UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

(Mark One)

x

 

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

 

 

 

 

 

FOR THE QUARTERLY PERIOD ENDED

 

 

 

For the quarterly period ended June 30, 2006

 

 

 

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 Center

400 North Roxbury Drive, Beverly Hills, California, 90210

(Address of principal executive offices)(Zip Code)

 

(310) 888-6000

(Registrant’s 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 is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act). (Check one):

 

Large Accelerated filer x

 

Accelerated filer o

 

Non-accelerated filer o

 

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 August 1, 2006, there were 48,089,646 shares of Common Stock outstanding.

 

 



 

PART 1 - FINANCIAL INFORMATON

ITEM 1. FINANCIAL STATEMENTS

 

CITY NATIONAL CORPORATION

CONSOLIDATED BALANCE SHEETS

 

 

 

June 30,

 

December 31,

 

June 30,

 

Dollars in thousands, except per share amounts

 

2006

 

2005

 

2005

 

 

 

(Unaudited)

 

 

 

(Unaudited)

 

Assets

 

 

 

 

 

 

 

Cash and due from banks

 

$

467,076

 

$

365,217

 

$

406,709

 

Due from banks - interest-bearing

 

50,416

 

40,803

 

34,676

 

Federal funds sold

 

1,900

 

157,000

 

400,000

 

Securities available-for-sale - cost $3,348,607; $4,076,984 and $4,075,374 at June 30, 2006, December 31, 2005 and June 30, 2005, respectively

 

3,211,590

 

3,999,261

 

4,057,267

 

Trading account securities

 

123,418

 

59,344

 

22,337

 

Loans

 

9,821,755

 

9,265,602

 

8,869,675

 

Less allowance for loan and lease losses

 

157,580

 

153,983

 

147,930

 

Net loans

 

9,664,175

 

9,111,619

 

8,721,745

 

 

 

 

 

 

 

 

 

Premises and equipment, net

 

84,802

 

82,868

 

73,169

 

Deferred tax asset

 

150,625

 

125,175

 

110,443

 

Goodwill .

 

253,286

 

247,708

 

251,494

 

Intangibles

 

44,718

 

36,416

 

38,181

 

Bank-owned life insurance

 

68,772

 

67,774

 

66,509

 

Affordable housing investments

 

66,468

 

67,508

 

67,235

 

Customers’ acceptance liability

 

4,582

 

3,232

 

2,870

 

Other assets

 

285,239

 

217,935

 

222,963

 

Total assets

 

$

14,477,067

 

$

14,581,860

 

$

14,475,598

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

Demand deposits

 

$

5,880,630

 

$

6,562,038

 

$

6,468,339

 

Interest checking deposits

 

711,368

 

867,509

 

791,183

 

Money market deposits

 

3,214,296

 

3,296,260

 

3,508,793

 

Savings deposits

 

168,526

 

177,874

 

191,959

 

Time deposits-under $100,000

 

177,392

 

177,230

 

180,819

 

Time deposits-$100,000 and over

 

1,826,618

 

1,057,561

 

1,011,115

 

Total deposits

 

11,978,830

 

12,138,472

 

12,152,208

 

Federal funds purchased and securities sold under repurchase agreements

 

234,995

 

190,190

 

204,052

 

Other short-term borrowings

 

143,724

 

100,000

 

27,678

 

Subordinated debt

 

266,675

 

275,682

 

285,771

 

Long-term debt

 

209,864

 

219,445

 

233,290

 

Reserve for off-balance sheet credit commitments

 

15,206

 

15,596

 

13,811

 

Other liabilities

 

187,141

 

156,884

 

129,630

 

Acceptances outstanding

 

4,582

 

3,232

 

2,870

 

Total liabilities

 

13,041,017

 

13,099,501

 

13,049,310

 

Minority interest in consolidated subsidiaries

 

27,985

 

24,351

 

25,400

 

Commitments and contingencies

 

 

 

 

 

 

 

Shareholders’ Equity

 

 

 

 

 

 

 

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

 

 

 

 

Common Stock-par value-$1.00; authorized - 75,000,000;
Issued - 50,734,861; 50,600,943 and 50,639,861 shares at June 30, 2006, December 31, 2005 and June 30, 2005, respectively

 

50,735

 

50,601

 

50,640

 

Additional paid-in capital

 

402,476

 

396,659

 

398,981

 

Accumulated other comprehensive loss

 

(86,931

)

(51,551

)

(12,948

)

Retained earnings

 

1,196,812

 

1,121,474

 

1,035,589

 

Treasury shares, at cost - 2,214,875; 887,304; and 1,117,367 shares at June 30, 2006, December 31, 2005 and June 30, 2005, respectively

 

(155,027

)

(59,175

)

(71,374

)

Total shareholders’ equity

 

1,408,065

 

1,458,008

 

1,400,888

 

Total liabilities and shareholders’ equity

 

$

14,477,067

 

$

14,581,860

 

$

14,475,598

 

 

See accompanying Notes to the Unaudited Consolidated Financial Statements.

 

2



 

CITY NATIONAL CORPORATION

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

 

 

 

For the three months ended

 

For the six months ended

 

 

 

June 30,

 

June 30,

 

In thousands, except per share amounts

 

2006

 

2005

 

2006

 

2005

 

 

 

 

 

 

 

 

 

 

 

Interest Income

 

 

 

 

 

 

 

 

 

Loans

 

$

166,377

 

$

132,621

 

$

321,809

 

$

257,878

 

Securities available-for-sale

 

38,121

 

40,691

 

79,973

 

82,441

 

Trading account

 

833

 

292

 

1,389

 

509

 

Federal funds sold and securities purchased under resale agreements

 

604

 

547

 

744

 

758

 

Due from banks - interest-bearing

 

269

 

114

 

481

 

329

 

Total interest income

 

206,204

 

174,265

 

404,396

 

341,915

 

Interest Expense

 

 

 

 

 

 

 

 

 

Deposits

 

36,527

 

17,382

 

63,980

 

32,625

 

Federal funds purchased and securities sold under repurchase agreements

 

6,716

 

2,265

 

15,649

 

3,721

 

Subordinated debt

 

3,706

 

2,444

 

7,197

 

4,652

 

