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SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the year ended December 31, 1993 Commission File Number 1-10521
CITY NATIONAL CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 95-2568550
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
400 North Roxbury Drive, Beverly Hills, California 90210
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (310) 550-5400
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
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Common Stock, $1.00 par value New York Stock Exchange
No securities are registered pursuant to Section 12(g) of the Act
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [X]
Number of shares of common stock outstanding at March 10, 1994: 45,038,721
Aggregate market value of the voting stock held by non-affiliates of the
Registrant as of March 10, 1994: $299,089,383
Documents Incorporated by Reference
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1. Pages 7 through 53 of the Annual Report to Shareholders for the year
ended December 31, 1993. (Part II of Form 10-K.)
2. Specified material on pages 2 through 13 and 19 through 22 of the
Notice of Annual Meeting and Proxy Statement dated March 18, 1994.
(Part III of Form 10-K.)
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PART I
ITEM 1. BUSINESS
City National Corporation (the Corporation) was organized in Delaware
in 1968 to acquire the outstanding capital stock of City National Bank (the
Bank). Because the Bank comprises substantially all of the business of the
Corporation, references to the "Company" reflect the consolidated activities of
the Corporation and the Bank. The Corporation owns all the outstanding shares
of the Bank.
The Bank, which was founded in 1953, conducts business in Southern
California and operates 19 banking offices in Los Angeles County, two in Orange
County, and one in San Diego County. In November 1993, the Bank closed one
office in Los Angeles County and announced a consolidation plan to improve
efficiency and operational productivity in its branch network. The
streamlining will involve closures of five additional branches in Los Angeles
County and one branch in Orange County, while also designating four of the
remaining locations as regional lending centers. The Bank expects to complete
the closures in early 1994.
The Bank primarily serves middle-market companies, professional and
business borrowers and associated individuals with commercial banking and
fiduciary needs. The Bank provides revolving lines of credit, term loans,
asset based loans, real estate secured loans, trade facilities, and deposit,
cash management and other business services. Real estate construction lending
has been substantially curtailed since late 1990. The Bank also operates an
Investment Management and Trust Services Division offering personal, employee
benefit and corporate trust and estate services, and deals in money market and
other investments for its own account and for its customers. The Bank offers
mutual funds and residential home mortgages in association with other
companies.
Effective January 1, 1991, the Bank entered into an agreement to
subcontract with Systematics, Inc. (now Systematics Financial Services, Inc.)
for applications software, computer operations and integration services. In
December 1992, the Bank entered into an agreement to sell its data processing
business, City National Information Services (CNIS), to Systematics, Inc. for
$12.0 million. A pretax gain of $10.8 million, which is net of certain
software licensing payments and programming expenses shared with Systematics,
Inc. was recognized at closing, June 1, 1993.
Effective January 1, 1993, the Bank sold its merchant credit card
processing business and customer contracts to NOVA Information Systems, Inc.,
for $1.9 million.
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Competition
The banking business is highly competitive. The Bank competes with
domestic and foreign banks for deposits, loans and other banking business. In
addition, other financial intermediaries, such as savings and loans, money
market mutual funds, credit unions and other financial services companies,
compete with the Bank.
Non-depository institutions can be expected to increase the extent to
which they act as financial intermediaries. Large institutional users and
sources of credit may also increase the extent to which they interact directly,
meeting business credit needs outside the banking system. Furthermore, the
geographic constraints on portions of the financial services industry can be
expected to continue to erode.
Monetary Policy
The earnings of the Bank are affected not only by general economic
conditions, but also by the policies of various governmental regulatory
authorities in the U.S. and abroad. In particular, the Board of Governors of
the Federal Reserve System (Federal Reserve Board) exerts a substantial
influence on interest rates and credit conditions, primarily through open
market operations in U.S. government securities, varying the discount rate on
member bank borrowings and setting reserve requirements against deposits.
Federal Reserve Board monetary policies have had a significant effect on the
operating results of financial institutions in the past and are expected to
continue to do so in the future.
SUPERVISION AND REGULATION
Bank holding companies, banks and their non-bank affiliates are
extensively regulated under both federal and state law. The following is not
intended to be an exhaustive description of the statutes and regulations
applicable to the Corporation's or the Bank's business. The description of
statutory and regulatory provisions is qualified in its entirety by reference
to the particular statutory or regulatory provisions.
Moreover, major new legislation and other regulatory changes affecting
the Corporation, the Bank, banking and the financial services industry in
general have occurred in the last several years and can be expected to occur in
the future. The nature, timing and impact of new and amended laws and
regulations cannot be accurately predicted.
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Bank Holding Companies
Bank holding companies are regulated under the Bank Holding Company
Act (BHC Act) and are supervised by the Federal Reserve Board. Under the BHC
Act, the Corporation files reports of its operations with the Federal Reserve
Board and is subject to examination by it.
The BHC Act requires, among other things, the Federal Reserve Board's
prior approval whenever a bank holding company proposes to (i) acquire all or
substantially all the assets of a bank, (ii) acquire direct or indirect
ownership or control of more than 5% of the voting shares of a bank, or (iii)
merge or consolidate with another bank holding company. The Federal Reserve
Board may not approve an acquisition, merger or consolidation that would result
in or further a monopoly, or may substantially lessen competition in any
section of the country, or in any other manner would be in restraint of trade,
unless the anticompetitive effects of the proposed transaction are clearly
outweighed by the convenience and needs of the community.
