminated by reason of death or Total Disability. In the event Colleagues employment is terminated for any other reason, the Committee or its delegate, as appropriate, may, in the Committees or such delegates sole discretion, approve the lapse of Forfeiture Restrictions as to any or all Restricted Shares still subject to such restrictions, such lapse to be effective on the date of such approval or Colleagues termination date, if later.
(c) Certificates/Shareholder Rights. Shares of Restricted Stock will be evidenced by memorandum entries on the records of the Companys transfer agent. Colleague shall have voting rights and shall be entitled to receive all dividends unless and until the Restricted Shares are forfeited pursuant to the provisions of this Agreement. Cash dividends paid on Shares of Common Stock will be paid to Colleague for the Restricted Shares on the same date as paid to other Shareholders. Upon request of the Committee or its delegate, Colleague shall deliver to the Company a stock power, endorsed in blank, relating to the Restricted Shares then subject to the Forfeiture Restrictions. Upon the lapse of the Forfeiture Restrictions, the Company shall cause the shares to be issued to you or your broker, per your election on file, in the name of the colleague, or such other name as provided in the Plan, for the Shares upon which Forfeiture Restrictions lapsed. Notwithstanding any other provisions of this Agreement, the issuance or delivery of any shares of Common Stock (whether subject to restrictions or unrestricted) may be postponed for such period as may be required to comply with applicable requirements of any national securities exchange or any requirements under any law or regulation applicable to the issuance or delivery of such Shares. The Company shall not be obligated to issue or deliver any shares of Common Stock if the issuance or delivery thereof shall constitute a violation of any provision of any law or of any regulation of any governmental authority or any national securities exchange.
3. Withholding of Tax. The receipt of Restricted Shares or the lapse of any Forfeiture Restrictions may result in income to you for federal or state tax purposes. To the extent that you become subject to taxation, you shall deliver to the Company at the time of such receipt or lapse, as the case may be, such amount of money or Shares of unrestricted Common Stock, as the Company may require to meet its withholding obligation under applicable tax laws or regulations. If you fail to do so, the Company is authorized to withhold from any cash or stock remuneration then or thereafter payable to you any tax required to be withheld by reason of such resulting compensation income. Your delivery of Shares to meet the tax withholding obligation is subject to the Companys Securities Trading Policy as may be in effect from time to time. You must have owned any Common Stock you deliver for at least six months. Any Common Stock you deliver or which is withheld by the Company will be valued on the date of which the amount of tax to be withheld is determined. Any fractional Shares of Common Stock resulting from withholding of taxes will be paid to you in cash.
4. Status of Common Stock. Colleague agrees that the Restricted Shares to which the restrictions have lapsed will not be sold or otherwise disposed of in any manner which would constitute a violation of any applicable federal or state securities laws. Colleague also agrees (i) that the certificates representing the Shares may bear such legend or legends as the Company deems appropriate in order to assure compliance with applicable securities laws, (ii) that the Company may refuse to register the transfer of the Shares on the stock transfer records of the Company if such proposed transfer would be in the opinion of counsel satisfactory to the Company constitute a violation of any applicable securities law and (iii) that the Company may give related instructions to its transfer agent, if any, to stop registration of the transfer of the Shares.
5. Limitation on Transfer. Other than upon death or pursuant to a DRO, the Restricted Shares and all rights granted under this Agreement are personal to Colleague and cannot be transferred, assigned, pledged or hypothecated in any way (whether by operation of law or otherwise) and will not be subject to execution, attachment or similar processes.
6. Employment Relationship. For purposes of this Agreement, Colleague shall be considered to be in the employment of the Company as long as Colleague remains a Colleague of either the Company, any successor corporation or a parent or subsidiary corporation (as defined in section 424 of the Internal Revenue Code) of the Company or any successor corporation.
Any question as to whether and when there has been a termination of such employment, and the cause of such termination, shall be determined by the Committee, or its delegate, as appropriate, and its determination shall be final.
