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City National Corporation Reports Record Net Income of $68.7 Million in the Third Quarter of 2014

Net Income Grows 8 Percent From a Year Ago

Total Assets Reach a Record $32 Billion

Loans Grow 17 Percent and Exceed $19 Billion for the First Time

LOS ANGELES, Oct. 23, 2014 (GLOBE NEWSWIRE) -- City National Corporation (NYSE:CYN), the parent company of wholly owned City National Bank, today reported third-quarter 2014 net income of $68.7 million, up 8 percent from $63.6 million in the year-ago period. Earnings per share were $1.15, compared with $1.10 per share in the third quarter of 2013.

Year-to-date, City National's net income totaled $189.9 million, up 9 percent from $174.9 million in the first nine months of 2013. Earnings per share were $3.16, up 4 percent from $3.04 in the first nine months of last year.

City National also announced today that its Board of Directors has maintained and approved a quarterly common stock cash dividend of $0.33 per share, payable on November 19, 2014 to stockholders of record on November 5, 2014.

THIRD-QUARTER 2014 HIGHLIGHTS

  • Average third-quarter loan and lease balances, excluding those covered by City National's acquisition-related loss-sharing agreements with the Federal Deposit Insurance Corporation (FDIC), grew to $18.8 billion, up 17 percent from the same period last year. Average commercial loans were up 20 percent from the third quarter of 2013. Period-end loan balances grew to a new record of $19.3 billion at September 30, 2014.
  • Third-quarter deposit balances averaged $26.8 billion, up 10 percent from the third quarter of 2013. Average core deposits, which equal 98 percent of total balances, were up 11 percent from the third quarter of last year. Period-end deposit balances totaled $28.0 billion at September 30, 2014.
  • Trust and investment fee income grew to $56.8 million, up 15 percent from the third quarter of 2013. City National's assets under management grew to a record $49.1 billion, up 15 percent from the third quarter of 2013.
  • City National recorded an $8.0 million reversal of its provision for loan and lease losses, excluding FDIC-covered loans. The reversal reflected substantial loan-loss recoveries, improving credit quality and adherence to the company's well-established allowance methodology. At the same time, City National increased its reserves and remains appropriately reserved at 1.62 percent of total loans excluding those covered by the FDIC.

"City National recorded its most profitable quarter in the company's 60-year history and again achieved robust double-digit growth in assets, deposits and wealth management income," said Chairman and CEO Russell Goldsmith. "Loans continued to grow strongly across all of the bank's divisions and specialty areas. Credit quality improved and remains very sound. Noninterest income also grew quite well.

"The company's year-to-date performance provides solid momentum heading into the final quarter of 2014. It's encouraging to see economic conditions in Southern California, the San Francisco Bay Area and New York continue to improve and show strength. We expect to continue to benefit from gradually increasing business confidence, loan demand, job growth and investment activity in our geographies, as well as from significant additions to our client base."

For the three months ended For the three
September 30, % months ended %
Dollars in millions, except per share data 2014 2013 Change June 30, 2014 Change
Earnings Per Common Share $ 1.15 $ 1.10 5 $ 1.11 4
Net Income Attributable to City National Corporation 68.7 63.6 8 66.7 3
Net Income Available to Common Shareholders 64.6 61.2 5 62.6 3
Average Assets $ 30,910.6 $ 28,061.1 10 $ 29,978.9 3
Return on Average Assets 0.88% 0.90% (2) 0.89% (1)
Return on Average Common Equity 9.80% 10.12% (3) 9.80% 0
Return on Average Tangible Common Equity 13.42% 14.43% (7) 13.53% (1)

ASSETS

Total assets at September 30, 2014 grew to a record $32.0 billion, up 10 percent from the third quarter of 2013 and 4 percent higher than in the second quarter of 2014. The increases largely reflect higher loan balances.

NET INTEREST INCOME

Fully taxable-equivalent net interest income was $223.1 million in the third quarter of 2014, up 1 percent from the same period of 2013 but down 1 percent from the second quarter of this year. The slight linked-quarter decline was due primarily to lower income on FDIC-covered loans that were repaid or fully charged off in the third quarter. Fully taxable-equivalent net interest income for the first nine months of 2014 was $655.3 million, up 3 percent from the year-ago period.

Deposits

Average third-quarter deposits were $26.8 billion, up 10 percent from the year-ago period and 4 percent higher than in the second quarter of 2014. Average deposits for the first nine months of 2014 totaled $26.0 billion, up 12 percent from the same period of 2013. Period-end deposits totaled $28.0 billion, up 11 percent from September 30, 2013 and up 5 percent from June 30, 2014.

Third-quarter 2014 average noninterest-bearing deposits were up 16 percent from the same period of 2013 and 6 percent higher than in the second quarter of 2014. Average noninterest-bearing deposit balances in the first nine months of 2014 were up 16 percent from the same period last year.

Treasury Services deposit balances, which consist primarily of title, escrow and property management deposits, averaged $3.0 billion in the third quarter of 2014, up 15 percent from the same period last year and up 6 percent from the second quarter of 2014. For the first nine months of 2014, Treasury Services deposit balances averaged $2.9 billion, up 14 percent from the same period of 2013. The increases were due primarily to mortgage transaction activity on higher priced homes.

Loans

Third-quarter average loan balances, excluding FDIC-covered loans, were $18.8 billion, up 17 percent from the third quarter of 2013 and 5 percent higher than in the second quarter of 2014. For the first nine months of 2014, City National's average loans, excluding FDIC-covered loans, were $18.1 billion, up 17 percent from the year-ago period. Period-end loan balances grew to a new record $19.3 billion, up 17 percent from September 30, 2013 and up 5 percent from June 30, 2014.

Third-quarter average commercial loans were up 20 percent from the same period in 2013 and 5 percent higher than in the second quarter of 2014.

Average balances for commercial real estate mortgages were up 14 percent from the third quarter of 2013, and they increased 4 percent from the second quarter of 2014. Average balances for commercial real estate construction loans were up 45 percent from the third quarter of 2013 and 22 percent higher than in the second quarter of 2014.

Average balances for single-family residential mortgage loans were up 15 percent from the year-ago period and 4 percent higher than in the second quarter of 2014. The increase from the year-ago period largely reflects increased home-purchase and refinance activity.

Securities

Average securities for the third quarter of 2014 totaled $8.9 billion, up 4 percent from the third quarter of 2013 and 3 percent higher than in the second quarter of 2014. Total available-for-sale securities amounted to $5.6 billion at September 30, 2014, compared to $6.9 billion at the end of the third quarter of 2013 and $5.3 billion at June 30, 2014.

The average duration of available-for-sale securities at September 30, 2014 was 2.2 years, compared to 2.9 years at September 30, 2013 and 2.2 years at June 30, 2014. The decrease from the year-ago period reflects the November 5, 2013 transfer of $1.0 billion of debt securities from the available-for-sale category to the held-to-maturity category and a rotation from longer-duration to shorter-duration securities in the available-for-sale portfolio.

Net Interest Margin

City National's net interest margin in the third quarter of 2014 averaged 3.03 percent, compared with 3.21 percent in the second quarter of 2014. Approximately 11 basis points of the 18-basis-point decrease were due to lower income on FDIC-covered loans that were repaid or fully charged off in the third quarter. For the first nine months of 2014, City National's net interest margin averaged 3.09 percent, down from 3.25 percent in the previous year.

Third-quarter net interest income included $11.3 million from FDIC-covered loans that were repaid or charged off during the quarter. This compares with $25.8 million in the third quarter of 2013 and $18.7 million in the second quarter of 2014.

At September 30, 2014, City National's prime lending rate was 3.25 percent, unchanged from both September 30, 2013 and June 30, 2014.

For the three months ended For the three
September 30, % months ended %
Dollars in millions 2014 2013 Change June 30, 2014 Change
Average Loans and Leases, excluding Covered Loans $ 18,837.8 $ 16,039.8 17 $ 17,959.2 5
Average Covered Loans 580.2 818.9 (29) 643.7 (10)
Average Total Securities 8,944.3 8,576.5 4 8,668.0 3
Average Earning Assets 29,239.7 26,417.7 11 28,276.4 3
Average Deposits 26,830.6 24,301.6 10 25,912.1 4
Average Core Deposits 26,393.0 23,716.0 11 25,460.9 4
Fully Taxable-Equivalent Net Interest Income 223.1 220.0 1 226.1 (1)
Net Interest Margin 3.03 % 3.30% (8) 3.21% (6)

COVERED ASSETS

Loans and other real-estate-owned (OREO) assets acquired in City National's four FDIC‑assisted bank acquisitions totaled $557.8 million at the end of the third quarter of 2014, compared to $784.0 million at September 30, 2013 and $614.6 million at June 30, 2014.

In the third quarter of 2014, City National recorded a $0.7 million net impairment charge to reflect results of the quarterly update of cash-flow projections for the FDIC-covered loans. In the second quarter of 2014, the company recorded a $4.1 million net impairment. The third-quarter charge reflects a $0.6 million provision for losses on covered loans. In addition to the net impairment charge for the third quarter of 2014, the company recognized $2.3 million of other covered assets income, resulting in total net income of $1.4 million. This compares to total net expense of $2.8 million in the second quarter of this year.

City National updates cash-flow projections for FDIC-covered loans on a quarterly basis. Due to uncertainty about the future performance of these loans, additional impairments may be recognized in the future.

OREO assets acquired by City National in its FDIC-assisted bank acquisitions and subject to loss-sharing agreements totaled $14.5 million at September 30, 2014, compared to $29.8 million at the end of the third quarter of 2013 and $17.9 million at June 30, 2014.

NONINTEREST INCOME

Noninterest income was $107.9 million in the third quarter of 2014, up 21 percent from the third quarter of 2013 and 7 percent higher than in the second quarter of 2014. The increases were due largely to higher trust and investment fee income and lower FDIC loss-sharing expense. Results for the third quarter of 2014 also reflect a small net securities loss, compared to a $5.6 million net gain in the year-ago period and a $5.1 million net gain in the second quarter of this year.

City National's noninterest income for the first nine months of 2014 was up 17 percent from the same period of 2013.

In the third quarter of 2014, noninterest income accounted for 33 percent of City National's total revenue, compared to 29 percent in the third quarter of 2013 and 32 percent in the second quarter of 2014.

Wealth Management

City National's assets under management or administration totaled $61.2 billion as of September 30, 2014, virtually unchanged from the same period of 2013 but down 7 percent from the second quarter of this year. The decrease from the second quarter reflects the sale of City National's San Diego-based retirement services recordkeeping business to OneAmerica® Retirement Services LLC, which closed on September 1, 2014.

Assets under management totaled $49.1 billion as of September 30, 2014, up 15 percent from September 30, 2013 and 4 percent higher than at June 30, 2014. The increases were due largely to asset inflows and market appreciation.