Other long-term debt

 

3,196

 

2,427

 

6,528

 

4,740

 

Other short-term borrowings

 

2,061

 

101

 

4,638

 

105

 

Total interest expense

 

52,206

 

24,619

 

97,992

 

45,843

 

Net interest income

 

153,998

 

149,646

 

306,404

 

296,072

 

Provision for credit losses

 

(610

)

 

(610

)

 

Net interest income after provision for credit losses

 

154,608

 

149,646

 

307,014

 

296,072

 

Noninterest Income

 

 

 

 

 

 

 

 

 

Trust and investment fees

 

24,909

 

20,119

 

46,683

 

39,963

 

Brokerage and mutual fund fees

 

12,269

 

9,931

 

23,953

 

19,807

 

Cash management and deposit transaction charges

 

7,691

 

8,874

 

15,755

 

17,884

 

International services

 

6,870

 

5,908

 

12,859

 

10,796

 

Bank-owned life insurance

 

677

 

652

 

1,611

 

1,516

 

Gain on sale of loans and other assets

 

 

162

 

 

185

 

(Loss) gain on sale of securities

 

(716

)

844

 

(8

)

1,099

 

Other

 

6,888

 

4,869

 

12,665

 

10,467

 

Total noninterest income

 

58,588

 

51,359

 

113,518

 

101,717

 

Noninterest Expense

 

 

 

 

 

 

 

 

 

Salaries and employee benefits

 

73,718

 

63,839

 

145,334

 

130,471

 

Net occupancy of premises

 

9,460

 

8,727

 

18,472

 

16,343

 

Depreciation

 

4,662

 

4,535

 

9,322

 

9,105

 

Legal and professional fees

 

9,169

 

10,791

 

18,586

 

19,505

 

Information services

 

4,571

 

4,015

 

9,027

 

8,226

 

Marketing and advertising

 

4,990

 

3,943

 

9,006

 

7,517

 

Office services

 

2,549

 

2,688

 

5,240

 

5,177

 

Amortization of intangibles

 

1,974

 

1,441

 

3,865

 

2,882

 

Equipment

 

623

 

646

 

1,255

 

1,195

 

Other operating

 

6,243

 

6,796

 

11,947

 

13,504

 

Total noninterest expense

 

117,959

 

107,421

 

232,054

 

213,925

 

Minority interest expense

 

1,213

 

1,532

 

2,441

 

3,343

 

Income before income taxes

 

94,024

 

92,052

 

186,037

 

180,521

 

Income taxes

 

35,283

 

34,345

 

70,063

 

67,353

 

Net income

 

$

58,741

 

$

57,707

 

$

115,974

 

$

113,168

 

Net income per share, basic

 

$

1.20

 

$

1.18

 

$

2.36

 

$

2.30

 

Net income per share, diluted

 

$

1.16

 

$

1.13

 

$

2.28

 

$

2.22

 

Shares used to compute income per share, basic

 

48,957

 

49,090

 

49,220

 

49,101

 

Shares used to compute income per share, diluted

 

50,654

 

51,043

 

50,977

 

51,037

 

 

 

 

 

 

 

 

 

 

 

Dividends per share

 

$

0.41

 

$

0.36

 

$

0.82

 

$

0.72

 

 

See accompanying Notes to the Unaudited Consolidated Financial Statements.

 

3



 

CITY NATIONAL CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

 

 

For the six months ended

 

 

 

June 30,

 

Dollars in thousands

 

2006

 

2005

 

 

 

 

 

 

 

Cash Flows From Operating Activities

 

 

 

 

 

Net income

 

$

115,974

 

$

113,168

 

Adjustments to net income

 

 

 

 

 

Provision for credit losses

 

(610

)

 

Amortization of restricted stock grants

 

2,558

 

1,969

 

Amortization/writedown of intangibles

 

3,865

 

2,882

 

Depreciation and software amortization

 

9,322

 

9,105

 

Amortization of cost and discount on long-term debt

 

353

 

353

 

Stock-based employee compensation expense

 

3,468

 

 

Deferred income tax benefit

 

(25,450

)

(8,247

)

Loss (gain) on sales of securities

 

8

 

(1,099

)

Net change in other assets and other liabilities

 

(49,298

)

(8,364

)

Other, net

 

75,504

 

5,993

 

 

 

 

 

 

 

Net cash provided by operating activities

 

135,694

 

115,760

 

 

 

 

 

 

 

Cash Flows From Investing Activities

 

 

 

 

 

Purchase of securities available-for-sale

 

(79,156

)

(406,157

)

Sales of securities available-for-sale

 

401,099

 

74,321

 

Maturities and paydowns of securities

 

294,464

 

423,416

 

Loan originations, net of principal collections

 

(556,153

)

(392,079

)

Purchase of premises and equipment

 

(11,256

)

(13,650

)

Other investing activities

 

(20,497

)

(5,104

)

 

 

 

 

 

 

Net cash provided (used) by investing activities

 

28,501

 

(319,253

)

 

 

 

 

 

 

Cash Flows From Financing Activities

 

 

 

 

 

Net (decrease) increase in deposits

 

(159,642

)

165,293

 

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

 

44,805

 

(602

)

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

 

43,724

 

27,553

 

Net decrease in notes

 

(147

)

(32

)

Proceeds from exercise of stock options

 

8,812

 

14,150

 

Tax benefit from exercise of stock options

 

3,263

 

4,683

 

Stock repurchases

 

(108,002

)

(34,455

)

Cash dividends paid

 

(40,636

)

(35,566

)

 

 

 

 

 

 

Net cash provided (used) by financing activities

 

(207,823

)

141,024

 

 

 

 

 

 

 

Net decrease in cash and cash equivalents

 

(43,628

)

(62,469

)

Cash and cash equivalents at beginning of year

 

563,020

 

903,854

 

 

 

 

 

 

 

Cash and cash equivalents at end of period

 

$

519,392

 

$

841,385

 

 

 

 

 

 

 

Supplemental Disclosures of Cash Flow Information:

 

 

 

 

 

Cash paid during the period for:

 

 

 

 

 

Interest

 

$

89,106

 

$

44,734

 

Income taxes

 

63,143

 

48,439

 

 

See accompanying Notes to the Unaudited Consolidated Financial Statements.