The BHC Act prohibits the Federal Reserve Board from approving a bank
holding company's application to acquire a bank or bank holding company located
outside the state where its banking subsidiaries' operations are principally
conducted, unless such acquisition is specifically authorized by statute of the
state where the bank or bank holding company to be acquired is located.
California law permits bank holding companies in other states to acquire
California banks and bank holding companies, provided the acquiring company's
home state has enacted "reciprocal" legislation that expressly authorizes
California bank holding companies to acquire banks or bank holding companies in
that state on terms and conditions substantially no more restrictive than those
applicable to such an acquisition in California by a bank holding company from
the other state.
The BHC Act also prohibits a bank holding company, with certain
exceptions, from acquiring more than 5% of the voting shares of any company
that is not a bank and from engaging in any activities without the Federal
Reserve Board's prior approval other than (1) managing or controlling banks and
other subsidiaries authorized by the BHC Act, or (2) furnishing services to, or
performing services for, its subsidiaries. The BHC Act authorizes the Federal
Reserve Board to approve the ownership of shares in any company, the activities
of which have been determined to be so closely related to banking or to
managing or controlling banks as to be a proper incident thereto. The Federal
Reserve Board has by regulation determined that certain activities are closely
related to banking within the meaning of the BHC Act.
Consistent with its "source of strength" policy (see "Capital Adequacy
Requirements," below), the Federal Reserve Board has stated that, as a matter
of prudent banking, a bank holding
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company generally should not pay cash dividends unless its net income available
to common shareholders has been sufficient to fund fully the dividends, and the
prospective rate of earnings retention appears consistent with the company's
capital needs, asset quality and overall financial condition. The Corporation
ceased paying dividends in the third quarter of 1991. Dividend payments are
expected to resume, based on achieved earnings, and when the Board of Directors
determines that such payments are consistent with the long-term objectives of
the Corporation.
A bank holding company and its subsidiaries are prohibited from
engaging in certain tie-in arrangements in connection with the extension of
credit.
The Federal Reserve Board may, among other things, issue
cease-and-desist orders with respect to activities of bank holding companies
and nonbanking subsidiaries that represent unsafe or unsound practices or
violate a law, administrative order or written agreement with a federal banking
regulator. The Federal Reserve Board can also assess civil money penalties
against companies or individuals who violate the BHC Act or other federal laws
or regulations, order termination of nonbanking activities by nonbanking
subsidiaries of bank holding companies and order termination of ownership and
control of a nonbanking subsidiary by a bank holding company.
National Banks
The Bank is a national bank and, as such, is subject to supervision
and examination by the Office of the Comptroller of the Currency (OCC) and
requirements and restrictions under federal and state law, including
requirements to maintain reserves against deposits, restrictions on the types
and amounts of loans that may be granted and the interest that may be charged,
and limitations on the types of investments that may be made and services that
may be offered. Various consumer laws and regulations also affect the Bank's
operations. These laws primarily protect depositors and other customers of the
Bank, rather than the Corporation and its shareholders. The laws and
regulations affecting the Bank were significantly altered and augmented by the
Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA).
"Brokered deposits" are deposits obtained by a bank from a "deposit
broker" or that pay above-market rates of interest. Under FDICIA, only a well
capitalized depository institution may accept brokered deposits without the
prior approval of the Federal Deposit Insurance Corporation (FDIC). Banks that
are not at least adequately capitalized cannot obtain such approval. For
purposes of this provision, the capital category definitions are similar, but
not identical, to the OCC's definitions of those categories for the purpose of
requiring prompt corrective action. See
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"Capital Adequacy Requirements," below. Although the Bank sought, and
received, the permission of the FDIC to accept brokered deposits in 1993, no
such deposits have in fact been accepted.
The Corporation's principal asset is its investment in, and its loans
and advances to, the Bank. Bank dividends are one of the Corporation's
principal sources of liquidity. The Bank's ability to pay dividends is limited
by certain statutes and regulations. OCC approval is required for a national
bank to pay a dividend if the total of all dividends declared in any calendar
year exceeds the total of the bank's net profits (as defined) for that year
combined with its retained net profits for the preceding two calendar years,
less any required transfer to surplus. A national bank may not pay any
dividend that exceeds its net profits then on hand after deducting its loan
losses and bad debts, as defined by the OCC. The OCC and the Federal Reserve
Board have also issued banking circulars emphasizing that the level of cash
dividends should bear a direct correlation to the level of a national bank's
current and expected earnings stream, the bank's need to maintain an adequate
capital base and other factors. National banks that are not in compliance with
regulatory capital requirements generally are not permitted to pay dividends.
The OCC also can prohibit a national bank from engaging in an unsafe
or unsound practice in its business. Depending on the bank's financial
condition, payment of dividends could be deemed to constitute an unsafe or
unsound practice. Under FDICIA, a bank may not, except under certain
circumstances and with prior regulatory approval, pay a dividend if, after so
doing, it would be undercapitalized. The Bank's ability to pay dividends in
the future is, and could be further, influenced by regulatory policies or
agreements and by capital guidelines. The Bank ceased paying dividends in the
second quarter of 1991. Dividend payments were also restricted in 1993 by the
terms of the Bank's Agreement with the OCC, which was terminated on January 21,
1994. See "Regulatory Agreements," below. Dividend payments are expected to
resume, based on achieved earnings, and when the Board of Directors of the Bank
determine that such payments are consistent with the long-term objectives of
the Bank.
The Bank's ability to make funds available to the Corporation is also
subject to restrictions imposed by federal law on the Bank's ability to extend
credit to the Corporation to purchase assets from it, to issue a guarantee,
acceptance or letter of credit on its behalf (including an endorsement or
standby letter of credit), to invest in its stock or securities, or to take
such stock or securities as collateral for loans to any borrower. Such
extensions of credit and issuances generally must be secured and are generally
limited, with respect to the Corporation, to 10% of the Bank's capital stock
and surplus.