Neither the Plan nor this Agreement shall constitute a contract of employment between the Company, including, any successor corporation or a parent or subsidiary corporation of the Company or any successor corporation and Colleague. Colleague is an at-will employee except as provided in any other written agreement. Nothing contained
in the Plan or the Agreement (or any Award made pursuant to the Plan) shall confer upon any eligible Participant any right to continue in the employment of the Company, or guarantee of payment of future incentives, or shall interfere with, affect or restrict in any way, the rights of the Company, which are expressly reserved, to discharge Colleague, any time for any reason whatsoever, with or without cause.
7. Availability of Plan/Plan Incorporated. Colleague acknowledges that the Company has made available a copy of the Plan, and agrees that this Award of Restricted Shares shall be subject to all of the terms and conditions set forth in the Plan, including future amendments thereto, if any, pursuant to the terms thereof, which Plan is incorporated herein by reference as a part of this Agreement. In the event of any conflict between the Plan and this Agreement, the provisions of the Plan will prevail. Colleagues rights hereunder are subject to modification or termination in certain events, as provided in the Plan, including without limitation such rules and regulations as may from time to time be adopted or promulgated in accordance with paragraph 1.3 of the Plan. Capitalized terms not defined in this Agreement shall have the meanings set forth in the Plan.
8. Committees Powers. No provision contained in this Agreement shall in any way terminate, modify or alter, or be construed or interpreted as terminating, modifying or altering any of the powers, rights or authority vested in the Committee or, to the extent delegated, in its delegate pursuant to the terms of the Plan or resolutions adopted in furtherance of the Plan, including, without limitation, the right to make certain determinations and elections with respect to the Restricted Shares. All decisions of the Committee (as established pursuant to the Plan) with respect to any questions concerning the application, administration or interpretation of the Plan will be conclusive and binding on the Company and Colleague.
9. Binding Effect. This Agreement shall be binding upon and inure to the benefit of any successors to the Company and all persons lawfully claiming under Colleague.
10. Dispute Resolution. If a dispute arises between Colleague and Company in connection with the Restricted Stock Award, the dispute will be resolved by binding arbitration with the American Arbitration Association (AAA) in accordance with the AAAs Commercial Arbitration Rules then in effect.
11. Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of California.
IN WITNESS WHEREOF, the Company has caused this Agreement to be duly executed by an officer thereunto duly authorized, and Colleague has executed this Agreement, all as of the date first above written.
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CITY NATIONAL CORPORATION | |
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By: |
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Christopher J. Carey, Executive Vice |
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President, Chief Financial Officer |
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By: |
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Colleague |
PLEASE RETURN ONE COPY OF THE SIGNED AGREEMENT TO THE COMPENSATION SECTION OF HUMAN RESOURCES (86-001)
RESTRICTED STOCK AWARD AGREEMENT
UNDER THE
CITY NATIONAL CORPORATION
2008 OMNIBUS PLAN
Exhibit A
All Restricted Stock Awards are subject to forfeiture, as provided in Section 2(b) of the Restricted Stock Award Agreement until the forfeiture restrictions lapse as follows:
{insert applicable vesting schedule}
Ratable Vesting
Schedule 1: ratable vesting over years two through five:
|
|
Percentage of |
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|
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Time from |
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Restrictions Which |
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Total Percentage of |
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Date of Award |
|
Lapse (Vesting) |
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Restrictions Lapsed |