 

4



 

CITY NATIONAL CORPORATION

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

AND COMPREHENSIVE INCOME

(Unaudited)

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

other

 

 

 

 

 

Total

 

 

 

Shares

 

Common

 

paid-in

 

comprehensive

 

Retained

 

Treasury

 

shareholders’

 

Dollars in thousands

 

issued

 

stock

 

capital

 

income

 

Earnings

 

stock

 

equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2004

 

50,589,408

 

$

50,589

 

$

397,954

 

$

(1,352

)

$

957,987

 

$

(56,643

)

$

1,348,535

 

Net income

 

 

 

 

 

113,168

 

 

113,168

 

Other comprehensive loss net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net unrealized loss on securities available-for-sale, net of reclassification adjustment of $4.0 million for net loss included in net income

 

 

 

 

(10,306

)

 

 

(10,306

)

Net unrealized loss on cash flow hedges, net of reclassification of $0.9 million of net gains included in net income

 

 

 

 

(1,290

)

 

 

(1,290

)

Total other comprehensive loss

 

 

 

 

(11,596

)

 

 

(11,596

)

Issuance of shares for stock options

 

 

 

(3,868

)

 

 

17,733

 

13,865

 

Restricted stock grant/vesting

 

50,453

 

51

 

(1,757

)

 

 

1,991

 

285

 

Stock-based employee compensation expense

 

 

 

1,969

 

 

 

 

1,969

 

Tax benefit from stock options

 

 

 

4,683

 

 

 

 

4,683

 

Cash dividends

 

 

 

 

 

(35,566

)

 

(35,566

)

Repurchased shares, net

 

 

 

 

 

 

(34,455

)

(34,455

)

Balance, June 30, 2005

 

50,639,861

 

$

50,640

 

$

398,981

 

$

(12,948

)

$

1,035,589

 

$

(71,374

)

$

1,400,888

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2005

 

50,600,943

 

$

50,601

 

$

396,659

 

$

(51,551

)

$

1,121,474

 

$

(59,175

)

$

1,458,008

 

Net income

 

 

 

 

 

115,974

 

 

115,974

 

Other comprehensive loss net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net unrealized loss on securities available-for-sale, net of reclassification adjustment of $2.9 million for net loss included in net income

 

 

 

 

(34,363

)

 

 

(34,363

)

Net unrealized loss on cash flow hedges, net of reclassification of $2.8 million of net loss included in net income

 

 

 

 

(771

)

 

 

(771

)

Other net unrealized loss

 

 

 

 

(246

)

 

 

(246

)

Total other comprehensive loss

 

 

 

 

(35,380

)

 

 

(35,380

)

Issuance of shares for stock options

 

68,246

 

68

 

(3,406

)

 

 

12,150

 

8,812

 

Restricted stock grant/vesting

 

65,672

 

66

 

(66

)

 

 

 

 

Tax benefit from stock options

 

 

 

3,263

 

 

 

 

3,263

 

Stock-based employee compensation expense

 

 

 

6,026

 

 

 

 

6,026

 

Cash dividends

 

 

 

 

 

(40,636

)

 

(40,636

)

Repurchased shares, net

 

 

 

 

 

 

(108,002

)

(108,002

)

Balance, June 30, 2006

 

50,734,861

 

$

50,735

 

$

402,476

 

$

(86,931

)

$

1,196,812

 

$

(155,027

)

$

1,408,065

 

 

See accompanying Notes to Unaudited Consolidated Financial Statements.

 

5



 

CITY NATIONAL CORPORATION

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

1.               City National Corporation (the Corporation) is the holding company for City National Bank (the Bank). City National Bank delivers banking, trust and investment services through 55 offices in Southern California, the San Francisco Bay area and New York City. The Corporation has a majority ownership interest in nine asset management affiliates and minority interests in two others. 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 also approved as a financial holding company pursuant to the Gramm-Leach-Bliley Act of 1999.

 

2.               Our accounting and reporting policies conform with 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. The results of operations reflect any interim adjustments, all of which are of a normal recurring nature and which, in the opinion of management, are necessary for a fair presentation of the results for the interim periods presented. These unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2005. The results for the 2006 interim periods are not necessarily indicative of the results expected for the full year.

 

During the six months ended June 30, 2006, the following accounting pronouncements were issued:

 

FASB Staff Position (“FSP”) 115-1 became effective on January 1, 2006. The Company has evaluated the applicability of FSP 115-1, and determined that there was no impact on its financial statements as of June 30, 2006.

 

The FASB issued Interpretation No 48, Accounting for Uncertainty in Income Taxes (FIN 48), on July 13, 2006. FIN 48 provides a single model for addressing uncertainty in tax positions and requires expanded annual disclosures about tax positions. It becomes effective for the Company as of January 1, 2007. The Company will evaluate its tax positions to determine if any changes in the measurement or recognition of tax benefits are needed.

 

3.               All securities other than trading securities and stock in the Federal Reserve Bank and Federal Home Loan Bank are classified as available-for-sale and are stated at fair value. Unrealized gains or losses on securities available-for-sale are excluded from net income but are included as separate components of other comprehensive income net of taxes. Premiums or discounts on securities available-for-sale are amortized or accreted into income using the interest method over the expected lives of the individual securities. The value of securities is reduced when the declines are considered other than temporary and a new cost basis is established for the securities. The estimated loss is included in net income. Realized gains or losses on sales of securities available-for-sale are recorded using the specific identification method. Trading securities are valued at market value with any unrealized gains or losses included in net income. Investment fee revenue consists of fees, commissions, and markups on securities transactions with clients and money market mutual fund fees.