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The Bank is insured by the FDIC and therefore is subject to its
regulations. Among other things, FDICIA provided authority for special
assessments against insured deposits and required the FDIC to develop a general
risk-based assessment system. The insurance assessment is set forth in a
schedule issued by the FDIC that specifies, at semiannual intervals, target
reserve ratios for the Bank Insurance Fund designed to increase to at least
1.25% of estimated insured deposits in 15 years. During 1992, the assessment
rate for all banks was 0.23% of the average assessment base. However, in
October 1992, the FDIC adopted a risk-based assessment system under which
insured institutions will be assigned to one of nine categories, based on
capital levels and degree of supervisory concern. Depending on its category
(which may not be disclosed without the permission of the FDIC), a bank's
assessment now ranges from 0.23% to 0.31% of the base, effective January 1,
1993. Due to declines in total deposits, the increases in FDIC insurance
assessment rates that became effective in July 1, 1992 and January 1, 1993 did
not result in an increase in FDIC insurance assessment expense.
FDICIA also contains numerous other regulatory requirements. Annual
examinations are required for all insured depository institutions by the
appropriate federal banking agency, with some exceptions. In December 1992,
the Federal Reserve Board issued regulations under FDICIA requiring
institutions to adopt policies limiting their exposure to correspondent
institutions in relation to the correspondent's financial condition and, in
particular, to limit exposure to any correspondent that is not adequately
capitalized, as defined, to not more than 25% of the exposed institution's
total capital. FDICIA also requires the banking agencies to review and, under
certain circumstances, prescribe more stringent accounting and reporting
standards than required by generally accepted accounting principles. In
addition, FDICIA contains a number of consumer banking provisions, including
disclosure requirements and substantive contractual limitations with respect to
deposit accounts.
Under FDICIA, institutions other than small institutions must prepare
a management report stating management's responsibility for preparing the
institution's annual financial statements, complying with designated safety and
soundness laws and regulations and other related matters. The report also must
contain an assessment by management of the effectiveness of internal controls
over financial reporting and of the institution's compliance with designated
laws and regulations. The institution's independent public accountant must
examine, attest to, and report separately on, the assertions of management
concerning internal controls over financial
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reporting and must apply procedures agreed to by the FDIC to test compliance by
the institution with designated laws and regulations concerning loans to
insiders and dividend restrictions.
Banks and bank holding companies are also subject to the Community
Reinvestment Act of 1977, as amended (CRA). CRA requires the Bank to ascertain
and meet the credit needs of the communities it serves, including low- and
moderate-income neighborhoods. The Bank's compliance with CRA is reviewed and
evaluated by the OCC, which assigns the Bank a publicly available CRA rating at
the conclusion of the examination. Further, an assessment of CRA compliance is
also required in connection with applications for OCC approval of certain
activities, including establishing or relocating a branch office that accepts
deposits or merging or consolidating with, or acquiring the assets or assuming
the liabilities of, a federally regulated financial institution. An
unfavorable rating may be the basis for OCC denial of such an application, or
approval may be conditioned upon improvement of the applicant's CRA record. In
the case of a bank holding company applying for approval to acquire a bank or
other bank holding company, the Federal Reserve Board will assess the CRA
record of each subsidiary bank of the applicant, and such records may be the
basis for denying the application.
In the most recent completed examination, conducted in 1993, the OCC
assigned the Bank a rating of "Satisfactory," the second highest of four
possible ratings. From time to time, banking legislation has been proposed
that would require consideration of the Bank's CRA rating in connection with
applications by the Corporation or the Bank to the Federal Reserve Board or the
OCC for permission to engage in additional lines of business. The Corporation
cannot predict whether such legislation will be adopted, or its effect upon the
Bank and the Corporation if adopted. The federal regulatory agencies recently
issued proposed revisions to the rules governing CRA compliance. The proposed
rules are intended to simplify CRA compliance evaluations by establishing
performance-based criteria. The regulatory agencies have extended the time for
comment on, and consideration of, the proposed rules, and management is unable
to predict when, or in what form, such rules will be adopted, or the effect of
the rules on the Bank's CRA rating.
The OCC has enforcement powers with respect to national banks for
violations of federal laws or regulations that are similar to the powers of the
Federal Reserve Board with respect to bank holding companies and nonbanking
subsidiaries. See "Bank Holding Companies," above.
On December 21, 1993, an interagency policy statement was issued on
the allowance for loan and lease losses (the Policy Statement). The Policy
Statement requires that federally-insured depository institutions maintain an
allowance for loan and lease losses (ALLL) adequate to absorb
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credit losses associated with the loan and lease portfolio, including all
binding commitments to lend. The Policy Statement defines an adequate ALLL as
a level that is no less than the sum of the following items, given the
appropriate facts and circumstances as of the evaluation date:
(1) For loans and leases classified as substandard or doubtful,
all credit losses over the remaining effective lives of
those loans.
(2) For those loans that are not classified, all estimated
credit losses forecast for the upcoming twelve months.
(3) Amounts for estimated losses from transfer risk on
international loans.
Additionally, the Policy Statement provides that an adequate level of
ALLL should reflect an additional margin for imprecision inherent in most
estimates of expected credit losses.
The Policy Statement also provides guidance to examiners in evaluating
the adequacy of a bank's ALLL. Among other things, the Policy Statement
directs examiners to check the reasonableness of ALLL methodology by comparing
the reported ALLL against the sum of the following amounts:
(a) 50 percent of the portfolio that is classified doubtful.