Trust and investment fees grew to $56.8 million in the third quarter of 2014, up 15 percent from the third quarter of 2013 and 4 percent higher than in the second quarter of 2014. Year-to-date 2014 trust and investment fee income was up 13 percent from the same period last year.

Third-quarter 2014 brokerage and mutual fund fees totaled $11.0 million, up 51 percent from the year-earlier period but down 23 percent from the second quarter of this year. Second-quarter 2014 brokerage and mutual fund fees included the recognition of $3.8 million in performance fee income related to the merger of two mutual funds. Brokerage and mutual fund fee income was $35.3 million in the first nine months of this year, up 50 percent from the first nine months of 2013.

At or for the At or for the
three months ended three months
September 30, % ended %
Dollars in millions 2014 2013 Change June 30, 2014 Change
Trust and Investment Fee Revenue $ 56.8 $ 49.4 15 $ 54.6 4
Brokerage and Mutual Fund Fees 11.0 7.3 51 14.2 (23)
Assets Under Management (1) 49,090.9 42,811.8 15 47,123.7 4
Assets Under Management or Administration (1) 61,176.6 61,476.0 (0) 65,780.0 (7)
(1) Excludes $28.6 billion, $27.8 billion and $26.3 billion of assets under management for asset managers in which City National held a noncontrolling ownership interest as of September 30, 2014, June 30, 2014 and September 30, 2013, respectively.

Other Noninterest Income

Third-quarter income from cash management and deposit transaction fees was $12.2 million, down 1 percent from the third quarter of 2013 but up 1 percent from the second quarter of 2014. For the first nine months of 2014, cash management and deposit transaction fee income was $36.4 million, down 5 percent from the first nine months of 2013. The year-over-year decreases were due largely to higher deposit balances used to offset service charge fees.

Fee income from foreign exchange services and letters of credit totaled $12.2 million in the third quarter of 2014, up 12 percent from the third quarter of 2013 and 7 percent higher than the second quarter of 2014. Year-to-date 2014 foreign exchange services and letters of credit fee income totaled $34.1 million, up 8 percent from the same period last year. The increases were due primarily to increased client activity and the addition of new clients.

Third-quarter 2014 noninterest income also included a $3.0 million gain on the disposal of assets, including a $1.4 million gain from the sale of City National's retirement services recordkeeping business and a $1.3 million gain from the sale of OREO. The gain from the sale of the retirement services recordkeeping business was offset by $1.4 million of transaction-related expense, and so the sale had virtually no impact on third-quarter results. The company realized a $3.1 million gain on the disposal of assets in the third quarter of 2013 and a $6.8 million gain in the second quarter of this year. The second-quarter gain included $2.3 million from the sale of an asset that served as collateral for a previously charged-off loan.

Other income was $22.3 million in the third quarter of 2014, up 5 percent from the third quarter of 2013 and 7 percent higher than the second quarter of 2014. The increase from the second quarter of this year was due primarily to higher loan syndication fee income and increased income from client swap transactions and credit card and interchange fees, which was partially offset by lower distribution income from investments. Other income in the first nine months of this year was $60.8 million, up 1 percent from the year-ago period.

NONINTEREST EXPENSE

City National's third-quarter 2014 noninterest expense was $227.2 million, up 9 percent from the third quarter of 2013 and 1 percent higher than the second quarter of 2014. Expense growth from the year-ago period largely reflects increased compensation costs and higher legal and professional fees.

Third-quarter 2014 compensation costs include additional incentives paid on higher-than-expected revenue, increased salary expense related to the addition of new colleagues and higher benefit costs. Compensation costs also include $0.5 million of expense related to the sale of the company's retirement services recordkeeping business.

The increase in legal and professional fees from the third quarter of 2013 was largely due to higher sub-advisory fees tied to improved mutual fund performance, additional expense related to loan recoveries and $0.9 million in costs due to the sale of the company's retirement services recordkeeping business.

Noninterest expense for the first nine months of 2014 amounted to $667.7 million, up 6 percent from the first nine months of last year.

CREDIT QUALITY

The following credit quality information excludes loans subject to loss-sharing agreements involving City National's FDIC-assisted transactions:

Net recoveries in the third quarter of 2014 totaled $10.6 million. The company realized net recoveries of $6.8 million in the third quarter of 2013 and net charge-offs of $3.6 million in the second quarter of 2014. Net recoveries for the first nine months of 2014 were $11.1 million, compared to net recoveries of $19.1 million in the first nine months of last year.

At September 30, 2014, nonperforming assets amounted to $46.0 million, or 0.24 percent of the company's total loans and leases and OREO, compared to $88.5 million, or 0.53 percent, at September 30, 2013 and $69.1 million, or 0.37 percent, at June 30, 2014.

Nonaccrual loans at September 30, 2014 were $35.9 million, compared to $69.6 million at September 30, 2013 and $64.8 million at June 30, 2014. Classified ratios remain at low levels, and overall credit trends remain favorable.

As of As of As of
September 30, 2014 June 30, 2014 September 30, 2013
Period-end Loans (in millions) Total Nonaccrual Total Nonaccrual Total Nonaccrual
Commercial $ 9,236.3 $ 14.6 $ 8,837.6 $ 27.5 $ 7,856.2 $ 10.1
Commercial Real Estate Mortgages 3,565.2 3.7 3,464.9 9.2 3,077.2 19.0
Residential Mortgages 5,023.2 6.2 4,814.4 9.0 4,418.2 9.7
Real Estate Construction 585.2 6.6 457.6 12.9 380.5 25.5
Home Equity Loans and Lines of Credit 759.3 4.8 716.8 6.1 681.9 5.3
Other Loans 178.8 0.0 183.5 0.1 152.1 0.0
Total Loans (1) $ 19,348.0 $ 35.9 $ 18,474.8 $ 64.8 $ 16,566.1 $ 69.6
Other Real Estate Owned (1) 10.1 4.3 18.9
Total Nonperforming Assets, excluding Covered Assets $ 46.0 $ 69.1 $ 88.5
(1) Excludes covered loans, net of allowance, of $543.3 million, $596.7 million and $754.2 million at September 30, 2014, June 30, 2014 and September 30, 2013, respectively, and covered other real estate owned of $14.5 million, $17.9 million and $29.8 million at September 30, 2014, June 30, 2014 and September 30, 2013, respectively.

City National recorded an $8.0 million reversal of provision for loan and lease losses, excluding FDIC-covered loans, in the third quarter of 2014. The reversal reflected substantial loan-loss recoveries, improving credit quality and adherence to the company's well-established allowance methodology, which takes into account several factors including asset quality, credit risk, loan growth and economic conditions. The company recorded no provision or reserve release in the third quarter of 2013 and a $1.0 million reserve release in the second quarter of this year.

At September 30, 2014, City National's allowance for loan and lease losses totaled $312.7 million, or 1.62 percent of total loans and leases. That compares with $295.9 million, or 1.79 percent, at September 30, 2013 and $311.3 million, or 1.68 percent, at the end of the second quarter of 2014. The company also maintains an additional $25.9 million in reserves for off-balance-sheet credit commitments.

Commercial Loans

Third-quarter net recoveries in the company's $9.2 billion commercial loan portfolio were $2.4 million. This compares to net recoveries of $4.4 million in the year-earlier period and net charge-offs of $5.4 million in the second quarter of 2014. Net charge-offs in the first nine months of 2014 amounted to $3.2 million, compared to net recoveries of $9.4 million in the first nine months of last year.

Commercial loans on nonaccrual totaled $14.6 million in the third quarter of 2014, compared to $10.1 million at September 30, 2013 and $27.5 million at June 30, 2014.

Commercial Real Estate Mortgage Loans

Third-quarter net recoveries in the company's $3.6 billion commercial real estate mortgage portfolio were $0.2 million, compared to net charge-offs of $0.6 million in the third quarter of 2013 and a small net recovery in the second quarter of 2014. Net recoveries amounted to $0.3 million in the first nine months of 2014, compared with net recoveries of $0.5 million in the first nine months of last year.

Commercial real estate mortgage loans on nonaccrual totaled $3.7 million, compared to $19.0 million at September 30, 2013 and $9.2 million at June 30, 2014.

Residential Mortgage Loans and Equity Loans and Lines of Credit

City National's $5.0 billion residential mortgage portfolio and $0.8 billion home equity portfolio continued to perform exceptionally well. Together, they accounted for $0.1 million in net recoveries in the third quarter of 2014, compared to net charge-offs of $0.2 million at September 30, 2013 and net recoveries of $0.1 million at June 30, 2014. Net charge-offs amounted to $0.1 million in the first nine months of 2014, compared with net recoveries of $0.1 million in the same period of last year.

Residential mortgage loans and home equity loans and lines of credit on nonaccrual were $10.9 million in the third quarter of 2014, compared to $15.0 million in the third quarter of 2013 and $15.1 million in the second quarter of 2014.

Real Estate Construction Loans

City National's $585.2 million commercial real estate construction portfolio includes secured loans to developers of residential and nonresidential properties. This portfolio represents 3 percent of the company's total loans.

Third-quarter net recoveries of construction loans were $7.7 million, compared to net recoveries of $2.9 million in the third quarter of 2013 and $0.7 million in the second quarter of 2014. Net recoveries amounted to $12.8 million in the first nine months of 2014, compared with net recoveries of $8.3 million in the first nine months of last year.

At September 30, 2014, construction loans on nonaccrual totaled $6.6 million, compared to $25.5 million at September 30, 2013 and $12.8 million at June 30, 2014.

INCOME TAXES

City National's effective tax rate for the third quarter of 2014 was 33.1 percent, compared to 29.6 percent in the year-earlier period and 30.7 percent in the second quarter of this year. For the first nine months of 2014, City National's effective tax rate was 32.0 percent, compared to 29.5 percent in the prior-year period. The higher tax rate is attributable to higher pretax income.

CAPITAL LEVELS

City National remains well-capitalized. Under Basel I capital rules, the company's Tier 1 common shareholders' equity ratio was 8.7 percent at September 30, 2014. The company's Tier 1 common shareholders' equity ratio was 8.8 percent at both September 30, 2013 and June 30, 2014.1

Under Basel III rules, City National's estimated Tier 1 common equity ratio was 8.5 percent.2 All of the company's pro-forma capital ratios are comfortably above the Basel III rules that are expected to be fully implemented by January 1, 2019.

City National's Basel I total risk-based capital and Tier 1 risk-based capital ratios at September 30, 2014 were 12.1 percent and 9.9 percent, respectively. The company's Tier 1 leverage ratio at September 30, 2014 was 7.4 percent.

Basel I total risk-based capital, Tier 1 risk-based capital and Tier 1 leverage ratios at September 30, 2013 were 12.7 percent, 9.7 percent and 7.1 percent, respectively.

City National's period-end ratio of equity to total assets at September 30, 2014 was 9.1 percent, compared to 8.9 percent at September 30, 2013 and 9.3 percent at June 30, 2014.