|
|
|
|
|
|
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After 1 year |
|
0 |
% |
0 |
% |
After 2 years |
|
25 |
% |
25 |
% |
After 3 years |
|
25 |
% |
50 |
% |
After 4 years |
|
25 |
% |
75 |
% |
After 5 years |
|
25 |
% |
100 |
% |
Alternative Schedule 2: ratable vesting over years one through four:
|
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Percentage of |
|
|
|
Time from |
|
Restrictions Which |
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Total Percentage of |
|
Date of Award |
|
Lapse (Vesting) |
|
Restrictions Lapsed |
|
|
|
|
|
|
|
After 1 year |
|
25 |
% |
25 |
% |
After 2 years |
|
25 |
% |
50 |
% |
After 3 years |
|
25 |
% |
75 |
% |
After 4 years |
|
25 |
% |
100 |
% |
Alternative Schedule 3: ratable vesting over years five through six:
|
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Percentage of |
|
|
|
Time from |
|
Restrictions Which |
|
Total Percentage of |
|
Date of Award |
|
Lapse (Vesting) |
|
Restrictions Lapsed |
|
|
|
|
|
|
|
After 1 year |
|
0 |
% |
0 |
% |
After 2 years |
|
0 |
% |
0 |
% |
After 3 years |
|
0 |
% |
0 |
% |
After 4 years |
|
0 |
% |
0 |
% |
After 5 years |
|
50 |
% |
50 |
% |
After 6 years |
|
50 |
% |
100 |
% |
Cliff Vesting
Alternative Schedule 4: five year cliff vesting
|
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Percentage of |
|
|
|
Time from |
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Restrictions Which |
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Total Percentage of |
|
Date of Award |
|
Lapse (Vesting) |
|
Restrictions Lapsed |
|
|
|
|
|
|
|
After 1 year |
|
0 |
% |
0 |
% |
After 2 years |
|
0 |
% |
0 |
% |
After 3 years |
|
0 |
% |
0 |
% |
After 4 years |
|
0 |
% |
0 |
% |
After 5 years |
|
100 |
% |
100 |
% |
Alternative Schedule 5: four year cliff vesting:
|
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Percentage of |
|
|
|
Time from |
|
Restrictions Which |
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Total Percentage of |
|
Date of Award |
|
Lapse (Vesting) |
|
Restrictions Lapsed |
|
|
|
|
|
|
|
After 1 year |
|
0 |
% |
0 |
% |
After 2 years |
|
0 |
% |
0 |
% |
After 3 years |
|
0 |
% |
0 |
% |
After 4 years |
|
100 |
% |
100 |
% |
Other ratable and cliff vesting schedules may be used.
Exhibit 10.51
RESTRICTED STOCK UNIT AWARD AGREEMENT
UNDER THE
CITY NATIONAL CORPORATION
2008 OMNIBUS PLAN
THIS RESTRICTED STOCK UNIT AWARD AGREEMENT is made as of between CITY NATIONAL CORPORATION, a Delaware corporation (the Company), and employee of the Company or a subsidiary of the Company (Colleague), with reference to the following:
A. On April 23, 2008 the shareholders of the Company adopted the City National Corporation 2008 Omnibus Plan, as amended from time to time thereafter (the Plan), pursuant to which the Compensation, Nominating & Governance Committee of the Board of Directors (the Committee) may award selected officers and other Company or Company subsidiary employees restricted shares, restricted units or other deferred Awards of the Companys common stock (the Common Stock).
B. The Committee has determined to grant to Colleague an award of restricted stock units pursuant to the terms and conditions of this Agreement.
1. Grant of Restricted Stock Unit Award.
(a) Details of Award. Pursuant to the Plan, the Company hereby grants a Restricted Stock Unit Award (as defined in the Addendum to this Agreement) with the following terms:
(i) Number of Restricted Stock Units to be issued: units awarded (the Restricted Stock Units);
(ii) The date of the Award (the Award Date); and
(iii) The consideration, if any, for the Restricted Stock Units: Colleagues Employment with the Company.
(b) Restricted Stock Unit Account. The Restricted Stock Unit Award will be credited to Colleagues Restricted Stock Unit Account as of the Award Date and upon satisfaction of the conditions of this Agreement.
2. Restricted Stock Units. Colleague hereby accepts the Restricted Stock Units and agrees with respect thereto as follows:
(a) Forfeiture. In the event of termination of Colleagues employment with the Company or employing subsidiary for any reason other than (i) death or (ii) Total
Disability, or except as otherwise provided in the last sentence of subparagraph (b) of this Paragraph 2, Colleague shall, for no consideration, forfeit to the Company all Restricted Stock Units to the extent then subject to forfeiture.
