News Column

City National Corporation Reports Record Net Income of $66.7 Million in Second-Quarter 2014

July 24, 2014

Total assets exceed $30 billion for the first time

Period-end loan balances grow to $18.5 billion, up 17 percent, with commercial loans up 18 percent

Deposits grow 13 percent to $26.7 billion

LOS ANGELES, July 24, 2014 (GLOBE NEWSWIRE) -- City National Corporation (NYSE:CYN), the parent company of wholly owned City National Bank, today reported second-quarter 2014 net income of $66.7 million, up 12 percent from $59.7 million in the year-ago period. Earnings per share were $1.11, compared with $1.04 per share in the second quarter of 2013.

City National's net income in the first half of this year totaled $121.2 million, up 9 percent from $111.3 million in the first half of 2013. Earnings per share were $2.01, up 4 percent from $1.94 in the first half 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 August 20, 2014 to stockholders of record on August 6, 2014.

SECOND-QUARTER 2014 HIGHLIGHTS

• Average second-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 $18.0 billion, up 16 percent from the second quarter of last year. Average commercial loans were up 18 percent from the same period in 2013. Period-end loan balances grew to a new record of $18.5 billion at June 30, 2014.

  • Second-quarter deposit balances averaged $25.9 billion, up 12 percent from the second quarter of 2013. Average core deposits, which equal 98 percent of total balances, were up 14 percent from the second quarter of last year. Period-end deposit balances totaled $26.7 billion at June 30, 2014.

 • Trust and investment fee income grew to $54.6 million, up 10 percent from the second quarter of 2013. City National's assets under management or administration totaled $65.8 billion, up 10 percent from the second quarter of 2013.

 •City National set aside no provision in the second quarter and in fact recorded a $1.0 million reversal of allowance for loan and lease losses, excluding FDIC-covered loans. The reversal reflected both improving credit quality and compliance with the company's longstanding loan-loss allowance methodology. City National remains appropriately reserved at 1.68 percent of total loans, excluding FDIC-covered loans.

"City National continued its strong momentum with second-quarter net income and assets reaching record levels and across-the-board growth in loans, deposits and wealth management," said Chairman and CEO Russell Goldsmith. "Credit quality remained quite sound and actually improved.

"At the same time, City National continued its long-standing policy of investing in its capabilities, infrastructure, technology and colleagues, selectively adding talent again to its teams throughout the company, especially in San Francisco, San Jose and New York. As a result, and given the relative strength of the economies and industries that City National is focused upon, the company is well-positioned for continued progress in the second half of 2014."

 For the three months ended  For the three  
Dollars in millions,June 30,%months ended%
except per share data20142013ChangeMarch 31, 2014Change
Earnings Per Common Share $ 1.11  $ 1.04 7  $ 0.90 23
Net Income Attributable to City National Corporation  66.7  59.7 12  54.5 22
Net Income Available to Common Shareholders 62.6  57.3 9  50.4 24
           
Average Assets $ 29,978.9  $ 27,469.6 9  $ 29,426.4 2
Return on Average Assets0.89%0.87%2 0.75%19
Return on Average Common Equity9.80%9.53%3 8.14%20
Return on Average Tangible Common Equity13.53%13.60%(1)11.36%19


ASSETS

Total assets at June 30, 2014 grew to $30.8 billion, up 13 percent from the second quarter of 2013 and 4 percent higher than in the first quarter of 2014. The increases largely reflect higher loan balances.

NET INTEREST INCOME

Fully taxable-equivalent net interest income was $226.1 million in the second quarter of 2014, up 9 percent from the same period of 2013 and 10 percent higher than in the first quarter of this year. Fully taxable-equivalent net interest income for the first half of 2014 was $432.2 million, up 4 percent from the year-ago period.