(b) 15 percent of the portfolio that is classified substandard;
and
(c) For the portions of the portfolio that have not been
classified (including those loans designated special
mention), estimated credit losses over the upcoming twelve
months given the facts and circumstances as of the
evaluation date (based on the institutions's average annual
rate of net charge-offs experienced over the previous two or
three years on similar loans, adjusted for current
conditions and trends).
The Policy Statement specifies that the amount of ALLL determined by
the sum of the amounts above is neither a floor nor a "safe harbor" level for
an institution's ALLL. However, it is expected that examiners will review a
shortfall relative to this amount as indicating a need to more closely review
management's analysis to determine whether it is reasonable, supported by the
weight of reliable evidence and that all relevant factors have been
appropriately considered. The Company has reviewed the Policy Statement and
believes that it will not have a material impact on the level of the Company's
allowances for loan losses.
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Capital Adequacy Requirements
Both the Federal Reserve Board and the OCC have adopted similar, but
not identical, "risk-based" and "leverage" capital adequacy guidelines for bank
holding companies and national banks, respectively. Under the risk-based
capital guidelines, different categories of assets are assigned different risk
weights, ranging from zero percent for risk-free assets (e.g., cash) to 100%
for relatively high-risk assets (e.g., commercial loans). These risk weights
are multiplied by corresponding asset balances to determine a risk-adjusted
asset base. Certain off-balance sheet items (e.g., standby letters of credit)
are added to the risk-adjusted asset base. The minimum required ratio of total
capital to risk-weighted assets for both bank holding companies and national
banks is presently 8%. At least half of the total capital is required to be
"Tier 1 capital," consisting principally of common shareholders' equity, a
limited amount of perpetual preferred stock and minority interests in the
equity accounts of consolidated subsidiaries, less certain goodwill items. The
remainder (Tier 2 capital) may consist of a limited amount of subordinated
debt, certain hybrid capital instruments and other debt securities, preferred
stock and a limited amount of the general loan-loss allowance. As of December
31, 1993, the Corporation had a ratio of Tier 1 capital to risk-weighted assets
(Tier 1 risk-based capital ratio) of 15.75% and a ratio of total capital to
risk-weighted assets (total risk-based capital ratio) of 17.06%, while the Bank
had a Tier 1 risk-based capital ratio of 14.78% and a total risk-based capital
ratio of 16.09%.
The minimum Tier 1 leverage ratio, consisting of Tier 1 capital to
average adjusted total assets, is 3% for bank holding companies and national
banks that have the highest regulatory examination rating and are not
contemplating significant growth or expansion. All other bank holding
companies and national banks are expected to maintain a ratio of at least 1% to
2% or more above the stated minimum. As of December 31, 1993, the Corporation
had a Tier 1 leverage ratio of 9.95%, and the Bank's Tier 1 leverage ratio was
9.38%.
The OCC has adopted regulations under FDICIA establishing capital
categories for national banks and prompt corrective actions for
undercapitalized institutions. The regulations create five capital categories:
well capitalized, adequately capitalized, undercapitalized, significantly
undercapitalized and critically undercapitalized. The following table shows
the minimum total risk-based capital, Tier 1 risk- based capital and Tier 1
leverage ratios, all of which must be satisfied for a bank to be classified as
well capitalized, adequately capitalized or undercapitalized, respectively,
together with the Bank's ratios at December 31, 1993:
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Minimum total Minimum Tier 1 Minimum
risk-based risk-based Tier 1
capital ratio capital ratio leverage ratio
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Well capitalized(1) 10.00% 6.00% 5.00%
Adequately capitalized 8.00% 4.00% 4.00%(2)
Undercapitalized 6.00% 4.00% 3.00%
City National Bank
(at December 31, 1993) 16.09% 14.78% 9.38%
(1) A bank may not be classified as well capitalized if it is subject to a
specific agreement with the OCC to meet and maintain a specified level of
capital.
(2) 3% for institutions having a composite rating of "1" in the most recent OCC
examination.
If any one or more of a bank's ratios are below the minimum ratios
required to be classified as undercapitalized, it will be classified as
substantially undercapitalized or, if in addition its ratio of tangible equity
to total assets is 2% or less, it will be classified as critically
undercapitalized. A bank may be reclassified by the OCC to the next level
below that determined by the criteria described above if the OCC finds that it
is in an unsafe or unsound condition or if it has received a
less-than-satisfactory rating for any of the categories of asset quality,
management, earnings or liquidity in its most recent examination and the
deficiency has not been corrected, except that a bank cannot be reclassified as
critically undercapitalized for such reasons.
Under FDICIA and its implementing regulations, the OCC may subject
national banks to a broad range of restrictions and regulatory requirements. A
national bank may not pay management fees to any person having control of the
institution, nor, except under certain circumstances and with prior regulatory
approval, make any capital distribution if, after doing so, it would be
undercapitalized. Undercapitalized banks are subject to increased monitoring
by the OCC, are restricted in their asset growth, must obtain regulatory
approval for certain corporate activities, such as acquisitions, new branches
and new lines of business, and, in most cases, must submit to the OCC a plan to
bring their capital levels to the minimum required in order to be classified as
adequately capitalized. The OCC may not approve a capital restoration plan
unless the bank's holding company guarantees that the bank will comply with it.
Significantly and critically undercapitalized banks are subject to additional
mandatory and discretionary restrictions and, in the case of critically
undercapitalized institutions, must be placed into conservatorship or
receivership unless the OCC and the FDIC agree otherwise.