(b) Lapse of Forfeiture Restrictions. All Restricted Stock Units are subject to forfeiture, as provided in subparagraph (a), until the forfeiture restrictions lapse in accordance with Exhibit A provided that Colleague has been continuously employed by the Company from the Award Date through the lapse date.
Notwithstanding the foregoing, the forfeiture restrictions shall lapse as to all of the Restricted Stock Units on the earlier of (i) subject to the discretion of the Committee, the occurrence of a Change in Control Event (as such term is defined in the Plan), or (ii) the date Colleagues employment with the Company is terminated by reason of death or Total Disability. In the event Colleagues employment is terminated for any other reason, the Committee or its delegate, as appropriate, may, in the Committees or such delegates sole discretion, approve the lapse of forfeiture restrictions as to any or all Restricted Stock Units still subject to such conditions, such lapse to be effective on the date of such approval or Colleagues termination date, if later.
(c) Restricted Stock Unit Accounts/Dividend Equivalent Unit Accounts. A Colleagues Restricted Stock Unit Account and Dividend Equivalent Unit Account shall be memorandum accounts on the books of the Company. The Restricted Stock Units credited to a Restricted Stock Unit Account and Dividend Equivalent Units credited to the Colleagues Dividend Equivalent Unit Account shall be used solely as a method for the determination of the number of Shares of Common Stock and any amount remaining in the Dividend Equivalent Unit Account to be eventually distributed to the Colleague in accordance with the Addendum to this Agreement. The Restricted Stock Units and the Dividend Equivalent Units shall not be treated as property or as a trust fund of any kind. The Colleague shall not be entitled to any voting or other stockholder rights with respect to Restricted Stock Units awarded or credited under the Plan. The number of Restricted Stock Units credited (and the number of Shares to which the Colleague is entitled under the Plan) shall be subject to adjustment in accordance with the terms of the Plan.
(d) Dividend Equivalents. Colleagues Dividend Equivalent Unit Account shall be credited with Dividend Equivalent Units in an amount equal to the dividend per Share for the applicable dividend payment date (which, in the case of any dividend distributable in property other than Shares, shall be the per Share value of such dividend, as determined by the Company for purposes of income tax reporting) times the number of Restricted Stock Units held by Colleague on the record date for the payment of such dividend. Dividend Equivalent Units credited to Colleagues Dividend Equivalent Unit Account shall vest immediately and shall not be subject to forfeiture.
(e) Nontransferability. The Restricted Stock Units and the Dividend Equivalent Units and the rights and interests of the Colleague under this Agreement may not
be sold, assigned, pledged, exchanged, hypothecated or otherwise transferred, encumbered or disposed of prior to distribution.
3. Withholding of Tax. The receipt of Shares and cash upon distribution may result in income to you for federal or state tax purposes. To the extent that you become subject to taxation, you shall deliver to the Company at the time of such receipt such amount of money or shares of unrestricted Common Stock, as the Company may require to meet its withholding obligation under applicable tax laws or regulations. If you fail to do so, the Company is authorized to withhold from any cash or Common Stock remuneration then or thereafter payable to you any tax required to be withheld by reason of such resulting compensation income. Your delivery of Shares to meet the tax withholding obligation is subject to the Companys Securities Trading Policy as may be in effect from time to time. You must have owned any Common Stock you deliver for at least six months. Any Common Stock you deliver or which is withheld by the Company will be valued on the date of which the amount of tax to be withheld is determined. Any fractional shares of Common Stock resulting from withholding of taxes will be paid to you in cash.
4. Status of Common Stock. Colleague agrees that the Shares distributed to Colleague will not be sold or otherwise disposed of in any manner which would constitute a violation of any applicable federal or state securities laws. Colleague also agrees (i) that the certificates representing the Shares may bear such legend or legends as the Company deems appropriate in order to assure compliance with applicable securities laws, (ii) that the Company may refuse to register the transfer of the Shares on the stock transfer records of the Company if such proposed transfer would be in the opinion of counsel satisfactory to the Company constitute a violation of any applicable securities law and (iii) that the Company may give related instructions to its transfer agent, if any, to stop registration of the transfer of the Shares.