Deposits

Average second-quarter deposits were $25.9 billion, up 12 percent from the year-ago period and 2 percent higher than in the first quarter of 2014. Average deposits for the first half of 2014 totaled $25.6 billion, up 13 percent from the first half of 2013. Period-end deposits totaled $26.7 billion, up 13 percent from June 30, 2013 and up 4 percent from March 31, 2014.

Second-quarter 2014 average noninterest-bearing deposits were up 15 percent from the same period of 2013 and 3 percent higher than in the first quarter of 2014. Average noninterest-bearing deposit balances in the first half of 2014 were up 15 percent from the same period last year.

Treasury Services deposit balances, which consist primarily of title, escrow and property management deposits, averaged $2.9 billion in the second quarter of 2014, up 11 percent from the same period of last year and up 8 percent from the first quarter of 2014. For the first six months of 2014, Treasury Services deposit balances averaged $2.8 billion, up 14 percent from the first half of 2013. The increases were due primarily to mortgage transaction activity on higher priced homes.

Loans

Second-quarter average loan balances, excluding FDIC-covered loans, were $18.0 billion, up 16 percent from the second quarter of 2013 and 4 percent higher than in the first quarter of 2014. For the first six months of 2014, City National's average loans, excluding FDIC-covered loans, were $17.7 billion, up 17 percent from the year-ago period. Period-end loan balances grew to a new record of $18.5 billion, up 17 percent from June 30, 2013 and up 4 percent from March 31, 2014.

Second-quarter average commercial loans were up 18 percent from the same period in 2013 and 4 percent higher than in the first quarter of 2014. Two-thirds of the quarter's commercial loan production came from specialty lending areas, including corporate banking and warehouse lending, as well as the bank's entertainment division.

Average balances for commercial real estate mortgages were up 18 percent from the second quarter of 2013, and they increased 3 percent from the first quarter of 2014. Average balances for commercial real estate construction loans were up 18 percent from the second quarter of 2013 and 11 percent higher than in the first quarter of 2014.

Average balances for single-family residential mortgage loans were up 16 percent from the year-ago period and 3 percent higher than in the first quarter of 2014. The increase from the year-ago period largely reflects increased home-purchase activity, as well as the addition of new clients.

Securities

Average securities for the second quarter of 2014 totaled $8.7 billion, down 2 percent from the second quarter of 2013 but up 1 percent from the first quarter of 2014. Total available-for-sale securities amounted to $5.3 billion at June 30, 2014, down from $7.0 billion at the end of the second quarter of 2013 and $5.4 billion at March 31, 2014.

The average duration of available-for-sale securities at June 30, 2014 was 2.2 years, down from 3.2 years at June 30, 2013 and 2.3 years at March 31, 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.

City National's net interest margin in the second quarter of 2014 averaged 3.21 percent, compared with 3.02 percent in the first quarter of 2014. Approximately 13 basis points of the 19-basis-point increase was due to higher income on covered loans that were paid off or fully charged off in the second quarter. For the first six months of 2014, City National's net interest margin averaged 3.12 percent, down from 3.22 percent in the previous year.

Second-quarter net interest income included $18.7 million from FDIC-covered loans that were repaid or charged off during the quarter. This compares with $15.9 million in the second quarter of 2013 and $9.3 million in the first quarter of 2014.

At June 30, 2014, City National's prime lending rate was 3.25 percent, unchanged from both June 30, 2013 and March 31, 2014.

 For the three months ended  For the three  
 June 30,%months ended%
Dollars in millions20142013ChangeMarch 31, 2014Change
Average Loans and Leases, excluding Covered Loans $ 17,959.2  $ 15,434.1 16  $ 17,338.4 4
Average Covered Loans 643.7  909.7 (29) 696.2 (8)
Average Total Securities  8,668.0  8,866.9 (2) 8,585.2 1
Average Earning Assets 28,276.4  25,819.9 10  27,640.9 2
Average Deposits 25,912.1  23,118.8 12  25,371.6 2
Average Core Deposits 25,460.9  22,410.8 14  24,888.2 2
Fully Taxable-Equivalent Net Interest Income 226.1  208.4 9  206.1 10
Net Interest Margin3.21%3.24%(1)3.02%6


COVERED ASSETS

Loans and other real-estate-owned (OREO) assets acquired in City National's FDIC-assisted bank acquisitions totaled $614.6 million at the end of the second quarter of 2014, compared to $885.4 million at June 30, 2013 and $679.7 million at March 31, 2014.