2014 OUTLOOK

There has been no change to management's outlook since the company issued its second-quarter earnings report.

CONFERENCE CALL

City National Corporation will host a conference call this afternoon to discuss third-quarter 2014 financial results. The call will begin at 2:00 p.m. PDT. Analysts and investors may dial in and participate in the question/answer session. To access the call, please dial (877) 359-9508 and enter Conference ID 5933540. A listen-only live broadcast of the call also will be available on the investor relations page of the company's Website at cnb.com. There, it will be archived and available for 12 months.

ABOUT CITY NATIONAL

City National Corporation's wholly owned subsidiary, City National Bank, provides banking, investment and trust services through 77 offices, including 16 full-service regional centers, in Southern California, the San Francisco Bay Area, Nevada, New York City, Nashville and Atlanta. The corporation and its investment affiliates manage or administer $61.2 billion in client investment assets, including $49.1 billion under direct management.

For more information about City National, visit the company's Website at cnb.com.

SAFE-HARBOR LANGUAGE

This news release contains forward-looking statements about the company, for which the company claims the protection of the safe harbor provisions contained in the Private Securities Litigation Reform Act of 1995.

A number of factors, many of which are beyond the company's ability to control or predict, could cause future results to differ materially from those contemplated by such forward-looking statements. These factors include: (1) changes in general economic, political, or industry conditions and the related credit and market conditions and the impact they have on the company and its customers, including changes in consumer spending, borrowing and savings habits; (2) the impact on financial markets and the economy of the level of U.S. and European debt; (3) the effects of and changes in trade and monetary and fiscal policies and laws, including the interest rate policies of the Board of Governors of the Federal Reserve System; (4) limited economic growth and elevated levels of unemployment; (5) the effect of the enactment of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 and the rules and regulations to be promulgated by supervisory and oversight agencies implementing the new legislation, taking into account that the precise timing, extent and nature of such rules and regulations and the impact on the company is uncertain; (6) the impact of revised capital requirements under Basel III; (7) significant changes in applicable laws and regulations, including those concerning taxes, banking and securities; (8) the impact of cyber security attacks or other disruptions to the company's information systems and any resulting compromise of data or disruption in service; (9) changes in the level of nonperforming assets, charge-offs, other real-estate-owned and provision expense; (10) incorrect assumptions in the value of the loans acquired in FDIC-assisted acquisitions resulting in greater than anticipated losses in the acquired loan portfolios exceeding the losses covered by the loss-sharing agreements with the FDIC; (11) changes in inflation, interest rates, and market liquidity which may impact interest margins and impact funding sources; (12) the company's ability to attract new employees and retain and motivate existing employees; (13) increased competition in the company's markets and our ability to increase market share and control expenses; (14) changes in the financial performance and/or condition of the company's customers, or changes in the performance or creditworthiness of our customers' suppliers or other counterparties, which could lead to decreased loan utilization rates, delinquencies, or defaults and could negatively affect our customers' ability to meet certain credit obligations; (15) a substantial and permanent loss of either client accounts and/or assets under management at the company's investment advisory affiliates or its wealth management division; (16) soundness of other financial institutions which could adversely affect the company; (17) protracted labor disputes in the company's markets; (18) the impact of natural disasters, terrorist activities or international hostilities on the operations of our business or the value of collateral; (19) the effect of acquisitions and integration of acquired businesses and de novo branching efforts; (20) changes in accounting policies or procedures as may be required by the Financial Accounting Standards Board or regulatory agencies; and (21) the success of the company at managing the risks involved in the foregoing.

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

For a more complete discussion of these risks and uncertainties, please refer to the company's Annual Report on Form 10-K for the year ended December 31, 2013.

1 For notes on non-GAAP measures, see pages 16 and 17 of the Selected Financial Information.

2 Estimated based on management's interpretation of final rules adopted July 2, 2013, by the Federal Reserve Board establishing a new comprehensive capital framework for U.S. banking organizations that would implement the Basel III capital framework and certain provisions of the Dodd-Frank Act. See page 16 of the Selected Financial Information.

Note: Certain prior period balances have been reclassified to conform to current period presentation.