Under Federal Reserve Board policy, a bank holding company is expected
to act as a source of financial strength to its subsidiary banks and to commit
resources to support each such
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bank. In addition, a bank holding company is required to guarantee that its
subsidiary bank will comply with any capital restoration plan required under
FDICIA. The amount of such a guarantee is limited to the lesser of (i) 5% of
the bank's total assets at the time it became undercapitalized, or (ii) the
amount which is necessary (or would have been necessary) to bring the bank into
compliance with all applicable capital standards as of the time the bank fails
to comply with the capital restoration plan. A guaranty by the Corporation of
a capital restoration plan for the Bank would result in a priority claim to the
Corporation's assets ahead of the Corporation's other unsecured creditors and
shareholders that would be enforceable even in the event of the Corporation's
bankruptcy or the Bank's insolvency.
Regulatory Agreements
On November 18, 1992, the Bank entered into a written agreement with
the OCC (the Agreement) with respect to capital and other matters described
below, which replaced a memorandum of understanding dated June 26, 1991,
between the Bank and the OCC. The Agreement required the Bank to generate
through internal and external sources a minimum of $65 million in Tier 1
capital by June 30, 1993, so as to maintain a Tier 1 risk-based capital ratio
of at least 10% and a Tier 1 leverage ratio of at least 7%. In June 1993, the
Corporation completed an offering and sale of 12.7 million shares of common
stock (the Offering) at a price of $6.375 per share. The gross proceeds of the
Offering were $81.1 million before expenses of the issuance of $4.6 million.
Upon completion of the Offering, the Corporation contributed $65 million in
capital to the Bank to comply with the $65 million capital - raising
requirement in the Agreement with the OCC.
The Agreement also required the Bank to develop a three-year capital
plan and a three-year business plan and continue to improve its policies and
procedures in the lending and credit administration areas. Each of these
requirements was successfully met prior to December 31, 1993. As a result, on
January 21, 1994, the OCC lifted the Agreement.
On February 24, 1993, the Corporation entered into a memorandum of
understanding with the Federal Reserve Bank of San Francisco. The memorandum
of understanding required the Corporation to submit to the Federal Reserve Bank
a summary of measures to improve the Bank's financial condition and ensure the
Bank's compliance with the Agreement, a plan to ensure the Corporation's
maintenance of adequate consolidated capital levels commensurate with its risk
profile, and quarterly progress reports. Under the memorandum of
understanding, the Corporation
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was required to give prior notice to the Federal Reserve Bank of the
declaration of any cash dividends or the incurrence of debt, other than
operating expenses, and the Corporation was not permitted to repurchase any of
its outstanding stock without the Federal Reserve Bank's prior approval. In
February 1994, the Federal Reserve Bank of San Francisco notified the
Corporation that the memorandum of understanding was lifted.
ITEM 2. PROPERTIES
The Company has its principal offices in the City National Bank
Building, 400 North Roxbury Drive, Beverly Hills, California 90210, which the
Bank owns and occupies. As of December 31, 1993, the Bank and its subsidiaries
actively maintained premises composed of 22 banking offices, a computer center,
a regional data capture center, a warehouse, and certain other properties.
Since 1967, the Bank's Pershing Square Regional Office and a number of
Bank departments have been the major tenant of the office building located at
600 South Olive Street in downtown Los Angeles. The building was originally
developed and built by a partnership between a wholly-owned subsidiary of the
Bank, Citinational Bancorporation, and Buckeye Construction Co. and Buckeye
Realty and Management Corporation (two corporations then affiliated with Mr.
Bram Goldsmith, Chairman of the Board and Chief Executive Officer of the
Corporation and the Bank); since its completion, the building has been owned by
Citinational-Buckeye Building Co., a limited partnership of which Citinational
Bancorporation and Olive-Sixth Buckeye Co. are the only general partners, each
with a 29% partnership interest. Citinational Bancorporation has an additional
3% interest as a limited partner of Citinational-Buckeye Building Co.; the
remainder is held by other, unaffiliated limited partners. Olive-Sixth Buckeye
Co. is a limited partnership of which Mr. Goldsmith is a 49% general partner;
therefore, Mr. Goldsmith has an indirect 14% ownership interest in
Citinational-Buckeye Building Co. The remaining general partner and all
limited partners of Olive-Sixth Buckeye Co. are not affiliated with the
Corporation. Since 1990, Citinational-Buckeye Building Co. has managed the
building, which is expected to require capital investment of approximately $2.2
million over the next four years, the source of which is uncertain.
The major encumbrance on real properties owned directly by the Bank or
its subsidiaries is a deed of trust on the 600 South Olive Street building,
securing a note in favor of City National Bank on which the unpaid balance at
December 31, 1993, was $16,650,842.
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The Bank's subsidiary, Citinational Bancorporation, also owns two
buildings located on Olympic Boulevard in downtown Los Angeles, approximately
80,000 square feet of which is subject to a lease between Citinational
Bancorporation and Systematics Financial Services, Inc., that expires on
December 31, 2000.
Twenty additional branch locations throughout Southern California are
leased by the Bank at annual rentals (exclusive of operating charges and real
property taxes) of approximately $4,500,000, with expiration dates ranging from
1994 to 2016, exclusive of renewal options. The Northridge earthquake of
January 17, 1994, resulted in damage to several of the Bank's facilities, of
which two remain closed. Of these, one will be closed permanently as part of
the Bank's branch restructuring, and the Bank is negotiating for alternate
facilities to replace the other.