In the second quarter of 2014, City National recorded a $4.1 million non-cash net impairment charge to reflect results of the quarterly update of cash-flow projections for the FDIC-covered loans. In the first quarter of 2014, the company recorded a $2.0 million non-cash net impairment. The second-quarter charge reflects a $1.5 million reversal of its allowance for covered loans due to improved credit quality. In addition to the non-cash net impairment charge for the second quarter of 2014, the company recognized $1.3 million of other covered assets income, bringing total net expense to $2.8 million. This compares to total net expense of $3.6 million in the first quarter of this year.

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

OREO assets acquired by City National in its FDIC-assisted bank acquisitions and subject to loss-sharing agreements totaled $17.9 million at June 30, 2014, compared to $41.8 million at the end of the second quarter of 2013 and $24.9 million at March 31, 2014.

NONINTEREST INCOME

Noninterest income was $101.1 million in the second quarter of 2014, up 23 percent from the second quarter of 2013 but virtually unchanged from the first quarter of 2014. City National's noninterest income for the first half of 2014 was up 15 percent from the same period of 2013.

The increase in noninterest income from the second quarter of last year was due largely to higher trust and investment fee income and lower FDIC loss-sharing expense, as well as a higher net gain on the disposal of assets.  Results for the second quarter of 2014 also reflect a $5.1 million net securities gain, compared with a $5.6 million net gain in the second quarter of 2013 and a $2.1 million net gain in the first quarter of this year.

In the second quarter of 2014, noninterest income accounted for 32 percent of City National's total revenue, compared to 29 percent in the second quarter of 2013 and 34 percent in the first quarter of 2014.

Wealth Management

City National's assets under management or administration totaled $65.8 billion as of June 30, 2014, up 10 percent from the same period of 2013 but down 1 percent from the first quarter of this year. Assets under management totaled $47.1 billion as of June 30, 2014, up 14 percent from June 30, 2013 and 2 percent higher than at March 31, 2014.

Trust and investment fees were $54.6 million in the second quarter of 2014, up 10 percent from the second quarter of 2013 and 2 percent higher than in the first quarter of 2014. First-half 2014 trust and investment fee income was up 12 percent from the same period last year. The increases were due largely to asset inflows and market appreciation.

Second-quarter 2014 brokerage and mutual fund fees totaled $14.2 million, up 76 percent from the year-earlier period and 42 percent higher than the first quarter of 2014. 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, which was partially offset by a $1.9 million increase in legal and professional fees for sub-advisory expense related to the merged funds. Brokerage and mutual fund fee income was $24.3 million in the first six months of this year, up 50 percent from the first half of 2013.

On June 25, 2014, City National announced that it had entered into an agreement with OneAmerica® whereby OneAmerica will acquire City National'sSan Diego-based retirement services recordkeeping business. The transaction is anticipated to close in the third quarter of this year and is not expected to have a material impact on City National's financial results.

 At or for the   At or for the  
 three months ended  three months  
 June 30,%ended%
Dollars in millions20142013ChangeMarch 31, 2014Change
Trust and Investment Fee Revenue $ 54.6  $ 49.8 10  $ 53.3 2
Brokerage and Mutual Fund Fees 14.2  8.1 76  10.0 42
Assets Under Management (1) 47,123.7  41,256.5 14  46,374.2 2
Assets Under Management or Administration (1) 65,780.0  59,755.3 10  66,399.8 (1)
           
(1) Excludes $27.8 billion, $26.1 billion and $25.1 billion of assets under management for asset managers in which City National held a noncontrolling ownership interest as of June 30, 2014, March 31, 2014 and June 30, 2013, respectively.