 

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

 

5.               The following table provides information about purchases by the Company of equity securities that are registered by the Company pursuant to Section 12 of the Exchange Act during the quarter ended June 30, 2006:

 

Period

 

Total Number
of Shares (or
Units)
Purchased

 

Average Price
Paid per
Share (or
Unit)

 

Total number of Shares
(or Units) Purchased as
Part of Publicly
Announced Plans or
Programs

 

Maximum Number of
Shares that May Yet
Be Purchased Under
the Plans or Programs

 

04/01/06 - 04/30/06

 

150,000

 

$

70.53

 

150,000

 

1,687,800

 

05/01/06 - 05/31/06

 

880,600

 

73.18

 

880,600

 

807,200

 

06/01/06 - 06/30/06

 

461,000

 

64.82

 

461,000

 

346,200

 

 

 

1,491,600

(1)

$

70.33

 

1,491,600

 

346,200

(2)

 

6



 


(1)   During the second quarter of 2006, we repurchased an aggregate of 337,800 shares of our common stock pursuant to a repurchase program that we publicly announced on May 24, 2004 (the “Program”) and there are no shares remaining to be purchased. We received no shares in payment for the exercise price of stock options.

 

(2)   On April 26, 2006, the Company’s Board of Directors authorized the Company to repurchase 1.5 million additional shares of the Company’s stock following completion of its previously approved initiative. During the second quarter of 2006, we repurchased an aggregate of 1,153,800 shares of our common stock pursuant to this repurchase program. Unless terminated earlier by resolution of our Board of Directors, the program will expire when the Company has repurchased all shares authorized for repurchase thereunder.

 

Basic earnings per share are based on the weighted average shares of common stock outstanding less unvested restricted shares and units. Diluted earnings per share give effect to all potential dilutive common shares, which consist of stock options and restricted shares and units that were outstanding during the period. At June 30, 2006, there were 511,497 antidilutive options compared to no antidilutive options at June 30, 2005.

 

6.               The Company has adopted Statement of Financial Accounting Standards No. 123 (revised) “Share Based Payment”, (SFAS 123R) effective January 1, 2006. The Company previously applied APB Opinion No. 25 “Accounting for Stock Issued to Employees” in accounting for stock option plans and accordingly, no compensation cost had been recognized for these plans in the prior period financial statements. The Company has applied the Modified Prospective Application (MPA) in its implementation of the new accounting standards. As such, the Company has recognized stock based compensation expense for these plans in the current period. Prior period amounts have not been restated. As a result of adopting Statement 123(R) on January 1, 2006, the Company’s income before income taxes and net income for the six-month period ended June 30, 2006, are $3.5 million and $2.0 million lower, respectively, than if it had continued to account for stock-based compensation under APB Opinion 25. Basic and diluted earnings per share for the six-month period ended June 30, 2006 are both $0.04 lower than if the Company had continued to account for stock-based compensation under APB Opinion 25.

 

On June 30, 2006, the Company had one stock-based compensation plan, which provides for granting of stock options, restricted shares and restricted units. The compensation cost that has been charged against income for all stock-based awards was $3.4 million for the three months ended June 30, 2006, and $6.1 million for the six months ended June 30, 2006, compared to $1.1 million and $2.0 million for the three and six-month periods ending June 30, 2005, respectively. The total income tax benefit recognized in the income statement for stock-based compensation arrangements was $1.4 million, for the three months ended June 30, 2006, and $2.6 million for the six months ended June 30, 2006, compared to $0.5 million, and $0.8 million for the three and six month periods ending June 30, 2005, respectively. Prior year amounts include expense for restricted stock, but do not include stock-based compensation from stock option plans issued at market value. See the table below for comparative purposes of prior year amounts.

 

 

 

For the three months ended

 

For the six months ended

 

 

 

June 30,

 

June 30,

 

Dollars in thousands, except for per share amounts

 

2006

 

2005

 

2006

 

2005

 

Net income, as reported

 

$

58,741

 

$

57,707

 

$

115,974

 

$

113,168

 

Add: Stock-based compensation included in reported net income, net of tax

 

1,962

 

650

 

3,535

 

1,171

 

Less: Stock-based employee compensation expense determined under the fair-value method for all awards, net of tax

 

(1,962

)

(1,890

)

(3,535

)

(3,944

)

Pro forma net income

 

58,741

 

56,467

 

115,974

 

110,395

 

Net income per share, basic, as reported

 

1.20

 

1.18

 

2.36

 

2.30

 

Pro forma net income per share, basic

 

N/A

 

1.15

 

N/A

 

2.25

 

Net income per share, diluted, as reported

 

1.16

 

1.13

 

2.28

 

2.22

 

Pro forma net income per share, diluted

 

N/A

 

1.11

 

N/A

 

2.16

 

 

Stock Option Plan

 

The City National Corporation Amended and Restated Omnibus Plan, (the Plan), approved by shareholders, permits the grant of stock options and restricted stock or restricted units to its employees not to exceed 3.9 million shares of common stock. The Company believes that such awards better align the interest of its employees with those of its shareholders. Option awards are generally granted with an exercise price equal to the market price of the Company’s stock at the date of grant. These awards vest in 4 years and have 10-year contractual terms. Restricted stock awards generally vest over 5 years. Certain option and stock awards provide for accelerated vesting if there is a change in control (as defined in the Plan), or upon retirement, for stock issued prior to January 31, 2006.

 

7



 

The fair value of each option award is estimated on the date of grant using a Black-Scholes option valuation model 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 Company’s stock. The Company uses historical data to predict option exercise and employee termination behavior. The expected term of options granted is derived from the historical exercise activity over the past 20 years and represents the period of time that options granted are expected to be outstanding. The range below results from certain groups of employees exhibiting different behavior. 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 based on the dividend yield of the Company’s stock at the time of the grant.