ITEM 3. LEGAL PROCEEDINGS
The Corporation and its subsidiaries are defendants in various pending
lawsuits claiming substantial amounts. Based on present knowledge, management
and in-house counsel are of the opinion that the final outcome of such lawsuits
will not have a material adverse effect upon the financial position or the
future results of its operations.
The Company is not aware of any material proceedings to which any
director, officer or affiliate of the Company, any owner of record or
beneficially of more than 5% of the voting securities of the Company, or any
associate of any such director, officer or security holder is a party adverse
to the Company or any of its subsidiaries or has a material interest adverse to
the Company or any of its subsidiaries.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There was no submission of matters to a vote of security holders
during the fourth quarter of the year ended December 31, 1993.
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EXECUTIVE OFFICERS OF THE REGISTRANT
Shown below are names and ages of all executive officers of the
Corporation and officers of the Bank who may be deemed to be executive officers
of the Corporation, with indication of all positions and offices with the
Corporation and the Bank. There was no family relationship among the executive
officers.
Capacities in which served:
Present principal occupation and principal
Name Age occupation during the past five years
- ---------------- --- ---------------------------------------------------------------------------------------------------
Bram Goldsmith 71 Chairman of the Board and Chief Executive Officer, City National Bank and City National Corporation
George H. Benter, Jr. 52 President and Chief Operating Officer, City National Bank, since May, 1992; President, City National
Corporation, since February 1993; Vice Chairman and Chief Credit Officer, Security Pacific
Corporation (1991 to 1992), Vice Chairman, Security Pacific National Bank, prior to 1991
Steven D. Broidy 56 Vice Chairman and Chief Administrative Officer, City National Bank, since May 1992; Vice Chairman, City
National Corporation, since February 1993; Partner, Loeb and Loeb, October 1988 to 1992
Frank P. Pekny 50 Executive Vice President and Chief Financial Officer, City National Bank, since October 1992;
Executive Vice President and Treasurer/Chief Financial Officer, City National Corporation, since
December 1992; Executive Vice President, BankAmerica Corporation, April 1992 to September 1992;
Executive Vice President, Security Pacific Corporation, October 1990 to April 1992; Vice Chairman and
Chief Financial Officer, Security Pacific National Bank, October 1988 to April 1992
Charles D. Kenny 48 Executive Vice President, Secretary and General Counsel, City National Bank, since September 1992; and
Manager, Investment Management and Trust Services since October 1993; Executive Vice President,
Secretary and General Counsel, City National Corporation, since February 1993; Managing Director and
Chief Administrative Officer, World Cup U.S.A. 1994, Inc., June 1991 to September 1992; Executive
Vice President, Sanwa Bank California, January 1991 to June 1991, Executive Vice President, General
Counsel and Secretary, Union Bank, prior to June 1991
-14-
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Capacities in which served:
Present principal occupation and principal
Name Age occupation during the past five years
- ---------------- --- -------------------------------------------------------------------------------------------------------
Robert A. Moore 51 Executive Vice President and Manager, Credit Services, City National Bank, since April 1992; Senior
Vice President and Chief Credit Officer, Corporate Banking Group, Security Pacific National Bank,
1991 to April 1992; Senior Vice President, Wells Fargo Bank, 1988 to 1991
Jeffery L. Puchalski 38 Executive Vice President and Senior Risk Management Officer, Risk Management, City National Bank from
November 1991; Principal, The Secura Group, national bank and thrift consulting firm, from August 1988
Heng W. Chen 41 Senior Vice President, Finance, City National Bank from August 1988; Assistant Treasurer, City National
Corporation from April 1991
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The information regarding the market for the Corporation's Common
Stock and related stockholder matters appearing under the caption "Market Data
on Shares of Common Stock" on page 33 of the Corporation's Annual Report to
Shareholders for the year ended December 31, 1993, is incorporated by reference
in this Annual Report on Form 10-K. Information regarding restrictions on the
Corporation's payment of dividends appearing under "Capital" and Note 12 to the
consolidated financial statements of the Company and its subsidiaries,
appearing on pages 20 and 49 respectively of the Corporation's Annual Report to
Shareholders for the year ended December 31, 1993, are hereby incorporated by
reference.
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data for the five years ended December 31,
1993, appearing under "Selected Financial Information" on page 7 of the
Corporation's Annual Report to Shareholders for the year ended December 31,
1993, is incorporated by reference in this Annual Report on Form 10-K.
-15-
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The Corporation's dividend payout ratio for 1990 and 1989 was 47.4%
and 31.0%, respectively. Due to the Corporation's loss in 1991, the dividend
payout ratio for 1991 is not meaningful. The Corporation did not pay any
dividends in 1993 or 1992.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information required by this item appearing on pages 8 through 33
of the Corporation's Annual Report to Shareholders for the year ended December
31, 1993, is incorporated by reference in this Annual Report on Form 10-K.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements of the Corporation and its
subsidiaries and the notes thereto, and the condensed financial statements of
the registrant (the Corporation), together with the report thereon of KPMG Peat
Marwick dated January 21, 1994, appearing on pages 35 through 53, and the
supplementary data under "1993 Quarterly Operating Results" and "1992 Quarterly
Operating Results" on page 34 of the Corporation's Annual Report to
Shareholders for the year ended December 31, 1993, together with the report of
Price Waterhouse dated January 13, 1993, are incorporated by reference in this
Annual Report on Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
The information required by this item appearing in Item 4 of the
Registrant's Form 8-K/A dated August 25, 1993 is incorporated by reference in
this Annual Report on Form 10-K. There were no disagreements with accountants
on accounting and financial disclosure matters.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
To the extent not provided above, the information required by this
item appearing under the captions "Election of Directors" and "Compliance With
Section 16(a) of Securities Exchange Act of 1934" on pages 4 through 6 and 22
of the Registrant's Notice of Annual Meeting and Proxy Statement dated March
18, 1994, is incorporated by reference in this Form 10-K Annual Report. See
"Executive Officers of the Registrant," above.