Other Noninterest Income

Second-quarter income from cash management and deposit transaction fees was $12.1 million, down 6 percent from the second quarter of 2013 but up 1 percent from the first quarter of 2014. For the first six months of 2014, cash management and deposit transaction fee income was $24.2 million, down 7 percent from the first half 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 $11.5 million in the second quarter of 2014, up 5 percent from the second quarter of 2013 and 10 percent higher than the first quarter of 2014. First-half 2014 foreign exchange services and letters of credit fee income totaled $21.9 million, up 7 percent from the same period last year. The increases were due primarily to increased client activity and the addition of new clients.

Second-quarter 2014 noninterest income also includes a $6.8 million gain on the disposal of assets, compared to $0.9 million in the year-ago period and $2.8 million in the first quarter of 2014. The increases were due primarily to the sale of an asset that served as collateral for a previously charged-off loan, as well as higher gains from the sale of covered OREO.

Other income was $20.9 million in the second quarter of 2014, up 2 percent from the second quarter of 2013 and 18 percent higher than the first quarter of 2014.  The increase from the first quarter of this year was due primarily to higher credit card and interchange income and lease residual income. Other income in the first half of this year was $38.5 million, down 1 percent from the year-ago period.

NONINTEREST EXPENSE

City National's second-quarter 2014 noninterest expense amounted to $225.6 million, up 7 percent from the second quarter of 2013 and 5 percent higher than in the first quarter of 2014. The increase from the year-ago period largely reflects higher compensation costs, as well as an increase in legal and professional fees. Legal and professional fees for the second quarter of 2014 included sub-advisory expense related to the merger of two mutual funds (discussed above). These costs were offset in part by lower OREO expenses and FDIC assessments.

Noninterest expense for the first six months of 2014 amounted to $440.5 million, up 4 percent from the first half of last year.

CREDIT QUALITY

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

Net charge-offs in the second quarter of 2014 totaled $3.6 million, or 0.08 percent of total loans and leases on an annualized basis. The company realized net recoveries of $7.5 million, or 0.20 percent, in the second quarter of 2013 and net recoveries of $4.2 million, or 0.10 percent, in the first quarter of 2014. Net recoveries for the first half of 2014 were $0.5 million, or 0.01 percent of total loans and leases. This compares with net recoveries of $12.3 million, or 0.16 percent, in the first half of last year.

At June 30, 2014, nonperforming assets amounted to $69.1 million, or 0.37 percent of the company's total loans and leases and OREO, compared to $96.3 million, or 0.61 percent, at June 30, 2013 and $80.7 million, or 0.45 percent, at March 31, 2014.

Nonaccrual loans at June 30, 2014 were $64.8 million, compared to $76.7 million at June 30, 2013 and $71.3 million at March 31, 2014. Classified ratios remain at low levels, and overall credit trends remain favorable.

 As ofAs ofAs of
 June 30, 2014March 31, 2014June 30, 2013
Period-end Loans (in millions)TotalNonaccrualTotalNonaccrualTotalNonaccrual
Commercial$ 8,837.6$ 27.5$ 8,557.0$ 19.9$ 7,497.1$ 11.7
Commercial Real Estate Mortgages 3,464.9 9.2 3,280.9 16.4 2,979.0 22.4
Residential Mortgages 4,814.4 9.0 4,682.1 10.0 4,153.1 10.6
Real Estate Construction 457.6 12.9 389.2 18.8 340.0 25.7
Home Equity Loans and Lines of Credit 716.8 6.1 691.3 6.0 700.7 6.3
Other Loans 183.5 0.1 150.9 0.2 149.4 0.0
 Total Loans (1)$ 18,474.8$ 64.8$ 17,751.4$ 71.3$ 15,819.3$ 76.7
             
Other Real Estate Owned (1)   4.3   9.4   19.7
Total Nonperforming Assets, Excluding Covered Assets$ 69.1  $ 80.7  $ 96.4
             
(1) Excludes covered loans, net of allowance, of $596.7 million, $654.9 million and $843.6 million at June 30, 2014, March 31, 2014 and June 30, 2013, respectively, and covered other real estate owned of $17.9 million, $24.9 million and $41.8 million at June 30, 2014, March 31, 2014 and June 30, 2013, respectively.