 

 

 

For the three months ended

 

For the six months ended

 

 

 

June 30,

 

June 30,

 

 

 

2006

 

2005

 

2006

 

2005

 

Expected volatility

 

23.51

%

25.06

%

24.82

%

24.70

%

Weighted-average volatility

 

23.51

%

26.17

%

23.95

%

24.61

%

Expected dividends

 

$  2.12

 

$  2.16

 

$  2.14

 

$  2.15

 

Expected term (in years)

 

5.64

 

7.00

 

5.91

 

7.00

 

Risk-free rate

 

4.84

%

3.92

%

4.60

%

4.05

%

 

A summary of option activity under the Plan as of June 30, 2006 and changes during the period then ended are presented below:

 

 

 

 

 

 

 

Weighted-

 

 

 

 

 

 

 

Weighted-

 

Average

 

Aggregate

 

 

 

 

 

Average

 

Remaining

 

Intrinsic

 

 

 

Shares

 

Exercise

 

Contractual

 

Value

 

Options

 

(000)

 

Price

 

Term

 

($000)

 

 

 

 

 

 

 

 

 

 

 

Outstanding at January 1, 2006

 

4,375

 

$  45.98

 

5.60

 

$  83,594

 

Granted

 

436

 

76.59

 

9.72

 

(5,009

)

Exercised

 

(247

)

39.12

 

4.11

 

(6,419

)

Forfeited or expired

 

(34

)

59.32

 

7.55

 

(195

)

Outstanding at June 30, 2006

 

4,530

 

$  49.20

 

5.83

 

$  71,971

 

Exercisable at June 30, 2006

 

3,356

 

$  42.64

 

4.81

 

$  75,344

 

 

The weighted-average grant-date fair value of options granted during the six-month periods ended June 30, 2006 and 2005 was $19.90 and $16.86, respectively. The total intrinsic value of options exercised during the six-month periods ended June 30, 2006 and 2005 was $6.4 million, and $7.3 million, respectively.

 

A summary of the status of the Company’s unvested shares as of June 30, 2006 and changes during the six-month period ended are presented below:

 

 

 

 

 

Weighted-Average

 

 

 

 

 

Grant-Date

 

Unvested Shares

 

Shares (000)

 

Fair Value

 

Unvested at January 1, 2006

 

1,332

 

$  19.23

 

Granted

 

436

 

19.88

 

Vested

 

(562

)

13.45

 

Forfeited

 

(32

)

13.84

 

Unvested at June 30, 2006

 

1,174

 

$  15.05

 

 

As of June 30, 2006, there was $18.3 million of total unrecognized compensation cost related to unvested stock-based compensation arrangements granted under the Plan. That cost is expected to be recognized over a weighted-average period of 2.4 years. The number of shares vested during the six-month period ended June 30, 2006 was 562,318.

 

7.               As part of its asset and liability management strategies, the Company uses interest rate swaps to reduce cash flow variability and to moderate changes in the fair value of financial instruments. In accordance with Statement of Financial Accounting Standards

 

8



 

No. 133 “Accounting for Derivative Instruments and Hedging Activities,” as amended (SFAS No. 133), the Company recognizes derivatives as assets or liabilities on the balance sheet at their fair value. The treatment of changes in the fair value of derivatives depends on the character of the transaction.

 

In accordance with SFAS No. 133, the Company documents its hedge relationships, including identification of the hedging instruments and the hedged items, as well as its risk management objectives and strategies for undertaking the hedge transaction at the time the derivative contract is executed. This includes designating each derivative contract as either (i) a “fair value hedge” which is a hedge of a recognized asset or liability, (ii) a “cash flow hedge” which hedges a forecasted transaction or the variability of the cash flows to be received or paid related to a recognized asset or liability or (iii) an “undesignated hedge”, a derivative instrument not designated as a hedging instrument whose change in fair value is recognized directly in the consolidated statement of income. All derivatives designated as fair value or cash flow hedges are linked to specific hedged items or to groups of specific assets and liabilities on the balance sheet. Effectiveness is measured retrospectively and prospectively, and the Company expects that the hedges will continue to be effective in the future. The Company did not have any significant undesignated hedges during 2006 or 2005.

 

Both at inception and at least quarterly thereafter, the Company assesses whether the derivatives used in hedging transactions are highly effective (as defined in SFAS 133) in offsetting changes in either the fair value or cash flows of the hedged item. Retroactive effectiveness is assessed, as well as the continued expectation that the hedge will remain effective prospectively.

 

For cash flow hedges, in which derivatives hedge the variability of cash flows (interest payments) on loans that are indexed to U.S. dollar LIBOR or the Bank’s prime interest rate, the effectiveness is assessed prospectively at the inception of the hedge, and prospectively and retrospectively at least quarterly thereafter. Ineffectiveness of the cash flow hedges is measured on a quarterly basis using the hypothetical derivative method. For cash flow hedges, the effective portion of the changes in the derivatives' fair value is not included in current earnings but is reported as other comprehensive income. When the cash flows associated with the hedged item are realized, the gain or loss included in other comprehensive income is recognized on the same line in the consolidated statement of income as the hedged item, i.e. included in interest income on loans. Any ineffective portion of the changes of fair value of cash flow hedges would be recognized immediately in other noninterest income in the consolidated statement of income.

 

For fair value hedges, in which derivatives hedge the fair value of certain certificates of deposits, subordinated debt and other long-term debt, the interest rate swaps are structured so that all key terms of the swaps match those of the underlying debt transactions, therefore ensuring hedge effectiveness at inception. On a quarterly basis, fair value hedges are analyzed to ensure that the key terms of the hedged items and hedging instruments remain unchanged, and the hedging counterparties are evaluated to ensure that there are no adverse developments regarding counterparty default, therefore ensuring continuing effectiveness. For fair value hedges, the effective portion of the changes in the fair value of derivatives is reflected in current earnings, on the same line in the consolidated statement of income as the related hedged item. The ineffective portion, if any, of the changes in the fair value of these hedges (the differences between changes in the fair value of the interest rate swaps and the hedged items) would be recognized in other noninterest income in the consolidated statement of income.

 

Fair values are determined from verifiable third-party sources that have considerable experience with the interest rate swap market. For both fair value and cash flow hedges, the periodic accrual of interest receivable or payable on interest rate swaps is recorded as an adjustment to net interest income for the hedged items.

 

The Company discontinues hedge accounting prospectively when (i) a derivative is no longer highly effective in offsetting changes in the fair value or cash flows of a hedged item, (ii) a derivative expires or is sold, terminated, or exercised, (iii) a derivative is un-designated as a hedge, because it is unlikely that a forecasted transaction will occur; or (iv) the Company determines that designation of a derivative as a hedge is no longer appropriate. If a derivative instrument in a fair value hedge is terminated or the hedge designation removed, the previous adjustments to the carrying amount of the hedged asset or liability would be subsequently accounted for in the same manner as other components of the carrying amount of that asset or liability. For interest-earning assets and interest-bearing liabilities, such adjustments would be amortized into earnings over the remaining life of the respective asset or liability. If a derivative instrument in a cash flow hedge is terminated or the hedge designation is removed, related amounts reported in other comprehensive income would be reclassified into earnings in the same period or periods during which the hedged forecasted transaction affects earnings.