-16-
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ITEM 11. EXECUTIVE COMPENSATION
The information required by this item regarding executive compensation
appearing under the caption "Compensation of Directors and Executive Officers"
on pages 7 through 18 of the Registrant's Notice of Annual Meeting and Proxy
Statement dated March 18, 1994, is incorporated by reference in this Form 10-K
Annual Report.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item appearing under the captions
"Record Date and Number of Shares Outstanding; Security Ownership of Certain
Beneficial Owners" and "Security Ownership of Management" on pages 2, 3 and 19
through 21 of the Registrant's Notice of Annual Meeting and Proxy Statement
dated March 18, 1994, is incorporated by reference in this Form 10-K Annual
Report.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item appearing under the captions
"Compensation Committee Interlocks and Insider Participation" and "Certain
Transactions with Management and Others" on page 14, 21 and 22 of the
Registrant's Notice of Annual Meeting and Proxy Statement dated March 18, 1994,
is incorporated by reference in this Form 10-K Annual Report.
-17-
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
Page in
Annual Report*
-------------
1. Financial Statements:
Report of Independent Auditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Consolidated Balance Sheet at December 31, 1993 and 1992 . . . . . . . . . . . . . . . . . 36
Consolidated Statement of Operations for each of the
three years in the period ended December 31, 1993 . . . . . . . . . . . . . . . . . . . 37
Consolidated Statement of Cash Flows
for each of the three years in the period ended
December 31, 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Consolidated Statement of Changes
in Shareholders' Equity for each of the three years
in the period ended December 31, 1993 . . . . . . . . . . . . . . . . . . . . . . . . . 39
Footnotes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40-53
Condensed Balance Sheet (Parent Company)
at December 31, 1993 and 1992 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Condensed Statement of Operations (Parent Company) for each of the
three years in the period ended December 31, 1993 . . . . . . . . . . . . . . . . . . . 53
Condensed Statement of Cash Flows (Parent Company)
for each of the three years in the period
ended December 31, 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
*Incorporated by reference from the indicated pages of the 1993 Annual Report to Shareholders.
2. All other schedules and separate financial statements of 50% or less owned companies accounted for
by the equity method have been omitted because they are not applicable.
-18-
20
3. Exhibits (listed by numbers corresponding to Exhibit Table
of Item 601 in Regulation S-K)
No.
--
3.1 Certificate of Incorporation (This Exhibit is incorporated by reference to the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1990.)
3.2 By-Laws, as amended to date
10.1 Data Processing Agreement by and between Systematics, Inc. and City National Bank dated January 1, 1991, as
amended (This Exhibit is incorporated by reference to the Company's Annual Report on Form 10-K for the year
ended December 31, 1991.)
10.2 Employment Agreement made as of January 31, 1990, by and between Bram Goldsmith and City National Bank (This
Exhibit is incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December
31, 1991.)
10.2.1 Description of amendments of Bram Goldsmith employment agreement effective September 1, 1992 (This exhibit
is incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31,
1992.)
10.3 Split Dollar Life Insurance Agreement Collateral Assignment Plan between City National Bank and the Goldsmith
1980 Insurance Trust, dated as of June 13, 1980, as amended to date (This Exhibit is incorporated by
reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1991.)
10.4 Description of amendments to Bram Goldsmith employment agreement (This Exhibit is incorporated by reference
to the Company's Annual Report on Form 10-K for the year ended December 31, 1991.)
10.5 Lease dated January 11, 1991, between Citinational-Buckeye Building Co. and City National Bank for rental of
space on the 14th floor on a month-to-basis, as amended (This Exhibit is incorporated by reference to the
Company's Annual Report on Form 10-K for the year ended December 31, 1991.)
10.6 Lease dated January 11, 1991, between Citinational-Buckeye Building Co. and City National Bank for rental of
space on the 20th floor until December 31, 1996, as amended (This Exhibit is incorporated by reference to the
Company's Annual Report in Form 10-K for the year ended December 31, 1991.)
-19-
21
No.
--
10.7 Lease dated September 30, 1991, between Citinational-Buckeye Building Co. and City National Bank for rental
of space on the 9th floor until December 31, 1996 (This Exhibit is incorporated by reference to the Company's
Annual Report on Form 10-K for the year ended December 31, 1991.)
10.8 Lease dated March 6, 1991, between Citinational-Buckeye Building Co. and City National Bank for rental of
space on the 16th floor on a month-to-month basis, as amended (This Exhibit is incorporated by reference to
the Company's Annual Report in Form 10-K for the year ended December 31, 1991.)
10.10 City National Corporation 1985 Stock Option Plan, as amended to date (This Exhibit is incorporated by
reference to the Company's Annual Report in Form 10-K for the year ended December 31, 1991.)
10.11 Agreement By and Between City National Bank Beverly Hills, California and the Comptroller of the Currency,
dated November 18, 1992 (This Exhibit is incorporated by reference to the Registrant's Current Report in
Form 8-K dated November 18, 1992.)