CITY NATIONAL CORPORATION
FINANCIAL HIGHLIGHTS
(unaudited)
Three Months Nine Months
For The Period Ended September 30, 2014 2013 % Change 2014 2013 % Change
Per Common Share
Net income available to common shareholders
Basic $ 1.16 $ 1.12 4 $ 3.20 $ 3.07 4
Diluted 1.15 1.10 5 3.16 3.04 4
Dividends 0.33 0.25 32 0.99 0.50 98
Book value 48.13 44.85 7
Results of Operations: (In millions)
Net interest income $ 216 $ 214 1 $ 635 $ 618 3
Net interest income (Fully taxable-equivalent) 223 220 1 655 635 3
Total revenue 324 303 7 945 883 7
(Reversal of) provision for credit losses on loans and leases, excluding covered loans (8) -- NM (9) -- NM
Provision for losses on covered loans 1 2 (76) 4 0 721
Net income attributable to City National Corporation 69 64 8 190 175 9
Net income available to common shareholders 65 61 5 178 168 6
Financial Ratios:
Performance Ratios:
Return on average assets 0.88% 0.90% 0.84% 0.84%
Return on average common equity 9.80 10.12 9.26 9.37
Return on average tangible common equity (1) 13.42 14.43 12.80 13.42
Period-end equity to period-end assets 9.06 8.91
Net interest margin 3.03 3.30 3.09 3.25
Expense to revenue ratio 68.14 66.37 68.76 68.89
Capital Adequacy Ratios (Period-end):
Tier 1 common equity 8.72 8.82
Tier 1 risk-based capital 9.92 9.69
Total risk-based capital 12.14 12.67
Tier 1 leverage 7.44 7.07
Asset Quality Ratios:
Allowance for loan and lease losses to:
Total loans and leases, excluding covered loans 1.62% 1.79%
Nonaccrual loans 870.59 425.20
Nonperforming assets, excluding covered assets, to:
Total loans and leases and other real estate owned, excluding covered assets 0.24 0.53
Total assets 0.14 0.30
Net recoveries to average total loans and leases, excluding covered loans (annualized) 0.22% 0.17% 0.08% 0.17%
Average Balances: (In millions)
Loans and leases, excluding covered loans $ 18,838 $ 16,040 17 $ 18,051 $ 15,432 17
Covered loans 580 819 (29) 639 906 (29)
Securities 8,944 8,576 4 8,734 9,075 (4)
Interest-earning assets 29,240 26,418 11 28,391 26,096 9
Assets 30,911 28,061 10 30,111 27,748 9
Core deposits 26,393 23,716 11 25,586 22,651 13
Deposits 26,831 24,302 10 26,043 23,284 12
Interest-bearing liabilities 10,669 10,480 2 10,690 10,815 (1)
Common shareholders' equity 2,613 2,401 9 2,563 2,392 7
Total shareholders' equity 2,880 2,571 12 2,831 2,562 10
Period-End Balances: (In millions)
Loans and leases, excluding covered loans $ 19,348 $ 16,566 17
Covered loans 553 780 (29)
Securities 9,206 8,596 7
Assets 32,016 29,059 10
Core deposits 27,524 24,685 12
Deposits 27,956 25,237 11
Common shareholders' equity 2,632 2,418 9
Total shareholders' equity 2,899 2,588 12
Wealth Management: (In millions) (2)
Assets under management $ 49,091 $ 42,812 15
Assets under management or administration 61,177 61,476 (0)
(1) Return on average tangible common equity is a non-GAAP measure. Refer to page 16 for further discussion of this non-GAAP measure.
(2) Excludes $28.6 billion and $26.3 billion of assets under management for asset managers in which City National held a noncontrolling ownership interest as of September 30, 2014 and September 30, 2013, respectively.
Note: Certain prior period balances in the Selected Financial Information have been reclassified to conform to current period presentation.
CITY NATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
(Dollars in thousands except per share data) 2014 2013 % Change 2014 2013 % Change
Interest income $ 227,594 $ 228,093 (0) $ 673,004 $ 660,888 2
Interest expense 11,818 13,822 (14) 38,328 42,625 (10)
Net interest income 215,776 214,271 1 634,676 618,263 3
(Reversal of) provision for credit losses on loans and leases, excluding covered loans (8,000) -- NM (9,000) -- NM
Provision for losses on covered loans 589 2,496 (76) 3,783 461 721
Noninterest income
Trust and investment fees 56,834 49,430 15 164,739 145,913 13
Brokerage and mutual fund fees 11,021 7,307 51 35,303 23,480 50
Cash management and deposit transaction fees 12,200 12,263 (1) 36,361 38,152 (5)
International services 12,233 10,932 12 34,111 31,462 8
FDIC loss sharing expense, net (9,606) (20,992) (54) (40,850) (51,821) (21)
Gain on disposal of assets 2,985 3,092 (3) 12,649 5,155 145
(Loss) gain on securities (61) 5,644 (101) 7,180 12,298 (42)
Other 22,311 21,207 5 60,771 59,981 1
Total noninterest income 107,917 88,883 21 310,264 264,620 17
Noninterest expense
Salaries and employee benefits 142,210 129,049 10 417,902 384,412 9
Net occupancy of premises 15,862 16,074 (1) 48,551 48,268 1
Legal and professional fees 14,350 10,731 34 45,693 36,197 26
Information services 10,260 9,876 4 29,069 28,450 2
Depreciation and amortization 8,276 7,827 6 23,989 24,248 (1)
Amortization of intangibles 1,426 1,932 (26) 4,367 5,795 (25)
Marketing and advertising 7,576 7,887 (4) 26,333 24,156 9
Office services and equipment 5,038 4,821 5 15,235 14,801 3
Other real estate owned 2,360 5,196 (55) 6,165 14,831 (58)
FDIC assessments 4,629 3,776 23 8,785 12,920 (32)
Other 15,215 12,195 25 41,628 38,055 9
Total noninterest expense 227,202 209,364 9 667,717 632,133 6
Income before taxes 103,902 91,294 14 282,440 250,289 13
Applicable income taxes 34,404 27,052 27 90,521 73,735 23
Net income $ 69,498 $ 64,242 8 $ 191,919 $ 176,554 9
Less: Net income attributable to noncontrolling interest 847 609 39 2,056 1,657 24
Net income attributable to City National Corporation $ 68,651 $ 63,633 8 $ 189,863 $ 174,897 9
Less: Dividends on preferred stock 4,093 2,407 70 12,281 7,219 70
Net income available to common shareholders $ 64,558 $ 61,226 5 $ 177,582 $ 167,678 6
Other Data:
Earnings per common share - basic $ 1.16 $ 1.12 4 $ 3.20 $ 3.07 4
Earnings per common share - diluted $ 1.15 $ 1.10 5 $ 3.16 $ 3.04 4
Dividends paid per common share $ 0.33 $ 0.25 32 $ 0.99 $ 0.50 98
Common dividend payout ratio 28.40% 22.40% 27 30.90% 16.34% 89
Return on average assets 0.88% 0.90% (2) 0.84% 0.84% --
Return on average common equity 9.80% 10.12% (3) 9.26% 9.37% (1)
Return on average tangible common equity 13.42% 14.43% (7) 12.80% 13.42% (5)
Net interest margin (Fully taxable-equivalent) 3.03% 3.30% (8) 3.09% 3.25% (5)
Full-time equivalent employees 3,598 3,541 2
CITY NATIONAL CORPORATION
CONSOLIDATED QUARTERLY STATEMENTS OF INCOME
(unaudited)
2014
Third Second First Year to
(Dollars in thousands except per share data) Quarter Quarter Quarter Date
Interest income $ 227,594 $ 232,325 $ 213,085 $ 673,004
Interest expense 11,818 13,223 13,287 38,328
Net interest income 215,776 219,102 199,798 634,676
(Reversal of) provision for credit losses on loans and leases, excluding covered loans (8,000) (1,000) -- (9,000)
(Reversal of) provision for losses on covered loans 589 (1,461) 4,655 3,783
Noninterest income
Trust and investment fees 56,834 54,599 53,306 164,739
Brokerage and mutual fund fees 11,021 14,240 10,042 35,303
Cash management and deposit transaction fees 12,200 12,128 12,033 36,361
International services 12,233 11,483 10,395 34,111
FDIC loss sharing expense, net (9,606) (24,161) (7,083) (40,850)
Gain on disposal of assets 2,985 6,838 2,826 12,649
(Loss) gain on securities (61) 5,119 2,122 7,180
Other 22,311 20,853 17,607 60,771
Total noninterest income 107,917 101,099 101,248 310,264
Noninterest expense
Salaries and employee benefits 142,210 138,859 136,833 417,902
Net occupancy of premises 15,862 16,595 16,094 48,551
Legal and professional fees 14,350 18,393 12,950 45,693
Information services 10,260 9,463 9,346 29,069
Depreciation and amortization 8,276 7,885 7,828 23,989
Amortization of intangibles 1,426 1,454 1,487 4,367
Marketing and advertising 7,576 8,982 9,775 26,333
Office services and equipment 5,038 5,287 4,910 15,235
Other real estate owned 2,360 2,372 1,433 6,165
FDIC assessments 4,629 2,765 1,391 8,785
Other 15,215 13,567 12,846 41,628
Total noninterest expense 227,202 225,622 214,893 667,717
Income before taxes 103,902 97,040 81,498 282,440
Applicable income taxes 34,404 29,829 26,288 90,521
Net income $ 69,498 $ 67,211 $ 55,210 $ 191,919
Less: Net income attributable to noncontrolling interest 847 510 699 2,056
Net income attributable to City National Corporation $ 68,651 $ 66,701 $ 54,511 $ 189,863
Less: Dividends on preferred stock 4,093 4,094 4,094 12,281
Net income available to common shareholders $ 64,558 $ 62,607 $ 50,417 $ 177,582
Other Data:
Earnings per common share - basic $ 1.16 $ 1.13 $ 0.91 $ 3.20
Earnings per common share - diluted $ 1.15 $ 1.11 $ 0.90 $ 3.16
Dividends paid per common share $ 0.33 $ 0.33 $ 0.33 $ 0.99
Common dividend payout ratio 28.40% 29.26% 36.15% 30.90%
Return on average assets 0.88% 0.89% 0.75% 0.84%
Return on average common equity 9.80% 9.80% 8.14% 9.26%
Return on average tangible common equity 13.42% 13.53% 11.36% 12.80%
Net interest margin (Fully taxable-equivalent) 3.03% 3.21% 3.02% 3.09%
Full-time equivalent employees 3,598 3,638 3,587
CITY NATIONAL CORPORATION
CONSOLIDATED QUARTERLY STATEMENTS OF INCOME
(unaudited)
2013
Fourth Third Second First Year to
(Dollars in thousands except per share data) Quarter Quarter Quarter Quarter Date
Interest income $ 218,773 $ 228,093 $ 216,995 $ 215,800 $ 879,661
Interest expense 13,321 13,822 14,076 14,727 55,946
Net interest income 205,452 214,271 202,919 201,073 823,715
(Reversal of) provision for credit losses on loans and leases, excluding covered loans -- -- -- -- --
(Reversal of) provision for losses on covered loans 174 2,496 (11,927) 9,892 635
Noninterest income
Trust and investment fees 50,561 49,430 49,830 46,653 196,474
Brokerage and mutual fund fees 10,621 7,307 8,107 8,066 34,101
Cash management and deposit transaction fees 12,349 12,263 12,880 13,009 50,501
International services 10,575 10,932 10,911 9,619 42,037
FDIC loss sharing expense, net (12,953) (20,992) (26,477) (4,352) (64,774)
Gain on disposal of assets 3,871 3,092 949 1,114 9,026
(Loss) gain on securities (4,649) 5,644 5,608 1,046 7,649
Other 20,174 21,207 20,401 18,373 80,155