City National recorded a $1.0 million reversal of allowance for loan and lease losses, excluding FDIC-covered loans, based on the company's well-established loan-loss allowance methodology, which takes into account several factors including asset quality, credit risk, loan growth and economic conditions. The company recorded no provisions or reserve releases in either the second quarter of 2013 or first quarter of this year.

At June 30, 2014, City National's allowance for loan and lease losses totaled $311.3 million, or 1.68 percent of total loans and leases. That compares with $289.9 million, or 1.83 percent, at June 30, 2013 and $305.8 million, or 1.72 percent, at the end of the first quarter of 2014. The company also maintains an additional $24.8 million in reserves for off-balance-sheet credit commitments.

Commercial Loans

Commercial loan net charge-offs were $5.4 million in the second quarter of 2014. This compares to net recoveries of $2.9 million in the year-earlier period and net charge-offs of $0.2 million in the first quarter of 2014. Net charge-offs in the first half of 2014 amounted to $5.6 million, compared to net recoveries of $5.0 million in the first half of last year.

Commercial loans on nonaccrual totaled $27.5 million in the second quarter of 2014, compared to $11.7 million at June 30, 2013 and $19.9 million at March 31, 2014.

Real Estate Construction Loans

City National's$457.6 million commercial real estate construction portfolio includes secured loans to developers of residential and nonresidential properties. This portfolio represents 2 percent of the company's total loans.

Second-quarter net recoveries of construction loans were $0.7 million, compared to net recoveries of $2.7 million in the second quarter of 2013 and net recoveries of $4.4 million in the first quarter of 2014. Net recoveries amounted to $5.1 million in the first half of 2014, compared with net recoveries of $5.3 million in the first half of last year.

At June 30, 2014, construction loans on nonaccrual totaled $12.8 million, compared to $25.7 million at June 30, 2013 and $18.8 million at March 31, 2014.

Commercial Real Estate Mortgage Loans

The company recorded a small, second-quarter net recovery in its $3.5 billion commercial real estate mortgage portfolio, compared to net recoveries of $1.0 million in the second quarter of 2013 and net recoveries of $0.1 million in the first quarter of 2014. Net recoveries amounted to $0.1 million in the first half of 2014, compared with net recoveries of $1.0 million in the first half of last year.

Commercial real estate mortgage loans on nonaccrual totaled $9.2 million, compared to $22.4 million at June 30, 2013 and $16.4 million at March 31, 2014.

Residential Mortgage Loans and Equity Loans and Lines of Credit

City National's$4.8 billion residential mortgage portfolio and $0.7 billion home equity portfolio continued to perform exceptionally well.  Together, they accounted for $0.1 million in net recoveries in the second quarter of 2014, compared to net recoveries of $0.4 million at June 30, 2013 and net charge-offs of $0.3 million at March 31, 2014. Net charge-offs amounted to $0.2 million in the first half of 2014, compared with net recoveries of $0.2 million in the same period of last year.

Residential mortgage loans and home equity loans and lines of credit on nonaccrual were $15.1 million in the second quarter of 2014, compared to $16.8 million in the second quarter of 2013 and $16.0 million in the first quarter of 2014. 

INCOME TAXES

City National's effective tax rate for the second quarter of 2014 was 30.7 percent, compared to 29.7 percent in the year-earlier period. For the first half of 2014, City National's effective tax rate was 31.4 percent, compared to 29.4 percent in the prior-year period.