5. Limitation on Transfer. Other than upon death or pursuant to a DRO, the Restricted Shares and all rights granted under this Agreement are personal to Colleague and cannot be transferred, assigned, pledged or hypothecated in any way (whether by operation of law or otherwise) and will not be subject to execution, attachment or similar processes.
6. Plan and Addendum Incorporated/Availability. Colleague acknowledges that the Company has made available a copy of the Plan and the Addendum to this Agreement, and agrees that this Award of Restricted Stock Units and Dividend Equivalent Units shall be subject to all of the terms and conditions set forth in the Plan and the Addendum, including future amendments thereto, if any, pursuant to the terms thereof, which Plan and Addendum are incorporated herein by reference as a part of this Agreement. In the event of any conflict between the Plan, the Addendum and this Agreement, the provisions of the Plan will prevail. Colleagues rights hereunder are subject to modification or termination in certain events, as provided in the Plan, including without limitation such rules and regulations as may from time to time be adopted or promulgated in accordance with paragraph 1.3 of the Plan. Capitalized terms not defined in this Agreement shall have the meanings set forth in the Plan and the Addendum.
7. Employment Relationship. For purposes of this Agreement, Colleague shall be considered to be in the employment of the Company as long as Colleague remains a Colleague of either the Company, any successor corporation or a parent or subsidiary corporation (as defined in section 424 of the Internal Revenue Code) of the Company or any successor corporation. Any question as to whether and when there has been a termination of such employment, and the cause of such termination, shall be determined by the Committee, or its delegate, as appropriate, and its determination shall be final.
8. Committees Powers. No provision contained in this Agreement shall in any way terminate, modify or alter, or be construed or interpreted as terminating, modifying or altering any of the powers, rights or authority vested in the Committee or, to the extent delegated, in its delegate pursuant to the terms of the Plan or resolutions adopted in furtherance of the Plan, including, without limitation, the right to make certain determinations and elections with respect to the Restricted Stock Units and Dividend Equivalent Units. All decisions of the Committee (as established pursuant to the Plan) with respect to any questions concerning the application, administration or interpretation of the Plan will be conclusive and binding on the Company and Colleague.
9. Binding Effect. This Agreement shall be binding upon and inure to the benefit of any successors to the Company and all persons lawfully claiming under Colleague.
10. Dispute Resolution. If a dispute arises between Colleague and Company in connection with the Restricted Stock Unit Award, including Dividend Equivalent Units, the dispute will be resolved by binding arbitration with the American Arbitration Association (AAA) in accordance with the AAAs Commercial Arbitration Rules then in effect.
11. Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of California.
IN WITNESS WHEREOF, the Company has caused this Agreement to be duly executed by an officer thereunto duly authorized, and Colleague has executed this Agreement, all as of the date first above written.