Total noninterest income 90,549 88,883 82,209 93,528 355,169
Noninterest expense
Salaries and employee benefits 133,331 129,049 127,168 128,195 517,743
Net occupancy of premises 17,452 16,074 16,205 15,989 65,720
Legal and professional fees 16,058 10,731 13,514 11,952 52,255
Information services 8,902 9,876 9,183 9,391 37,352
Depreciation and amortization 8,019 7,827 8,249 8,172 32,267
Amortization of intangibles 1,722 1,932 1,931 1,932 7,517
Marketing and advertising 9,029 7,887 8,293 7,976 33,185
Office services and equipment 4,679 4,821 5,034 4,946 19,480
Other real estate owned 3,296 5,196 4,385 5,250 18,127
FDIC assessments 2,646 3,776 3,663 5,481 15,566
Other 13,847 12,195 13,804 12,056 51,902
Total noninterest expense 218,981 209,364 211,429 211,340 851,114
Income before taxes 76,846 91,294 85,626 73,369 327,135
Applicable income taxes 20,884 27,052 25,422 21,261 94,619
Net income $ 55,962 $ 64,242 $ 60,204 $ 52,108 $ 232,516
Less: Net income attributable to noncontrolling interest 850 609 463 585 2,507
Net income attributable to City National Corporation $ 55,112 $ 63,633 $ 59,741 $ 51,523 $ 230,009
Less: Dividends on preferred stock 2,406 2,407 2,406 2,406 9,625
Net income available to common shareholders $ 52,706 $ 61,226 $ 57,335 $ 49,117 $ 220,384
Other Data:
Earnings per common share - basic $ 0.96 $ 1.12 $ 1.05 $ 0.90 $ 4.02
Earnings per common share - diluted $ 0.95 $ 1.10 $ 1.04 $ 0.90 $ 3.99
Dividends paid per common share $ 0.25 $ 0.25 $ 0.25 $ -- $ 0.75
Common dividend payout ratio 26.15% 22.40% 23.81% -- % 18.69%
Return on average assets 0.73% 0.90% 0.87% 0.75% 0.81%
Return on average common equity 8.48% 10.12% 9.53% 8.43% 9.14%
Return on average tangible common equity 11.97% 14.43% 13.60% 12.17% 13.04%
Net interest margin (Fully taxable-equivalent) 2.97% 3.30% 3.24% 3.21% 3.18%
Full-time equivalent employees 3,566 3,541 3,551 3,496
CITY NATIONAL CORPORATION
CONSOLIDATED PERIOD END BALANCE SHEETS
(unaudited)
2014
Third Second First
(In thousands) Quarter Quarter Quarter
Assets
Cash and due from banks $ 503,647 $ 586,273 $ 425,427
Due from banks - interest-bearing 625,183 554,044 434,297
Federal funds sold and securities purchased under resale agreements 200,000 200,000 205,000
Securities available-for-sale 5,629,176 5,328,492 5,386,754
Securities held-to-maturity 3,450,551 3,418,353 3,202,997
Trading securities 125,910 86,097 61,608
Loans and leases:
Commercial 9,236,294 8,837,544 8,557,041
Commercial real estate mortgages 3,565,188 3,464,918 3,280,868
Residential mortgages 5,023,213 4,814,435 4,682,055
Real estate construction 585,232 457,557 389,188
Home equity loans and lines of credit 759,258 716,816 691,338
Installment 178,803 183,518 150,895
Loans and leases, excluding covered loans 19,347,988 18,474,788 17,751,385
Allowance for loan and lease losses (312,703) (311,276) (305,790)
Loans and leases, excluding covered loans, net 19,035,285 18,163,512 17,445,595
Covered loans, net (1) 543,347 596,667 654,855
Net loans and leases 19,578,632 18,760,179 18,100,450
Premises and equipment, net 208,711 205,168 199,401
Goodwill and other intangibles 672,123 680,302 681,756
Other real estate owned (2) 24,602 22,213 34,267
FDIC indemnification asset 59,917 68,038 84,851
Other assets 937,148 909,933 921,444
Total assets $ 32,015,600 $ 30,819,092 $ 29,738,252
Liabilities
Deposits:
Noninterest-bearing $ 17,827,649 $ 16,690,688 $ 15,664,029
Interest-bearing 10,128,331 9,960,837 10,067,737
Total deposits 27,955,980 26,651,525 25,731,766
Short-term borrowings 4,635 160,337 4,107
Long-term debt 631,434 627,768 733,537
Other liabilities 476,900 479,760 427,241
Total liabilities 29,068,949 27,919,390 26,896,651
Redeemable noncontrolling interest 47,222 46,549 45,641
Shareholders' equity
Preferred stock 267,616 267,616 267,616
Common stock 55,058 54,957 54,899
Additional paid-in capital 565,822 556,284 549,989
Accumulated other comprehensive (loss) income (7,592) 2,100 (4,363)
Retained earnings 2,040,868 1,994,646 1,950,356
Treasury shares (22,343) (22,450) (22,537)
Total common shareholders' equity 2,631,813 2,585,537 2,528,344
Total shareholders' equity 2,899,429 2,853,153 2,795,960
Total liabilities and shareholders' equity $ 32,015,600 $ 30,819,092 $ 29,738,252
(1) Covered loans are net of $9.4 million, $9.1 million and $18.4 million of allowance for loan losses as of September 30, 2014, June 30, 2014 and March 31, 2014, respectively.
(2) Other real estate owned includes $14.5 million, $17.9 million and $24.9 million covered by FDIC loss share at September 30, 2014, June 30, 2014 and March 31, 2014, respectively.
CITY NATIONAL CORPORATION
CONSOLIDATED PERIOD END BALANCE SHEETS
(unaudited)
2013
Fourth Third Second First
(In thousands) Quarter Quarter Quarter Quarter
Assets
Cash and due from banks $ 183,227 $ 301,106 $ 146,338 $ 144,290
Due from banks - interest-bearing 552,719 1,045,608 156,221 123,146
Federal funds sold and securities purchased under resale agreements 200,000 200,000 200,000 219,500
Securities available-for-sale 6,241,117 6,895,130 7,044,571 7,738,051
Securities held-to-maturity 2,957,843 1,649,520 1,503,973 1,400,890
Trading securities 82,357 51,451 48,655 53,526
Loans and leases:
Commercial 8,164,823 7,856,244 7,497,105 7,170,370
Commercial real estate mortgages 3,223,001 3,077,183 2,978,975 2,832,107
Residential mortgages 4,554,311 4,418,231 4,153,051 4,027,741
Real estate construction 367,004 380,489 340,002 352,464
Home equity loans and lines of credit 709,344 681,879 700,681 696,679
Installment 151,955 152,107 149,438 137,545
Loans and leases, excluding covered loans 17,170,438 16,566,133 15,819,252 15,216,906
Allowance for loan and lease losses (302,584) (295,947) (289,914) (282,328)
Loans and leases, excluding covered loans, net 16,867,854 16,270,186 15,529,338 14,934,578
Covered loans, net (1) 700,989 754,190 843,582 909,563
Net loans and leases 17,568,843 17,024,376 16,372,920 15,844,141
Premises and equipment, net 198,398 168,600 162,535 152,389
Goodwill and other intangibles 683,243 684,965 686,897 688,829
Other real estate owned (2) 38,092 48,723 61,477 63,537
FDIC indemnification asset 89,227 101,124 117,295 142,906
Other assets 922,885 888,801 878,620 862,549
Total assets $ 29,717,951 $ 29,059,404 $ 27,379,502 $ 27,433,754
Liabilities
Deposits:
Noninterest-bearing $ 16,058,968 $ 15,205,973 $ 14,288,001 $ 13,800,017
Interest-bearing 9,620,469 10,030,896 9,363,756 9,137,569
Total deposits 25,679,437 25,236,869 23,651,757 22,937,586
Short-term borrowings 3,889 2,588 2,675 806,760
Long-term debt 735,968 719,326 706,537 702,967
Other liabilities 517,903 472,893 433,822 388,439
Total liabilities 26,937,197 26,431,676 24,794,791 24,835,752
Redeemable noncontrolling interest 39,768 39,840 39,943 41,113
Shareholders' equity
Preferred stock 267,616 169,920 169,920 169,920
Common stock 54,667 54,400 54,274 54,133
Additional paid-in capital 541,210 519,760 507,560 496,013
Accumulated other comprehensive (loss) income (15,641) (10,355) 6,585 74,222
Retained earnings 1,918,163 1,879,240 1,831,725 1,788,041
Treasury shares (25,029) (25,077) (25,296) (25,440)
Total common shareholders' equity 2,473,370 2,417,968 2,374,848 2,386,969
Total shareholders' equity 2,740,986 2,587,888 2,544,768 2,556,889
Total liabilities and shareholders' equity $ 29,717,951 $ 29,059,404 $ 27,379,502 $ 27,433,754
(1) Covered loans are net of $15.9 million, $25.9 million, $24.4 million and $42.4 million of allowance for loan losses as of December 31, 2013, September 30, 2013, June 30, 2013 and March 31, 2013, respectively.
(2) Other real estate owned includes $25.5 million, $29.8 million, $41.8 million and $43.8 million covered by FDIC loss share at December 31, 2013, September 30, 2013, June 30, 2013 and March 31, 2013, respectively.
CITY NATIONAL CORPORATION
CREDIT LOSS EXPERIENCE
(unaudited)
2014 2013
Third Second First Year To Fourth Third Second First Year To
(Dollars in thousands) Quarter Quarter Quarter Date Quarter Quarter Quarter Quarter Date
Allowance for Loan and Lease Losses, Excluding Covered Loans
Balance at beginning of period $ 311,276 $ 305,790 $ 302,584 $ 302,584 $ 295,947 $ 289,914 $ 282,328 $ 277,888 $ 277,888
Net recoveries/(charge-offs):
Commercial 2,429 (5,359) (227) (3,157) 9,515 4,375 2,855 2,173 18,918
Commercial real estate mortgages 225 27 95 347 23 (584) 1,034 3 476
Residential mortgages 33 190 (447) (224) 32 40 37 (68) 41
Real estate construction 7,729 687 4,388 12,804 4,660 2,945 2,682 2,666 12,953
Home equity loans and lines of credit 52 (106) 143 89 129 (194) 375 (112) 198
Installment 82 926 218 1,226 349 200 522 146 1,217
Total net recoveries/(charge-offs) 10,550 (3,635) 4,170 11,085 14,708 6,782 7,505 4,808 33,803
(Reversal of) provision for credit losses (8,000) (1,000) -- (9,000) -- -- -- -- --
Transfers (to) from reserve for off-balance sheet credit commitments (1,123) 10,121 (964) 8,034 (8,071) (749) 81 (368) (9,107)
Balance at end of period $ 312,703 $ 311,276 $ 305,790 $ 312,703 $ 302,584 $ 295,947 $ 289,914 $ 282,328 $ 302,584
Net Recoveries/(Charge-offs) to Average Total Loans and Leases, Excluding Covered Loans (annualized):
Commercial 0.11% (0.25)% (0.01)% (0.05)% 0.48% 0.23% 0.16% 0.13% 0.26%
Commercial real estate mortgages 0.03% 0.00% 0.01% 0.01% 0.00% (0.08)% 0.15% 0.00% 0.02%
Residential mortgages 0.00% 0.02% (0.04)% (0.01)% 0.00% 0.00% 0.00% (0.01)% 0.00%
Real estate construction 6.02% 0.66% 4.73% 3.93% 4.69% 3.32% 3.05% 3.25% 3.62%
Home equity loans and lines of credit 0.03% (0.06)% 0.08% 0.02% 0.07% (0.11)% 0.21% (0.06)% 0.03%
Installment 0.19% 2.21% 0.58% 1.00% 0.89% 0.54% 1.44% 0.42% 0.82%
Total loans and leases, excluding covered loans 0.22% (0.08)% 0.10% 0.08% 0.35% 0.17% 0.20% 0.13% 0.21%
Reserve for Off-Balance Sheet Credit Commitments
Balance at beginning of period $ 24,787 $ 34,908 $ 33,944 $ 33,944 $ 25,873 $ 25,124 $ 25,205 $ 24,837 $ 24,837
Transfers from (to) allowance 1,123 (10,121) 964 (8,034) 8,071 749 (81) 368 9,107