CAPITAL LEVELS

City National remains well-capitalized. Under Basel I capital rules, the company's Tier 1 common shareholders' equity ratio was 8.8 percent at June 30, 2014.  The company's Tier 1 common shareholders' equity ratio was 8.8 percent at June 30, 2013 and 8.9 percent at March 31, 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 June 30, 2014 were 12.8 percent and 10.0 percent, respectively. The company's Tier 1 leverage ratio at June 30, 2014 was 7.4 percent.

Basel I total risk-based capital, Tier 1 risk-based capital and Tier 1 leverage ratios at June 30, 2013 were 12.8 percent, 9.7 percent and 7.0 percent, respectively.

The increase in Total and Tier 1 capital ratios from June 30, 2013, was due largely to the company's issuance of $100 million of preferred stock on November 7, 2013.

City National's period-end ratio of equity to total assets at June 30, 2014 was 9.3 percent, compared to 9.3 percent at June 30, 2013 and 9.4 percent at March 31, 2014.

2014 OUTLOOK

Management expects moderate net income growth in 2014. Loan and deposit balances are expected to continue to increase, and credit quality should remain strong, though rising loan balances are expected to require a loan-loss provision later this year. Low interest rates and competitive loan pricing continue to put pressure on the company's net interest margin. This outlook reflects management's expectations for moderate economic growth throughout the remainder of 2014. This does not take into account the effect that any changes in monetary policy could have on short-term interest rates, which are not expected to rise this year.

CONFERENCE CALL

City National Corporation will host a conference call this afternoon to discuss second-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 59741272.  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 $65.8 billion in client investment assets, including more than $47.1 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) continued delay in the pace of economic recovery and continued stagnant or decreasing employment levels; (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) volatility in the municipal bond market; (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; (21) the impact of cyber security attacks or other disruptions to the company's information systems and any resulting compromise of data or disruptions in service; and (22) 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 MonthsSix Months
For The Period Ended June 30,20142013% Change20142013% Change
Per Common Share            
Net income available to common shareholders            
Basic  $ 1.13  $ 1.05  8  $ 2.04  $ 1.95  5
Diluted  1.11  1.04  7  2.01  1.94  4
Dividends  0.33  0.25  32  0.66  0.25  164
Book value        47.38  44.16  7
             
Results of Operations: (In millions)            
Net interest income$ 219$ 203  8  $ 419  $ 404  4
Net interest income (Fully taxable-equivalent) 226 208  9 432 415  4
Total revenue 320 285  12 621 580  7
(Reversal of) provision for credit losses on loans and leases, excluding covered loans (1)  --  NM  (1)  --  NM 
(Reversal of) provision for losses on covered loans (1) (12)  (88) 3 (2)  257
Net income attributable to City National Corporation 67 60  12 121 111  9
Net income available to common shareholders 63 57  9 113 106  6
             
Financial Ratios:            
Performance Ratios:            
Return on average assets  0.89% 0.87%   0.82% 0.81%  
Return on average common equity  9.80  9.53    8.98  8.99  
Return on average tangible common equity (1)  13.53  13.60    12.47  12.90  
Period-end equity to period-end assets        9.26  9.29  
Net interest margin  3.21  3.24    3.12  3.22  
Expense to revenue ratio  68.48  71.51    69.08  70.21  
Capital Adequacy Ratios (Period-end):            
Tier 1 common equity        8.75  8.83  
Tier 1 risk-based capital        10.00  9.74  
Total risk-based capital        12.81  12.78  
Tier 1 leverage        7.43  7.00  
             
Asset Quality Ratios:            
Allowance for loan and lease losses to:            
Total loans and leases, excluding covered loans       1.68% 1.83%  
Nonaccrual loans        480.50  378.12  
Nonperforming assets, excluding covered assets, to:            
Total loans and leases and other real estate owned, excluding covered assets    0.37  0.61  
Total assets        0.22  0.35  
Net (charge-offs)/recoveries to average total loans and leases, excluding covered loans (annualized) (0.08)% 0.20%   0.01% 0.16%  
             