 

8.               As previously reported, the California Franchise Tax Board has taken the position that certain real estate investment trust (‘REIT’) and registered investment company (‘RIC’) tax deductions shall be disallowed under California law. As of June 30, 2006, the Company has recorded a $43.1 million state tax receivable for the years 2000, 2001 and 2002 after giving effect to reserves for loss contingencies on the refund claims, or an equivalent of $28.1 million after giving effect to Federal tax benefits. Management is aggressively pursuing its claims for REIT and RIC refunds for the 2000 to 2004 tax years, however, no outcome can be predicted

 

9



 

with certainty and an adverse outcome on the refund claims could result in a loss of all or some portion of the $28.1 million net state tax receivable.

 

9.               The Company has a profit-sharing retirement plan with an Internal Revenue Code Section 401(k) feature covering eligible employees. Contributions are made annually into a trust fund and are allocated to participants based on their salaries. The Company recorded profit sharing contributions expense of $4.6 million and $8.6 million for the three-month and six-month periods ended June 30, 2006, compared to $3.2 million and $7.8 million for the second quarter of 2005 and the six-month period ending June 30, 2005, respectively.

 

The Company has a Supplemental Executive Retirement Plan (‘SERP’) for one of its executive officers. At June 30, 2006, there was a $3.0 million unfunded pension liability and a $0.8 million intangible asset related to the SERP. The total expense for the second quarter of 2006 was $0.2 million, and $0.4 million for the six-month period ended June 30, 2006, compared to $0.1 million and $0.3 million for the second quarter of 2005 and the six-month period ended June 30, 2005, respectively.

 

The Company does not provide any other post-retirement benefits.

 

10



 

CITY NATIONAL CORPORATION

FINANCIAL HIGHLIGHTS

(Unaudited)

 

 

 

 

 

 

 

 

 

Percentage change

 

 

 

At or for the three months ended

 

June 30, 2006 from

 

 

 

June 30,

 

March 31,

 

June 30,

 

March 31,

 

June 30,

 

Dollars in thousands, except per share amounts (1)

 

2006

 

2006

 

2005

 

2006

 

2005

 

For The Quarter

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

58,741

 

$

57,232

 

$

57,707

 

3

%

2

%

Net income per common share, basic

 

1.20

 

1.16

 

1.18

 

3

 

2

 

Net income per common share, diluted

 

1.16

 

1.12

 

1.13

 

4

 

3

 

Dividends, per common share

 

0.41

 

0.41

 

0.36

 

0

 

14

 

 

 

 

 

 

 

 

 

 

 

 

 

At Quarter End

 

 

 

 

 

 

 

 

 

 

 

Assets

 

$

14,477,067

 

$

14,739,384

 

$

14,475,598

 

(2

)

0

 

Securities

 

3,335,008

 

3,907,526

 

4,079,604

 

(15

)

(18

)

Loans

 

9,821,755

 

9,567,403

 

8,869,675

 

3

 

11

 

Deposits

 

11,978,830

 

11,908,529

 

12,152,208

 

1

 

(1

)

Shareholders’ equity

 

1,408,065

 

1,479,564

 

1,400,888

 

(5

)

1

 

Book value per common share

 

29.26

 

29.87

 

28.51

 

(2

)

3

 

 

 

 

 

 

 

 

 

 

 

 

 

Average Balance

 

 

 

 

 

 

 

 

 

 

 

Assets

 

$

14,782,469

 

$

14,826,515

 

$

14,040,591

 

(0

)

5

 

Securities

 

3,581,206

 

3,970,440

 

4,071,516

 

(10

)

(12

)

Loans

 

9,902,893

 

9,625,016

 

8,747,660

 

3

 

13

 

Deposits

 

11,930,729

 

11,587,638

 

11,678,544

 

3

 

2

 

Shareholders’ equity

 

1,454,175

 

1,480,527

 

1,358,941

 

(2

)

7

 

 

 

 

 

 

 

 

 

 

 

 

 

Selected Ratios

 

 

 

 

 

 

 

 

 

 

 

Return on average assets (annualized)

 

1.59

%

1.57

%

1.65

%

1

 

(4

)

Return on average shareholders’ equity (annualized)

 

16.20

 

15.68

 

17.03

 

3

 

(5

)

Corporation’s tier 1 leverage

 

8.45

 

8.92

 

8.39

 

(5

)

1

 

Corporation’s tier 1 risk-based capital

 

11.29

 

12.36

 

11.91

 

(9

)

(5

)

Corporation’s total risk-based capital

 

14.36

 

15.51

 

15.45

 

(7

)

(7

)

Period-end shareholders’ equity to period-end assets

 

9.73

 

10.04

 

9.68

 

(3

)

1

 

Dividend payout ratio, per share

 

34.43

 

35.65

 

30.86

 

(3

)

12

 

Net interest margin

 

4.65

 

4.62

 

4.73

 

1

 

(2

)

Efficiency ratio (2)

 

55.20

 

54.80

 

53.39

 

1

 

3

 

 

 

 

 

 

 

 

 

 

 

 

 

Asset Quality Ration

 

 

 

 

 

 

 

 

 

 

 

Nonaccrual loans to total loans

 

0.15

%

0.15

%

0.25

%

0

 

(40

)

Nonaccrual loans and OREO to total loans and OREO

 

0.15

 

0.15

 

0.25

 

0

 

(40

)

Allowance for loan and lease losses to total loans

 

1.60

 

1.64

 

1.67

 

(2

)

(4

)

Allowance for loan and lease losses to nonaccrual loans

 

1,050.47

 

1,075.11

 

667.52

 

(2

)

57

 

Net recoveries/(charge-offs) to average loans - annualized

 

0.05

 

0.11

 

0.05

 

(55

)

0

 

 

 

 

 

 

 

 

 

 

 

 

 

At Quarter End

 

 

 

 

 

 

 

 

 

 

 

Assets under management

 

$

26,852,922

 

$

19,246,286

 

$

17,257,493

 

40

 

56

 

Assets under management or administration

 

47,199,024

 

40,435,813

 

36,972,895

 

17

 

28

 

 


(1)   Certain prior period balances have been restated to conform to the current period presentation.