10.11.1 Termination of the Formal Agreement, Office of the Comptroller of the Currency, dated January 21, 1994.
10.12 Memorandum of Understanding by and between City National Corporation and the Federal Reserve Bank of San
Francisco, dated February 24, 1993 (This exhibit is incorporated by reference to the Company's Annual Report
in Form 10-K for the year ended December 31, 1992.)
10.12.1 Letter from The Federal Reserve Bank of San Francisco to City National Bank dated February 23, 1994.
10.13 Asset Purchase Agreement by and between Systematics Financial Services, Inc. and City National Bank, dated
December 17, 1992 (This exhibit is incorporated by reference to the Company's Annual Report in Form 10-K for
the year ended December 31, 1992.)
10.14 Letter from City National Bank to George H. Benter, Jr., dated March 31, 1992 (This exhibit is incorporated
by reference to the Company's Annual Report in Form 10-K for the year ended December 31, 1992.)
-20-
22
No.
--
10.15 Letter from City National Bank to Steven D. Broidy, dated March 31, 1992 (This exhibit is incorporated by
reference to the Company's Annual Report in Form 10-K for the year ended December 31, 1992.)
10.17 Agreement by and among City National Corporation and the directors thereof, dated as of November 18, 1992
(This exhibit is incorporated by reference to the Company's Annual Report on Form 10-K for the year ended
December 31, 1992.)
10.18 Asset Sale Agreement (Pool 1) by and between City National Bank as Seller and WHC-THREE Investors, L.P., as
Purchaser, dated November 1, 1993.
10.19 Asset Sale Agreement (Pools 2 Through 6) by and between City National Bank as Seller and WHC-THREE Investors,
L.P., as Purchaser, dated November 1, 1993.
10.20 Agreement for Separation From Employment and Release by and between Alexander L. Kyman and City National
Bank, dated November 3, 1993.
10.20.1 Letter from City National Bank to Alexander L. Kyman, dated November 3, 1993.
13 Pages 7 through 53 of Annual Report to Security Holders for the year ended December 31, 1993
13.1 Report of Price Waterhouse, dated January 13, 1993.
16 Letter from Price Waterhouse (This Exhibit is incorporated by reference to the Company's Current Report on
Form 8-K/A, dated August 25, 1993.)
21 Subsidiaries of the registrant
23.1 Consent of KMPG Peat Marwick
23.2 Consent of Price Waterhouse
(b) During the calendar quarter ended December 31, 1993, the registrant
did not file any current reports on Form 8-K.
-21-
23
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
City National Corporation
-------------------------
(Registrant)
March 23, 1994 By /s/ Bram Goldsmith
------------------------
Bram Goldsmith, Chairman
of the Board and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
- -------------------------------- ------------------------------ --------------
/s/ Bram Goldsmith Chairman of the Board, Chief March 23, 1994
- ----------------------------------- Executive Officer and Director
Bram Goldsmith
(Principal Executive Officer)
/s/ Frank P. Pekny Executive Vice President and March 23, 1994
- ----------------------------------- Treasurer/Chief Financial Officer
Frank P. Pekny
(Principal Financial Officer)
/s/ Heng W. Chen Assistant Treasurer March 23, 1994
- -----------------------------------
Heng W. Chen
(Principal Accounting Officer)
/s/ George H. Benter, Jr. President and Director March 23, 1994
- -----------------------------------
George H. Benter, Jr.
/s/ Steven D. Broidy Vice Chairman and Director March 23, 1994
- -----------------------------------
Steven D. Broidy
24
/s/ Richard L. Bloch Director March 23, 1994
- -----------------------------------
Richard L. Bloch
/s/ Mirion P. Bowers, M.D. Director March 23, 1994
- -----------------------------------
Mirion P. Bowers, M.D.
/s/ Stuart D. Buchalter Director March 23, 1994
- -----------------------------------
Stuart D. Buchalter
/s/ Russell D. Goldsmith Director March 23, 1994
- -----------------------------------
Russell D. Goldsmith
/s/ Burton S. Horwitch Director March 23, 1994
- -----------------------------------
Burton S. Horwitch
/s/ Charles E. Rickershauser, Jr. Director March 23, 1994
- -----------------------------------
Charles E. Rickershauser, Jr.
/s/ Edward Sanders Director March 23, 1994
- -----------------------------------
Edward Sanders
/s/ Andrea L. Van De Kamp Director March 23, 1994
- -----------------------------------
Andrea L. Van de Kamp
Director March 23, 1994
- -----------------------------------
Kenneth Ziffren
25
INDEX TO EXHIBITS
Exhibit No.
-----------
3.2 By-Laws, as amended to date
10.11.1 Termination of the Formal Agreement, Office of the Comptroller of the Currency, dated January 21, 1994
10.12.1 Letter from The Federal Reserve Bank of San Francisco to City National Bank dated February 23, 1994.
10.18 Asset Sale Agreement (Pool 1) by and between City National Bank as Seller and WHC-THREE Investors, L.P., as
Purchaser, dated November 1, 1993.
10.19 Asset Sale Agreement (Pools 2 Through 6) by and between City National Bank as Seller and WHC-THREE Investors,
L.P., as Purchaser, dated November 1, 1993.
10.20 Agreement for Separation From Employment and Release by and between Alexander L. Kyman and City National Bank,
dated November 3, 1993.
10.20.1 Letter from City National Bank to Alexander L. Kyman, dated November 3, 1993.
13 Pages 7 through 53 of Annual Report to Security Holders for the year ended December 31, 1993.
13.1 Report of Price Waterhouse, dated January 13, 1993.
21 Subsidiaries of the registrant
23.1 Consent of KMPG Peat Marwick
23.2 Consent of Price Waterhouse