Balance at end of period $ 25,910 $ 24,787 $ 34,908 $ 25,910 $ 33,944 $ 25,873 $ 25,124 $ 25,205 $ 33,944
Allowance for Losses on Covered Loans
Balance at beginning of period $ 9,103 $ 18,439 $ 15,922 $ 15,922 $ 25,882 $ 24,414 $ 42,354 $ 44,781 $ 44,781
(Reversal of) provision for losses 589 (1,461) 4,655 3,783 174 2,496 (11,927) 9,892 635
Net recoveries -- -- -- -- 9 -- -- -- 9
Reduction in allowance due to loan removals (324) (7,875) (2,138) (10,337) (10,143) (1,028) (6,013) (12,319) (29,503)
Balance at end of period $ 9,368 $ 9,103 $ 18,439 $ 9,368 $ 15,922 $ 25,882 $ 24,414 $ 42,354 $ 15,922
CITY NATIONAL CORPORATION
NONPERFORMING ASSETS
(unaudited)
2014 2013
Third Second First Fourth Third Second First
(Dollars in thousands) Quarter Quarter Quarter Quarter Quarter Quarter Quarter
Nonperforming assets, excluding covered assets
Nonaccrual loans, excluding covered loans
Commercial $ 14,644 $ 27,486 $ 19,931 $ 14,298 $ 10,127 $ 11,679 $ 7,292
Commercial real estate mortgages 3,691 9,216 16,397 18,449 19,020 22,433 23,066
Residential mortgages 6,168 9,031 9,966 11,661 9,674 10,580 9,136
Real estate construction 6,598 12,834 18,760 19,067 25,471 25,718 39,608
Home equity loans and lines of credit 4,776 6,090 6,040 5,144 5,289 6,239 4,103
Installment 42 125 151 32 21 24 70
Total nonaccrual loans, excluding covered loans 35,919 64,782 71,245 68,651 69,602 76,673 83,275
Other real estate owned, excluding covered OREO 10,115 4,269 9,412 12,611 18,905 19,676 19,786
Total nonperforming assets, excluding covered assets $ 46,034 $ 69,051 $ 80,657 $ 81,262 $ 88,507 $ 96,349 $ 103,061
Nonperforming covered assets
Other real estate owned $ 14,487 $ 17,944 $ 24,855 $ 25,481 $ 29,818 $ 41,801 $ 43,751
Loans 90 days or more past due on accrual status, excluding covered loans $ 6,824 $ 1,801 $ 424 $ 453 $ 383 $ 643 $ 1,688
Covered loans 90 days or more past due on accrual status $ 38,465 $ 31,011 $ 38,548 $ 45,662 $ 63,071 $ 89,439 $ 102,268
Allowance for loan and lease losses as a percentage of:
Nonaccrual loans 870.59% 480.50% 429.21% 440.76% 425.20% 378.12% 339.03%
Total nonperforming assets, excluding covered assets 679.29% 450.79% 379.12% 372.36% 334.38% 300.90% 273.94%
Total loans and leases, excluding covered loans 1.62% 1.68% 1.72% 1.76% 1.79% 1.83% 1.86%
Nonaccrual loans as a percentage of total loans, excluding covered loans 0.19% 0.35% 0.40% 0.40% 0.42% 0.48% 0.55%
Nonperforming assets, excluding covered assets, as a percentage of:
Total loans and other real estate owned, excluding covered assets 0.24% 0.37% 0.45% 0.47% 0.53% 0.61% 0.68%
Total assets 0.14% 0.22% 0.27% 0.27% 0.30% 0.35% 0.38%
CITY NATIONAL CORPORATION
AVERAGE BALANCES AND RATES
(unaudited)
2014
Third Quarter Second Quarter First Quarter Year to Date
Average Average Average Average Average Average Average Average
(Dollars in millions) Balance Rate Balance Rate Balance Rate Balance Rate
Assets
Interest-earning assets
Loans and leases
Commercial $ 9,042 3.31% $ 8,605 3.49% $ 8,263 3.35% $ 8,640 3.38%
Commercial real estate mortgages 3,480 3.52 3,355 3.57 3,255 3.65 3,364 3.58
Residential mortgages 4,906 3.46 4,716 3.51 4,596 3.56 4,740 3.51
Real estate construction 510 3.66 418 3.75 376 3.74 435 3.71
Home equity loans and lines of credit 728 3.53 697 3.69 695 3.62 707 3.61
Installment 172 4.41 168 4.34 154 4.48 165 4.41
Total loans and leases, excluding covered loans 18,838 3.41 17,959 3.54 17,339 3.50 18,051 3.48
Covered loans 580 15.49 644 19.30 696 12.56 639 15.71
Total loans and leases 19,418 3.76 18,603 4.08 18,035 3.86 18,690 3.90
Due from banks - interest-bearing 560 0.26 577 0.26 665 0.27 600 0.26
Federal funds sold and securities purchased under resale agreements 247 2.77 356 1.67 279 1.99 294 2.08
Securities 8,944 2.13 8,668 2.17 8,585 2.09 8,734 2.13
Other interest-earning assets 71 5.99 72 6.47 77 6.38 73 6.28
Total interest-earning assets 29,240 3.19 28,276 3.39 27,641 3.22 28,391 3.27
Allowance for loan and lease losses (328) (328) (323) (326)
Cash and due from banks 168 188 248 201
Other non-earning assets 1,831 1,843 1,860 1,845
Total assets $ 30,911 $ 29,979 $ 29,426 $ 30,111
Liabilities and Equity
Interest-bearing deposits
Interest checking accounts $ 2,396 0.05% $ 2,327 0.06% $ 2,420 0.06% $ 2,381 0.06%
Money market accounts 6,538 0.07 6,618 0.07 6,365 0.07 6,508 0.07
Savings deposits 464 0.06 462 0.06 454 0.06 460 0.06
Time deposits - under $100,000 165 0.20 170 0.20 174 0.22 169 0.21
Time deposits -- $100,000 and over 438 0.39 451 0.39 484 0.41 457 0.40
Total interest-bearing deposits 10,001 0.08 10,028 0.08 9,897 0.09 9,975 0.08
Federal funds purchased and securities sold under repurchase agreements 1 0.08 1 0.07 -- -- 1 0.07
Other borrowings 667 5.82 737 6.07 739 6.12 714 6.01
Total interest-bearing liabilities 10,669 0.44 10,766 0.49 10,636 0.51 10,690 0.48
Noninterest-bearing deposits 16,830 15,884 15,475 16,068
Other liabilities 532 499 535 522
Total equity 2,880 2,830 2,780 2,831
Total liabilities and equity $ 30,911 $ 29,979 $ 29,426 $ 30,111
Net interest spread 2.75% 2.90% 2.71% 2.79%
Net interest margin 3.03% 3.21% 3.02% 3.09%
Average prime rate 3.25% 3.25% 3.25% 3.25%
CITY NATIONAL CORPORATION
AVERAGE BALANCES AND RATES
(unaudited)
2013
Fourth Quarter Third Quarter Second Quarter First Quarter Year to Date
Average Average Average Average Average Average Average Average Average Average
(Dollars in millions) Balance Rate Balance Rate Balance Rate Balance Rate Balance Rate
Assets
Interest-earning assets
Loans and leases
Commercial $ 7,905 3.40% $ 7,540 3.53% $ 7,301 3.58% $ 6,876 3.71% $ 7,409 3.55%
Commercial real estate mortgages 3,171 3.57 3,062 3.71 2,848 4.00 2,767 3.97 2,963 3.80
Residential mortgages 4,481 3.58 4,254 3.61 4,083 3.72 3,981 3.83 4,201 3.68
Real estate construction 394 4.61 351 4.53 353 4.24 333 4.64 358 4.51
Home equity loans and lines of credit 689 3.62 684 3.56 704 3.60 712 3.68 697 3.62
Installment 156 4.43 149 4.30 145 4.69 140 4.22 148 4.41
Total loans and leases, excluding covered loans 16,796 3.52 16,040 3.61 15,434 3.72 14,809 3.83 15,776 3.66
Covered loans 747 14.50 819 20.53 910 14.34 990 12.98 866 15.46
Total loans and leases 17,543 3.98 16,859 4.42 16,344 4.32 15,799 4.42 16,642 4.28
Due from banks - interest-bearing 970 0.25 611 0.26 236 0.27 193 0.24 504 0.25
Federal funds sold and securities purchased under resale agreements 317 1.99 283 2.19 277 2.25 154 2.99 258 2.26
Securities 9,306 1.93 8,576 1.99 8,867 1.98 9,796 1.91 9,134 1.95
Other interest-earning assets 83 5.87 89 5.51 96 4.48 105 3.72 93 4.83
Total interest-earning assets 28,219 3.16 26,418 3.51 25,820 3.46 26,047 3.44 26,631 3.39
Allowance for loan and lease losses (327) (319) (325) (328) (325)
Cash and due from banks 196 138 129 129 148
Other non-earning assets 1,814 1,824 1,846 1,861 1,837
Total assets $ 29,902 $ 28,061 $ 27,470 $ 27,709 $ 28,291
Liabilities and Equity
Interest-bearing deposits
Interest checking accounts $ 2,359 0.06% $ 2,289 0.07% $ 2,173 0.07% $ 2,217 0.08% $ 2,260 0.07%
Money market accounts 6,459 0.07 6,286 0.11 5,759 0.11 5,692 0.11 6,052 0.10
Savings deposits 437 0.06 420 0.09 415 0.10 419 0.11 423 0.09
Time deposits - under $100,000 179 0.23 185 0.29 192 0.37 201 0.37 189 0.32
Time deposits -- $100,000 and over 520 0.40 586 0.39 708 0.38 604 0.42 604 0.40
Total interest-bearing deposits 9,954 0.09 9,766 0.12 9,247 0.13 9,133 0.13 9,528 0.12
Federal funds purchased and securities sold under repurchase agreements -- -- 2 0.08 374 0.13 840 0.13 301 0.13
Other borrowings 728 6.03 712 6.07 928 4.74 1,452 3.21 952 4.66
Total interest-bearing liabilities 10,682 0.49 10,480 0.52 10,549 0.54 11,425 0.52 10,781 0.52
Noninterest-bearing deposits 15,989 14,536 13,872 13,278 14,426
Other liabilities 538 474 466 473 489
Total equity 2,693 2,571 2,582 2,533 2,595
Total liabilities and equity $ 29,902 $ 28,061 $ 27,470 $ 27,709 $ 28,291
Net interest spread 2.67% 2.99% 2.92% 2.92% 2.87%
Net interest margin 2.97% 3.30% 3.24% 3.21% 3.18%
Average prime rate 3.25% 3.25% 3.25% 3.25% 3.25%
CITY NATIONAL CORPORATION
CAPITAL AND CREDIT RATING DATA
(unaudited)
2014 2013
Third Second First Year To Fourth Third Second First Year To
Quarter Quarter Quarter Date Quarter Quarter Quarter Quarter Date
Per Common Share:
Shares outstanding (in thousands):
Average - Basic 55,031 54,957 54,689 54,893 54,438 54,274 54,105 53,731 54,139
Average - Diluted 55,765 55,632 55,429 55,616 55,141 54,820 54,477 54,068 54,640
Period-end 54,679 54,572 54,511 54,184 53,915 53,781 53,638
Book value $ 48.13 $ 47.38 $ 46.38 $ 45.65 $ 44.85 $ 44.16 $ 44.50
Closing price:
High $ 79.58 $ 80.49 $ 81.07 $ 81.07 $ 79.33 $ 71.15 $ 63.66 $ 59.61 $ 79.33
Low 72.48 69.04 68.39 68.39 65.39 64.11 54.36 51.13 51.13
Period-end 75.67 75.76 78.72 79.22 66.66 63.37 58.91
Capital Ratios (Dollars in millions):
Risk-based capital
Risk-weighted assets (1) $ 22,847 $ 21,923 $ 21,016 $ 20,766 $ 19,977 $ 19,256 $ 18,872
Tier 1 common equity $ 1,993 $ 1,919 $ 1,867 $ 1,823 $ 1,761 $ 1,700 $ 1,643
Percentage of risk-weighted assets (2) 8.72% 8.75% 8.89% 8.78% 8.82% 8.83% 8.71%
Tier 1 capital $ 2,266 $ 2,192 $ 2,140 $ 2,096 $ 1,936 $ 1,875 $ 1,818
Percentage of risk-weighted assets 9.92% 10.00% 10.18% 10.09% 9.69% 9.74% 9.64%
Total capital $ 2,775 $ 2,809 $ 2,749 $ 2,699 $ 2,532 $ 2,461 $ 2,399
Percentage of risk-weighted assets 12.14% 12.81% 13.08% 13.00% 12.67% 12.78% 12.71%
Tier 1 leverage ratio 7.44% 7.43% 7.41% 7.17% 7.07% 7.00% 6.72%
Period-end equity to period-end assets 9.06% 9.26% 9.40% 9.22% 8.91% 9.29% 9.32%
Period-end common equity to period-end assets 8.22% 8.39% 8.50% 8.32% 8.32% 8.67% 8.70%
Average equity to average assets 9.32% 9.44% 9.45% 9.40% 9.01% 9.16% 9.40% 9.14% 9.17%
Average common equity to average assets 8.45% 8.55% 8.54% 8.51% 8.24% 8.55% 8.78% 8.53% 8.52%
Period-end tangible common equity to period-end tangible assets (2) 6.25% 6.32% 6.36% 6.17% 6.11% 6.32% 6.35%