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

 

11



 

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

 

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

 

RESULTS OF OPERATIONS

 

Critical Accounting Policies

 

The Company’s accounting policies are fundamental to understanding management’s discussion and analysis of results of operations and financial condition. The Company has identified four policies as being critical because they require management to make particularly difficult, subjective and/or complex judgments about matters that are inherently uncertain and because of the likelihood that materially different amounts could be reported under different conditions or using different assumptions. These policies relate to the accounting for securities, allowance for loan and lease losses and reserve for off-balance sheet credit commitments, derivatives and hedging activities, and stock-based performance plans. The Company, with the concurrence of the Audit & Risk Committee and the Compensation, Nominating and Governance Committee, has reviewed and approved these critical accounting policies, which are further described in Management’s Discussion and Analysis and Note 1 (Summary of Significant Accounting Policies) of the Notes to The Consolidated Financial Statements in the Company’s Form 10-K as of December 31, 2005.

 

Overview

 

City National Corporation is the parent company of City National Bank, the second largest independent bank headquartered in California. The Corporation offers a full complement of banking, trust and investment services through 55 offices, including 12 full-service regional centers, in Southern California, the San Francisco Bay Area and New York City. The Corporation has a majority ownership interest in nine asset management affiliates and minority interests in two others.

 

The Corporation recorded net income of $58.7 million, or $1.16 per share, for the second quarter of 2006 compared with $57.7 million, or $1.13 per share, for the second quarter of 2005 and $57.2 million, or $1.12 per share, for the first quarter of 2006.

 

Recent Developments

 

On May 31, 2006, the Company completed the acquisition of Independence Investments LLC, a Boston-based firm that manages $8 billion in assets for corporate, public and Taft-Hartley pension plans, as well as foundations and endowments. This acquisition is expected to become modestly accretive to earnings in the second half of 2006.

 

On July 6, 2006, the Company’s Board of Directors authorized the Company to repurchase 1.5 million additional shares of the Company’s stock following completion of its previously approved initiative on April 26, 2006. Shares will be repurchased from time to time in open market transactions and are expected to be used for stock options, future acquisitions, and other general purposes.

 

On July 17, 2006 the Company announced a joint business alliance with the Bank of East Asia (BEA). Under the terms of the agreement, the Company will refer its clients who need local banking services in China to BEA, as appropriate. Likewise BEA will, as appropriate, refer BEA clients who wish to do business in California and New York to the Company. The Company expects the agreement to benefit its clients who invest or do business in China as well as those seeking Chinese distributors for American-made goods. Incorporated in Hong Kong in 1918, BEA has assets of more than $30 billion (U.S). It is listed on the Stock Exchange of Hong Kong. BEA delivers comprehensive retail and commercial banking services covering Hong Kong and Greater China, the United States, Canada, the United Kingdom, the British Virgin Islands, and Southeast Asia.

 

Highlights

 

                  Revenue of $212.6 million represented a 6 percent increase from the second quarter of 2005.

 

                  Average loans grew to $9.9 billion, up 13 percent from the second quarter of 2005. This growth was led by increases in commercial loans and residential mortgage loans.

 

12



 

                  Loan recoveries again exceeded charge-offs and nonaccrual loans amounted to $15 million, down $7.2 million, or 32 percent from the second quarter of 2005, but up $0.4 million from the first quarter of this year.

 

                  Average deposits of $11.9 billion were 2 percent higher than the second quarter of 2005 and 3 percent higher from the first quarter of this year.

 

                  Noninterest income grew to $58.6 million, up 14 percent from the second quarter of 2005, and 7 percent higher than the first quarter of this year. The increase was led by the growth of City National’s wealth management and international services fee revenue.

 

Outlook

 

As disclosed in the Company’s press release on second-quarter earnings, management expects earnings per share this year to grow at a rate of between 1 percent and 4 percent as compared with 2005.

 

Net Interest Income

 

Fully taxable-equivalent net interest income reached $157.3 million in the second quarter of 2006, up 3 percent from $152.7 million for the same period last year. Fully taxable-equivalent net interest income in the first quarter of 2006 was $155.5 million. Net interest income increases were primarily attributable to increases in average commercial and residential mortgage loans, while noninterest income grew as a result of increases in wealth management assets under management or administration and higher demand for international services.

 

The bank’s prime rate was 8.25 percent on June 30, 2006, up from 7.75 percent at March 31, 2006, and 6.25 percent on June 30, 2005.

 

 

 

For the three months ended

 

 

 

For the three

 

 

 

 

 

June 30,

 

%

 

months ended

 

%

 

Dollars in millions

 

2006

 

2005

 

Change

 

March 31, 2006

 

Change

 

Average Loans

 

$

9,902.9

 

$

8,747.7

 

13

 

$

9,625.0

 

3

 

Average Securities

 

3,581.2

 

4,071.5

 

(12

)

3,970.4

 

(10

)

Average Earning Assets

 

13,581.2

 

12,935.6

 

5

 

13,652.2

 

(1

)

Average Deposits

 

11,930.8

 

11,678.5

 

2

 

11,587.6

 

3

 

Average Core Deposits

 

10,278.7

 

10,781.6

 

(5

)

10,334.0

 

(1

)

Fully Taxable-Equivalent Net Interest Income

 

157.3

 

152.7

 

3

 

155.5

 

1

 

Net Interest Margin

 

4.65

%

4.73

%

(2

)

4.62

%

1

 

 

Second-quarter average loan balances reached $9.9 billion, up 13 percent over the same period last year and 3 percent from the first quarter of 2006. The commercial lending portfolio grew 23 percent over the second quarter of 2005 and 4 percent from the first quarter of 2006. Residential mortgage loans grew 12 percent from the second quarter of last year and 3 percent from the first quarter of 2006. Commercial real estate mortgage loans were 3 and 2 percent higher than the second quarter of 2005 and first quarter of 2006, respectively. Real estate construction loans increased 2 percent from the same period a year ago, but were unchanged from the first quarter of 2006.