Average Balances: (In millions)            
Loans and leases, excluding covered loans  $ 17,959  $ 15,434  16  $ 17,650  $ 15,123  17
Covered loans 644 910  (29) 670 950  (29)
Securities 8,668 8,867  (2) 8,627 9,329  (8)
Interest-earning assets 28,276 25,820  10 27,960 25,933  8
Assets 29,979 27,470  9 29,704 27,589  8
Core deposits 25,461 22,411  14 25,176 22,110  14
Deposits 25,912 23,119  12 25,643 22,767  13
Interest-bearing liabilities 10,766 10,549  2 10,702 10,984  (3)
Common shareholders' equity 2,563 2,412  6 2,538 2,388  6
Total shareholders' equity 2,830 2,582  10 2,805 2,558  10
             
Period-End Balances: (In millions)            
Loans and leases, excluding covered loans        $ 18,475  $ 15,819  17
Covered loans       606 868  (30)
Securities       8,833 8,597  3
Assets       30,819 27,380  13
Core deposits       26,206 22,967  14
Deposits       26,652 23,652  13
Common shareholders' equity       2,586 2,375  9
Total shareholders' equity       2,853 2,545  12
             
Wealth Management: (In millions) (2)            
Assets under management        $ 47,124  $ 41,257  14
Assets under management or administration       65,780 59,755  10
             
(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 $27.8 billion and $25.1 billion of assets under management for asset managers in which City National held a noncontrolling ownership interest as of June 30, 2014 and June 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 EndedSix Months Ended
(Dollars in thousandsJune 30,June 30,
except per share data)20142013% Change20142013% Change
Interest income  $ 232,325  $ 216,995  7  $ 445,410  $ 432,795  3
Interest expense  13,223  14,076  (6)  26,510  28,803  (8)
Net interest income  219,102  202,919  8  418,900  403,992  4
             
(Reversal of) provision for credit losses on loans and leases, excluding covered loans  (1,000)  --  NM   (1,000)  --  NM 
(Reversal of) provision for losses on covered loans  (1,461)  (11,927)  (88)  3,194  (2,035)  257
             
Noninterest income            
Trust and investment fees  54,599  49,830  10  107,905  96,483  12
Brokerage and mutual fund fees  14,240  8,107  76  24,282  16,173  50
Cash management and deposit transaction fees  12,128  12,880  (6)  24,161  25,889  (7)
International services  11,483  10,911  5  21,878  20,530  7
FDIC loss sharing expense, net  (24,161)  (26,477)  (9)  (31,244)  (30,829)  1
Gain on disposal of assets  6,838  949  621  9,664  2,063  368
Gain on securities  5,119  5,608  (9)  7,241  6,654  9
Other  20,853  20,401  2  38,460  38,774  (1)
Total noninterest income  101,099  82,209  23  202,347  175,737  15
             
Noninterest expense            
Salaries and employee benefits  138,859  127,168  9  275,692  255,363  8
Net occupancy of premises  16,595  16,205  2  32,689  32,194  2
Legal and professional fees  18,393  13,514  36  31,343  25,466  23
Information services  9,463  9,183  3  18,809  18,574  1
Depreciation and amortization  7,885  8,249  (4)  15,713  16,421  (4)
Amortization of intangibles  1,454  1,931  (25)  2,941  3,863  (24)
Marketing and advertising  8,982  8,293  8  18,757  16,269  15
Office services and equipment  5,287  5,034  5  10,197  9,980  2
Other real estate owned  2,372  4,385  (46)  3,805  9,635  (61)
FDIC assessments  2,765  3,663  (25)  4,156  9,144  (55)
Other  13,567  13,804  (2)  26,413  25,860  2
Total noninterest expense  225,622  211,429  7  440,515  422,769  4
             