Period-end tangible common equity to period-end tangible assets excluding net unrealized gain/loss on AFS securities (2) 6.28% 6.32% 6.37% 6.22% 6.14% 6.30% 6.09%
Average tangible common equity to average tangible assets (2) 6.40% 6.42% 6.37% 6.39% 6.09% 6.26% 6.44% 6.19% 6.24%
Average tangible common equity to average tangible assets excluding net unrealized gain/loss on AFS securities (2) 6.40% 6.42% 6.38% 6.40% 6.10% 6.30% 6.20% 5.93% 6.13%
Senior Debt Credit Ratings
For The Period Ended September 30, 2014 Standard &
Moody's Fitch Poor's DBRS
City National Bank A2 A- A- A (high)
City National Corporation A3 A- BBB+ A
(1) In accordance with applicable bank regulatory guidelines, risk-weighted assets are calculated by assigning assets and credit equivalent amounts of derivatives and off-balance sheet items to one of several broad risk categories according to the obligor, or, if relevant, the guarantor or the nature of the collateral. The aggregate dollar amount in each risk category is then multiplied by the risk weight associated with that category. The resulting weighted values from each of the risk categories are added together for determining risk-weighted assets.
(2) The Tier 1 common equity to risk-weighted assets ratio, tangible common equity to tangible assets ratio, and tangible common equity to tangible assets ratio excluding net unrealized gain/loss on AFS (available-for-sale) securities are non-GAAP financial measures. See pages 16 and 17 for notes on non-GAAP measures.
CITY NATIONAL CORPORATION
COMPUTATION OF BASIC AND DILUTED EARNINGS PER COMMON SHARE
(unaudited)
City National applies the two-class method of computing basic and diluted earnings per common share ("EPS"). Under the two-class method, EPS is determined for each class of common stock and participating security according to dividends declared and participation rights in undistributed earnings. The company grants restricted stock and restricted stock units under a share-based compensation plan that qualify as participating securities. The computation of basic and diluted EPS is presented in the following table:
2014 2013 2013
Third Second First Year to Fourth Third Second First Full Year to
(Dollars in thousands, except per share amounts) Quarter Quarter Quarter Date Quarter Quarter Quarter Quarter Year Date*
Basic EPS:
Net income attributable to City National Corporation $ 68,651 $ 66,701 $ 54,511 $ 189,863 $ 55,112 $ 63,633 $ 59,741 $ 51,523 $ 230,009 $ 174,897
Less: Dividends on preferred stock 4,093 4,094 4,094 12,281 2,406 2,407 2,406 2,406 9,625 7,219
Net income available to common shareholders $ 64,558 $ 62,607 $ 50,417 $ 177,582 $ 52,706 $ 61,226 $ 57,335 $ 49,117 $ 220,384 $ 167,678
Less: Earnings allocated to participating securities 632 626 543 1,808 585 688 656 637 2,555 1,975
Earnings allocated to common shareholders $ 63,926 $ 61,981 $ 49,874 $ 175,774 $ 52,121 $ 60,538 $ 56,679 $ 48,480 $ 217,829 $ 165,703
Weighted average shares outstanding 55,031 54,957 54,689 54,893 54,438 54,274 54,105 53,731 54,139 54,039
Basic earnings per common share $ 1.16 $ 1.13 $ 0.91 $ 3.20 $ 0.96 $ 1.12 $ 1.05 $ 0.90 $ 4.02 $ 3.07
Diluted EPS:
Earnings allocated to shareholders (1) $ 63,932 $ 61,986 $ 49,879 $ 175,790 $ 52,126 $ 60,543 $ 56,682 $ 48,484 $ 217,848 $ 165,716
Weighted average shares outstanding 55,031 54,957 54,689 54,893 54,438 54,274 54,105 53,731 54,139 54,039
Dilutive effect of equity awards 734 675 740 723 703 546 372 337 501 425
Weighted average diluted shares outstanding 55,765 55,632 55,429 55,616 55,141 54,820 54,477 54,068 54,640 54,464
Diluted earnings per common share $ 1.15 $ 1.11 $ 0.90 $ 3.16 $ 0.95 $ 1.10 $ 1.04 $ 0.90 $ 3.99 $ 3.04
* For the nine months ended September 30, 2013.
(1) Earnings allocated to shareholders for basic and diluted EPS may differ under the two-class method as a result of adding common stock equivalents for options to dilutive shares outstanding, which alters the ratio used to allocate earnings to shareholders and participating securities for the purposes of calculating diluted EPS.
CITY NATIONAL CORPORATION
SELECTED FINANCIAL INFORMATION ON COVERED ASSETS
(unaudited)
The following table provides selected components of income and expense related to covered assets:
2014 2013
Third Second Third
(In thousands) Quarter Quarter Quarter
Summary Totals
Net impairment expense (Sum of A) $ (749) $ (4,080) $ (483)
Other covered asset income, net 2,182 1,295 3,190
Total income (expense), net $ 1,433 $ (2,785) $ 2,707
Interest income (1)
Income on loans paid-off or fully charged-off $ 11,310 $ 18,682 $ 25,849
(Reversal of) provision for losses on covered loans
(Reversal of) provision for losses on covered loans A 589 (1,461) 2,496
Noninterest income related to covered assets
FDIC loss sharing expense, net
Gain (loss) on indemnification asset A $ 285 $ (4,392) $ 2,239
Indemnification asset amortization (2,780) (3,320) (4,417)
Net FDIC reimbursement for OREO and loan expenses 1,210 2,160 4,582
Removal of indemnification asset for loans paid-off or fully charged-off (3,584) (4,994) (9,746)
Removal of indemnification asset for unfunded loan commitments and loans transferred to OREO (645) (773) (1,550)
Removal of indemnification asset for OREO and net reimbursement to FDIC for OREO sales (1,264) (1,827) (2,451)
Loan recoveries shared with FDIC (2,383) (9,866) (9,423)
Increase in FDIC clawback liability A (445) (1,149) (226)
Total FDIC loss sharing expense, net (9,606) (24,161) (20,992)
Gain on disposal of assets
Net gain on sale of OREO 1,252 2,613 3,064
Other income
Net gain on transfers of covered loans to OREO 616 867 1,936
Amortization of fair value on acquired unfunded loan commitments 146 218 48
OREO income 375 289 731
Other (255) 543 711
Total other income 882 1,917 3,426
Total noninterest income related to covered assets $ (7,472) $ (19,631) $ (14,502)
Noninterest expense related to covered assets (2)
Other real estate owned
Valuation write-downs $ 367 $ 934 $ 1,556
Holding costs and foreclosure expense 800 1,366 3,607
Total other real estate owned 1,167 2,300 5,163
Legal and professional fees 645 992 969
Other operating expense
Other covered asset expenses 4 5 12
Total noninterest expense related to covered assets (3) $ 1,816 $ 3,297 $ 6,144
Total income (expense), net $ 1,433 $ (2,785) $ 2,707
(1) Excludes base yield in interest income related to covered loans.
(2) OREO, legal and professional fees, and other expenses related to covered assets must meet certain FDIC criteria in order for the expense amounts to be reimbursed. Certain amounts reflected in these categories may not be reimbursed by the FDIC.
(3) Excludes personnel and other corporate overhead expenses that the company incurs to service covered assets and costs associated with the branches acquired in FDIC-assisted acquisitions.
CITY NATIONAL CORPORATION
SELECTED FINANCIAL INFORMATION ON COVERED ASSETS (continued)
(unaudited)
The following table provides selected components of income and expense related to covered assets from the third quarter of 2011 to the third quarter of 2014:
2014 2013 2012 2011
Third Second First Fourth Third Second First Fourth Third Second First Fourth Third
(In thousands) Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter
Summary Totals
Net impairment (expense) income (Sum of A) $ (749) $ (4,080) $ (2,019) $ (185) $ (483) $ (1,463) $ (71) $ 3,517 $ 2,639 $ 3,932 $ 2,756 $ (52) $ (5,884)
Other covered asset income (expense), net 2,182 1,295 (1,561) (124) 3,190 (520) (144) (720) (837) 3,388 (1,893) 394 (589)
Total income (expense), net $ 1,433 $ (2,785) $ (3,580) $ (309) $ 2,707 $ (1,983) $ (215) $ 2,797 $ 1,802 $ 7,320 $ 863 $ 342 $ (6,473)
Interest income
Income on loans paid-off or fully charged-off $ 11,310 $ 18,682 $ 9,324 $ 13,691 $ 25,849 $ 15,880 $ 15,625 $ 17,536 $ 22,164 $ 27,402 $ 15,699 $ 18,902 $ 18,343
(Reversal of) provision for losses on covered loans
(Reversal of) provision for losses on covered loans A 589 (1,461) 4,655 174 2,496 (11,927) 9,892 6,498 18,089 13,293 7,466 17,667 5,147
Noninterest income related to covered assets
FDIC loss sharing (expense) income, net
Gain (loss) on indemnification asset A $ 285 $ (4,392) $ 3,599 $ 677 $ 2,239 $ (13,102) $ 10,616 $ 10,070 $ 21,426 $ 17,722 $ 10,839 $ 17,675 $ (384)
Indemnification asset amortization (2,780) (3,320) (3,164) (3,142) (4,417) (4,746) (4,899) (4,818) (4,258) (4,133) (4,025) (3,775) (4,043)
Net FDIC reimbursement for OREO and loan expenses 1,210 2,160 1,653 2,289 4,582 4,995 5,193 8,020 7,612 6,724 10,441 13,858 10,496
Removal of indemnification asset for loans paid-off or fully charged-off (3,584) (4,994) (2,999) (6,813) (9,746) (7,650) (6,073) (5,896) (9,731) (10,654) (6,516) (5,955) (10,228)
Removal of indemnification asset for unfunded loan commitments and loans transferred to OREO (645) (773) (676) (1,017) (1,550) (1,163) (2,569) (1,500) (2,834) (4,773) (2,113) (4,714) (3,703)
Removal of indemnification asset for OREO and net reimbursement to FDIC for OREO sales (1,264) (1,827) (311) (680) (2,451) (428) (844) (2,042) (1,219) (1,189) (2,656) (1,543) (2,823)
Loan recoveries shared with FDIC (2,383) (9,866) (4,222) (3,579) (9,423) (4,095) (4,981) (6,303) (8,631) (9,226) (4,487) (7,853) (3,153)
Increase in FDIC clawback liability A (445) (1,149) (963) (688) (226) (288) (795) (55) (698) (497) (617) (60) (353)
Total FDIC loss sharing (expense) income, net (9,606) (24,161) (7,083) (12,953) (20,992) (26,477) (4,352) (2,524) 1,667 (6,026) 866 7,633 (14,191)
Gain on disposal of assets
Net gain on sale of OREO 1,252 2,613 389 850 3,064 616 974 2,593 1,524 1,486 2,137 1,927 3,625
Other income
Net gain on transfers of covered loans to OREO 616 867 863 1,427 1,936 1,445 3,506 1,926 4,907 6,864 2,483 6,824 3,887
Amortization of fair value on acquired unfunded loan commitments 146 218 215 69 48 283 394 408 192 413 559 558 1,088
OREO income 375 289 435 517 731 456 826 977 428 615 905 406 379