 

The Company’s average deposits reached $11.9 billion in the second quarter of 2006, 2 percent higher than the second quarter of 2005 and 3 percent higher from the first quarter of 2006. The growth was primarily in certificates of deposits.

 

As part of its long-standing asset-liability management strategy, the Company uses “plain vanilla” interest rate swaps to hedge loans, deposits, and borrowings. The notional value of these swaps was $1.5 billion at June 30, 2006, up $0.2 billion from the second quarter of 2005, and slightly lower than the first quarter of this year. The swaps reduced net interest income by $2.2 million in the second quarter of 2006, compared with a $1.2 million reduction to net interest income in the first quarter of 2006, and $3.3 million addition to net interest income in the second quarter of 2005. These amounts included income of $0.4 million, $0.9 million, and, $2.9 million respectively, for interest rate swaps qualifying as fair value hedges. The income/(expense) from swaps qualifying as cash flow hedges was ($2.7 million) for the second quarter of 2006, compared with ($2.1 million) for the first quarter of 2006, and $0.4 million for the second quarter of 2005. The expense from existing swaps of loans qualifying as cash-flow hedges expected to be recorded in net interest income within the next 12 months is ($9.6 million). Both the expense for the quarter and the projected expense for the next 12 months should be viewed in context with the benefit the Company has and will receive from the rise in interest rates.

 

13



 

Net interest income is the difference between interest income (including 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 table presents the components of net interest income on a fully taxable-equivalent basis for the three and six months ended June 30, 2006 and 2005.

 

 

 

Net Interest Income Summary

 

 

 

For the three months ended

 

For the three months ended

 

 

 

June 30, 2006

 

June 30, 2005

 

 

 

 

 

Interest

 

Average

 

 

 

Interest

 

Average

 

 

 

Average

 

income/

 

interest

 

Average

 

income/

 

interest

 

Dollars in thousands

 

Balance

 

expense (2)

 

rate

 

Balance

 

expense (2)

 

rate

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-earning assets

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

$

3,966,875

 

$

67,687

 

6.84

$

3,215,700

 

$

48,194

 

6.01

%

Commercial real estate mortgages

 

1,908,673

 

36,160

 

7.60

 

1,856,031

 

32,455

 

7.01

 

Residential mortgages

 

2,737,272

 

36,343

 

5.31

 

2,444,178

 

31,725

 

5.19

 

Real estate construction

 

743,094

 

16,940

 

9.14

 

727,799

 

13,380

 

7.37

 

Equity lines of credit

 

352,296

 

6,703

 

7.63

 

296,852

 

4,219

 

5.70

 

Installment

 

194,683

 

3,748

 

7.72

 

207,100

 

3,715

 

7.12

 

Total loans (1)

 

9,902,893

 

167,581

 

6.79

 

8,747,660

 

133,688

 

6.13

 

Due from banks - interest bearing

 

46,453

 

269

 

2.31

 

36,951

 

114

 

1.24

 

Federal funds sold and securities purchased under resale agreements

 

50,682

 

604

 

4.77

 

79,459

 

547

 

2.76

 

Securities available-for-sale

 

3,529,259

 

40,184

 

4.55

 

4,034,412

 

42,699

 

4.25

 

Trading account securities

 

51,947

 

857

 

6.61

 

37,104

 

301

 

3.25

 

Total interest-earning assets

 

13,581,234

 

209,491

 

6.19

 

12,935,586

 

177,349

 

5.50

 

Allowance for loan losses

 

(156,776

)

 

 

 

 

(147,587

)

 

 

 

 

Cash and due from banks

 

442,624

 

 

 

 

 

442,591

 

 

 

 

 

Other non-earning assets

 

915,387

 

 

 

 

 

810,001

 

 

 

 

 

Total assets

 

$

14,782,469

 

 

 

 

 

$

14,040,591

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities and Shareholders’ Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-bearing deposits

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest checking accounts

 

$

757,305

 

$

512

 

0.27

 

$

848,997

 

$

177

 

0.08

 

Money market accounts

 

3,351,884

 

17,778

 

2.13

 

3,567,195

 

10,271

 

1.15

 

Savings deposits

 

173,982

 

162

 

0.37

 

199,087

 

139

 

0.28

 

Time deposits - under $100,000

 

175,589

 

1,311

 

3.00

 

181,355

 

443

 

0.98

 

Time deposits - $100,000 and over

 

1,652,113

 

16,764

 

4.07

 

896,943

 

6,352

 

2.84

 

Total interest - bearing deposits

 

6,110,873

 

36,527

 

2.40

 

5,693,577

 

17,382

 

1.22

 

Federal funds purchased and securities sold under repurchase agreements

 

546,108

 

6,716

 

4.93

 

315,261

 

2,265

 

2.88

 

Other borrowings

 

652,137

 

8,963

 

5.51

 

518,319

 

4,972

 

3.85

 

Total interest - bearing liabilities

 

7,309,118

 

52,206

 

2.86

 

6,527,157

 

24,619

 

1.51

 

Noninterest - bearing deposits

 

5,819,856

 

 

 

 

 

5,984,967

 

 

 

 

 

Other liabilities

 

199,320

 

 

 

 

 

169,526

 

 

 

 

 

Shareholders’ equity

 

1,454,175

 

 

 

 

 

1,358,941

 

 

 

 

 

Total liabilities and shareholders’ equity

 

$

14,782,469

 

 

 

 

 

$

14,040,591

 

 

 

 

 

Net interest spread

 

 

 

 

 

3.33

%

 

 

 

 

3.99

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fully taxable-equivalent net interest income

 

 

 

$

157,285

 

 

 

 

 

$

152,730

 

 

 

Net interest margin

 

 

 

 

 

4.65

%

 

 

 

 

4.73

%

 


(1)          Includes average nonaccrual loans of $13,927 and $25,123 for 2006 and 2005, respectively.

(2)          Loan income includes loan fees of $4,649 and $5,804 for 2006 and 2005, respectively.

 

14



 

 

 

 

 

 

Net Interest Income Summary

 

 

 

For the six months ended

 

For the six months ended

 

 

 

June 30, 2006

 

June 30, 2005

 

 

 

 

 

Interest

 

Average

 

 

 

Interest

 

Average</