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CITY NATIONAL CORPORATION | |
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By: |
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Christopher J. Carey, Executive Vice | |
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President, Chief Financial Officer |
RESTRICTED STOCK UNIT AWARD AGREEMENT
UNDER THE
CITY NATIONAL CORPORATION
2008 OMNIBUS PLAN
Exhibit A
All Restricted Stock Units are subject to forfeiture, as provided in Section 2(b) of the Restricted Stock Unit Award Agreement until the forfeiture restrictions lapse as follows:
{insert applicable vesting schedule}
Ratable Vesting
Schedule 1: ratable vesting over years two through five:
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Percentage of |
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Time from |
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Restrictions Which |
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Total Percentage of |
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Date of Award |
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Lapse (Vesting) |
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Restrictions Lapsed |
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|
|
|
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|
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After 1 year |
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0 |
% |
0 |
% |
After 2 years |
|
25 |
% |
25 |
% |
After 3 years |
|
25 |
% |
50 |
% |
After 4 years |
|
25 |
% |
75 |
% |
After 5 years |
|
25 |
% |
100 |
% |
Alternative Schedule 2: ratable vesting over years one through four:
|
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Percentage of |
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|
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Time from |
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Restrictions Which |
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Total Percentage of |
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Date of Award |
|
Lapse (Vesting) |
|
Restrictions Lapsed |
|
|
|
|
|
|
|
After 1 year |
|
25 |
% |
25 |
% |
After 2 years |
|
25 |
% |
50 |
% |
After 3 years |
|
25 |
% |
75 |
% |
After 4 years |
|
25 |
% |
100 |
% |
Alternative Schedule 3: ratable vesting over years five through six:
|
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Percentage of |
|
|
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Time from |
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Restrictions Which |
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Total Percentage of |
|
Date of Award |
|
Lapse (Vesting) |
|
Restrictions Lapsed |
|
|
|
|
|
|
|
After 1 year |
|
0 |
% |
0 |
% |
After 2 years |
|
0 |
% |
0 |
% |
After 3 years |
|
0 |
% |
0 |
% |
After 4 years |
|
0 |
% |
0 |
% |
After 5 years |
|
50 |
% |
50 |
% |
After 6 years |
|
50 |
% |
100 |
% |
Cliff Vesting
Alternative Schedule 4: five year cliff vesting
|
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Percentage of |
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|
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Time from |
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Restrictions Which |
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Total Percentage of |
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Date of Award |
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Lapse (Vesting) |
|
Restrictions Lapsed |
|
|
|
|
|
|
|
After 1 year |
|
0 |
% |
0 |
% |
After 2 years |
|
0 |
% |
0 |
% |
After 3 years |
|
0 |
% |
0 |
% |
After 4 years |
|
0 |
% |
0 |
% |
After 5 years |
|
100 |
% |
100 |
% |
Alternative Schedule 5: four year cliff vesting:
|
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Percentage of |
|
|
|
Time from |
|
Restrictions Which |
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Total Percentage of |
|
Date of Award |
|
Lapse (Vesting) |
|
Restrictions Lapsed |
|
|
|
|
|
|
|
After 1 year |
|
0 |
% |
0 |
% |
After 2 years |
|
0 |
% |
0 |
% |
After 3 years |
|
0 |
% |
0 |
% |
After 4 years |
|
100 |
% |
100 |
% |
Other ratable and cliff vesting schedules may be used.
Exhibit 31.1
CHIEF EXECUTIVE OFFICER SECTION 302 CERTIFICATION
I, Russell Goldsmith, certify that:
1. I have reviewed this quarterly report on Form 10-Q of City National Corporation;
2. Based on my knowledge, this 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 report;
3. Based on my knowledge, the financial statements, and other financial information included in this 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 report;
4. The registrants 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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and 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. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c. Evaluated the effectiveness of the registrants 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
d. Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and
5. The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants 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 registrants 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 registrants internal controls over financial reporting.
DATE: May 6, 2011 |
/s/ Russell Goldsmith |
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RUSSELL GOLDSMITH |
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Chief Executive Officer |
Exhibit 31.2
CHIEF FINANCIAL OFFICER SECTION 302 CERTIFICATION
I, Christopher J. Carey, certify that:
1. I have reviewed this quarterly report on Form 10-Q of City National Corporation;
2. Based on my knowledge, this 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 report;
3. Based on my knowledge, the financial statements, and other financial information included in this 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 report;
4. The registrants 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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and 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. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c. Evaluated the effectiveness of the registrants 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
d. Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and
5. The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants 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 registrants 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 registrants internal controls over financial reporting.
DATE: May 6, 2011 |
/s/ Christopher J. Carey |
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CHRISTOPHER J. CAREY |
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Chief Financial Officer |
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 March 31, 2011 as filed with the Securities and Exchange Commission on the date hereof (the Report), we, Russell Goldsmith, Chief Executive Officer of the Company, and Christopher J. Carey, 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: May 6, 2011 |
/s/ Russell Goldsmith |
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RUSSELL GOLDSMITH |
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Chief Executive Officer |
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DATE: May 6, 2011 |
/s/ Christopher J. Carey |
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CHRISTOPHER J. CAREY |
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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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