Other (255) 543 (156) (276) 711 (318) (334) (636) (632) (864) (1,018) (745) (503)
Total other income 882 1,917 1,357 1,737 3,426 1,866 4,392 2,675 4,895 7,028 2,929 7,043 4,851
Total noninterest income related to covered assets $ (7,472) $ (19,631) $ (5,337) $ (10,366) $ (14,502) $ (23,995) $ 1,014 $ 2,744 $ 8,086 $ 2,488 $ 5,932 $ 16,603 $ (5,715)
Noninterest expense related to covered assets
Other real estate owned
Valuation write-downs $ 367 $ 934 $ 155 $ 241 $ 1,556 $ 2,184 $ 3,035 $ 4,115 $ 4,267 $ 4,250 $ 7,808 $ 9,984 $ 7,526
Holding costs and foreclosure expense 800 1,366 1,158 1,463 3,607 1,894 1,893 3,878 3,522 2,796 3,207 4,890 3,449
Total other real estate owned 1,167 2,300 1,313 1,704 5,163 4,078 4,928 7,993 7,789 7,046 11,015 14,874 10,975
Legal and professional fees 645 992 1,580 1,749 969 1,701 2,020 2,977 2,541 2,200 2,278 2,609 2,961
Other operating expense
Other covered asset expenses 4 5 19 7 12 16 14 15 29 31 9 13 18
Total noninterest expense related to covered assets $ 1,816 $ 3,297 $ 2,912 $ 3,460 $ 6,144 $ 5,795 $ 6,962 $ 10,985 $ 10,359 $ 9,277 $ 13,302 $ 17,496 $ 13,954
Total income (expense), net $ 1,433 $ (2,785) $ (3,580) $ (309) $ 2,707 $ (1,983) $ (215) $ 2,797 $ 1,802 $ 7,320 $ 863 $ 342 $ (6,473)
CITY NATIONAL CORPORATION
NON-GAAP FINANCIAL MEASURES
(unaudited)
(a) Return on average tangible common equity ratio (annualized)
Return on average tangible common equity is a non-GAAP financial measure that represents the return on average common equity excluding goodwill and other intangible assets and their related amortization expense. Management reviews this measure in evaluating the company's performance and believes that investors may find it useful to evaluate the return on average common equity without the impact of goodwill and other intangible assets. A reconciliation of the GAAP to non-GAAP measure is set forth below:
2014 2013 2013
Third Second First Year to Fourth Third Second First Full Year to
(Dollars in thousands) Quarter Quarter Quarter Date Quarter Quarter Quarter Quarter Year Date*
Net income available to common shareholders $ 64,558 $ 62,607 $ 50,417 $ 177,582 $ 52,706 $ 61,226 $ 57,335 $ 49,117 $ 220,384 $ 167,678
Add: Amortization of intangibles, net of tax 830 846 865 2,540 1,002 1,124 1,123 1,124 4,373 3,371
Tangible net income available to common shareholders (A) $ 65,388 $ 63,453 $ 51,282 $ 180,122 $ 53,708 $ 62,350 $ 58,458 $ 50,241 $ 224,757 $ 171,049
Average common equity $ 2,612,652 $ 2,562,555 $ 2,512,775 $ 2,563,027 $ 2,465,056 $ 2,400,624 $ 2,412,148 $ 2,363,507 $ 2,410,585 $ 2,392,229
Less: Goodwill and other intangibles (679,278) (681,092) (682,676) (681,003) (684,289) (686,091) (687,997) (689,932) (687,059) (687,993)
Average tangible common equity (B) $ 1,933,374 $ 1,881,463 $ 1,830,099 $ 1,882,024 $ 1,780,767 $ 1,714,533 $ 1,724,151 $ 1,673,575 $ 1,723,526 $ 1,704,236
Return on average tangible common equity (A)/(B) 13.42% 13.53% 11.36% 12.80% 11.97% 14.43% 13.60% 12.17% 13.04% 13.42%
* For the nine months ended September 30, 2013.
(b) Tier 1 common equity to risk-weighted assets
Tier 1 common equity to risk-weighted assets ratio, also known as Tier 1 common ratio, is calculated by dividing (a) Tier 1 capital less non-common components including qualifying perpetual preferred stock and qualifying trust preferred securities by (b) risk-weighted assets. Tier 1 capital and risk-weighted assets are calculated in accordance with applicable bank regulatory guidelines. This ratio is a non-GAAP measure that is used by investors, analysts and bank regulatory agencies to assess the capital position of financial services companies. Management reviews this measure in evaluating the company's capital levels and has included this ratio in response to market participants' interest in the Tier 1 common equity to risk-weighted assets ratio.
2014 2013
Third Second First Fourth Third Second First
(Dollars in thousands) Quarter Quarter Quarter Quarter Quarter Quarter Quarter
Tier 1 capital $ 2,265,543 $ 2,191,557 $ 2,140,136 $ 2,095,576 $ 1,936,191 $ 1,874,999 $ 1,818,367
Less: Preferred stock (267,616) (267,616) (267,616) (267,616) (169,920) (169,920) (169,920)
Less: Trust preferred securities (5,000) (5,000) (5,155) (5,155) (5,155) (5,155) (5,155)
Tier 1 common equity (A) $ 1,992,927 $ 1,918,941 $ 1,867,365 $ 1,822,805 $ 1,761,116 $ 1,699,924 $ 1,643,292
Risk-weighted assets (B) $22,847,497 $21,922,982 $21,015,948 $20,766,237 $19,977,106 $19,255,862 $18,872,451
Tier 1 common equity to risk-weighted assets (A)/(B) 8.72% 8.75% 8.89% 8.78% 8.82% 8.83% 8.71%
Under Basel III capital rules, the Company's estimated Tier 1 common equity ratio was 8.5 percent at September 30, 2014. This ratio was estimated based on management's interpretation of final rules adopted July 2, 2013, by the Federal Reserve Board establishing a new comprehensive capital framework for U.S. banking organizations that would implement the Basel III capital framework and certain provisions of the Dodd-Frank Act. Under management's interpretation of Basel III, estimated Tier 1 common equity was $2.0 billion and estimated risk-weighted assets were $23.6 billion.
CITY NATIONAL CORPORATION
NON-GAAP FINANCIAL MEASURES (continued)
(unaudited)
(c) Ratios for tangible common equity and tangible common equity excluding net unrealized gain/loss on AFS securities
Ratios for tangible common equity and tangible common equity excluding net unrealized gain/loss on AFS securities are non-GAAP financial measures. Tangible common equity to tangible assets represents total common shareholders' equity less identifiable intangible assets and goodwill divided by total assets less identifiable intangible assets and goodwill. Tangible common equity to tangible assets excluding unrealized gain/loss on AFS securities represents tangible common equity less net unrealized gain/loss on AFS securities divided by tangible assets less net unrealized gain/loss on AFS securities. Management reviews these measures in evaluating the company's capital levels and has included these ratios in response to market participant and regulatory interest in tangible common equity as a measure of capital. A reconciliation of the GAAP to non-GAAP measure is set forth below:
2014 2013
Third Second First Year to Fourth Third Second First Year to
(Dollars in thousands) Quarter Quarter Quarter Date Quarter Quarter Quarter Quarter Date
Period End:
Total common shareholders' equity $ 2,631,813 $ 2,585,537 $ 2,528,344 $ 2,473,370 $ 2,417,968 $ 2,374,848 $ 2,386,969
Less: Goodwill and other intangibles (672,123) (680,302) (681,756) (683,243) (684,965) (686,897) (688,829)
Tangible common equity (A) $ 1,959,690 $ 1,905,235 $ 1,846,588 $ 1,790,127 $ 1,733,003 $ 1,687,951 $ 1,698,140
Less: Net unrealized loss/(gain) on AFS securities 7,592 (2,100) 4,363 15,641 10,355 (6,585) (74,201)
Tangible common equity excluding net unrealized gain/loss on AFS securities (B) $ 1,967,282 $ 1,903,135 $ 1,850,951 $ 1,805,768 $ 1,743,358 $ 1,681,366 $ 1,623,939
Total assets $ 32,015,600 $ 30,819,092 $ 29,738,252 $ 29,717,951 $ 29,059,404 $ 27,379,502 $ 27,433,754
Less: Goodwill and other intangibles (672,123) (680,302) (681,756) (683,243) (684,965) (686,897) (688,829)
Tangible assets (C) $ 31,343,477 $ 30,138,790 $ 29,056,496 $ 29,034,708 $ 28,374,439 $ 26,692,605 $ 26,744,925
Less: Net unrealized loss/(gain) on AFS securities 7,592 (2,100) 4,363 15,641 10,355 (6,585) (74,201)
Tangible assets excluding net unrealized gain/loss on AFS securities (D) $ 31,351,069 $ 30,136,690 $ 29,060,859 $ 29,050,349 $ 28,384,794 $ 26,686,020 $ 26,670,724
Period-end tangible common equity to period-end tangible assets (A)/(C) 6.25% 6.32% 6.36% 6.17% 6.11% 6.32% 6.35%
Period-end tangible common equity to period-end tangible assets excluding net unrealized gain/loss on AFS securities (B)/(D) 6.28% 6.32% 6.37% 6.22% 6.14% 6.30% 6.09%
Average Balance:
Total common shareholders' equity $ 2,612,652 $ 2,562,555 $ 2,512,775 $ 2,563,027 $ 2,465,056 $ 2,400,624 $ 2,412,148 $ 2,363,507 $ 2,410,585
Less: Goodwill and other intangibles (679,278) (681,092) (682,676) (681,003) (684,289) (686,091) (687,997) (689,932) (687,059)
Tangible common equity (E) $ 1,933,374 $ 1,881,463 $ 1,830,099 $ 1,882,024 $ 1,780,767 $ 1,714,533 $ 1,724,151 $ 1,673,575 $ 1,723,526
Less: Net unrealized loss/(gain) on AFS securities 1,854 303 3,016 1,720 1,223 10,835 (68,768) (76,916) (33,071)
Tangible common equity excluding net unrealized gain/loss on AFS securities (F) $ 1,935,228 $ 1,881,766 $ 1,833,115 $ 1,883,744 $ 1,781,990 $ 1,725,368 $ 1,655,383 $ 1,596,659 $ 1,690,455
Total assets $ 30,910,614 $ 29,978,947 $ 29,426,360 $ 30,110,744 $ 29,902,443 $ 28,061,134 $ 27,469,581 $ 27,709,159 $ 28,290,973
Less: Goodwill and other intangibles (679,278) (681,092) (682,676) (681,003) (684,289) (686,091) (687,997) (689,932) (687,059)
Tangible assets (G) $ 30,231,336 $ 29,297,855 $ 28,743,684 $ 29,429,741 $ 29,218,154 $ 27,375,043 $ 26,781,584 $ 27,019,227 $ 27,603,914
Less: Net unrealized loss/(gain) on AFS securities 1,854 303 3,016 1,720 1,223 10,835 (68,768) (76,916) (33,071)
Tangible assets excluding net unrealized gain/loss on AFS securities (H) $ 30,233,190 $ 29,298,158 $ 28,746,700 $ 29,431,461 $ 29,219,377 $ 27,385,878 $ 26,712,816 $ 26,942,311 $ 27,570,843
Average tangible common equity to average tangible assets (E)/(G) 6.40% 6.42% 6.37% 6.39% 6.09% 6.26% 6.44% 6.19% 6.24%
Average tangible common equity to average tangible assets excluding net unrealized gain/loss on AFS securities (F)/(H) 6.40% 6.42% 6.38% 6.40% 6.10% 6.30% 6.20% 5.93% 6.13%

CONTACT: Financial/Investors Christopher J. Carey, City National, 310.888.6777 Chris.Carey@cnb.com Media Cary Walker, City National, 213.673.7615 Cary.Walker@cnb.com Linda Mueller, 213.673.7619 Linda.Mueller@cnb.com Conference Call: Today 2:00 p.m. PDT (877) 359-9508 Conference ID: 5933540

Source:City National Corporation