Income before taxes  97,040  85,626  13  178,538  158,995  12
             
Applicable income taxes  29,829  25,422  17  56,117  46,683  20
             
Net income  $ 67,211  $ 60,204  12  $ 122,421  $ 112,312  9
             
Less: Net income attributable to noncontrolling interest  510  463  10  1,209  1,048  15
             
Net income attributable to City National Corporation  $ 66,701  $ 59,741  12  $ 121,212  $ 111,264  9
             
Less: Dividends on preferred stock  4,094  2,406  70  8,188  4,812  70
             
Net income available to common shareholders  $ 62,607  $ 57,335  9  $ 113,024  $ 106,452  6
             
Other Data:            
Earnings per common share - basic  $ 1.13  $ 1.05  8  $ 2.04  $ 1.95  5
Earnings per common share - diluted  $ 1.11  $ 1.04  7  $ 2.01  $ 1.94  4
Dividends paid per common share  $ 0.33  $ 0.25  32  $ 0.66  $ 0.25  164
Common dividend payout ratio 29.26% 23.81%  23 32.33% 12.85%  152
Return on average assets 0.89% 0.87%  2 0.82% 0.81%  1
Return on average common equity 9.80% 9.53%  3 8.98% 8.99%  (0)
Return on average tangible common equity 13.53% 13.60%  (1) 12.47% 12.90%  (3)
Net interest margin (Fully taxable-equivalent) 3.21% 3.24%  (1) 3.12% 3.22%  (3)
Full-time equivalent employees  3,638  3,551  2      
       
       
CITY NATIONAL CORPORATION      
CONSOLIDATED QUARTERLY STATEMENTS OF INCOME    
(unaudited)      
       
 2014
(Dollars in thousandsSecondFirstYear to
except per share data)QuarterQuarterDate
Interest income  $ 232,325  $ 213,085  $ 445,410
Interest expense  13,223  13,287  26,510
Net interest income  219,102  199,798  418,900
       
(Reversal of) provision for credit losses on loans and leases, excluding covered loans  (1,000)  --  (1,000)
(Reversal of) provision for losses on covered loans  (1,461)  4,655  3,194
       
Noninterest income      
Trust and investment fees  54,599  53,306  107,905
Brokerage and mutual fund fees  14,240  10,042  24,282
Cash management and deposit transaction fees  12,128  12,033  24,161
International services  11,483  10,395  21,878
FDIC loss sharing expense, net  (24,161)  (7,083)  (31,244)
Gain on disposal of assets  6,838  2,826  9,664
Gain on securities  5,119  2,122  7,241
Other  20,853  17,607  38,460
Total noninterest income  101,099  101,248  202,347
       
Noninterest expense      
Salaries and employee benefits  138,859  136,833  275,692
Net occupancy of premises  16,595  16,094  32,689
Legal and professional fees  18,393  12,950  31,343
Information services  9,463  9,346  18,809
Depreciation and amortization  7,885  7,828  15,713
Amortization of intangibles  1,454  1,487  2,941
Marketing and advertising  8,982  9,775  18,757
Office services and equipment  5,287  4,910  10,197
Other real estate owned  2,372  1,433  3,805
FDIC assessments  2,765  1,391  4,156
Other  13,567  12,846  26,413
Total noninterest expense  225,622  214,893  440,515
       
Income before taxes  97,040  81,498  178,538
       
Applicable income taxes  29,829  26,288  56,117
       
Net income  $ 67,211  $ 55,210  $ 122,421
       
Less: Net income attributable to noncontrolling interest  510  699  1,209
       
Net income attributable to City National Corporation  $ 66,701  $ 54,511  $ 121,212
       
Less: Dividends on preferred stock  4,094  4,094  8,188
       
Net income available to common shareholders  $ 62,607  $ 50,417  $ 113,024
       
Other Data:      
Earnings per common share - basic  $ 1.13  $ 0.91  $ 2.04
Earnings per common share - diluted  $ 1.11  $ 0.90  $ 2.01
Dividends paid per common share  $ 0.33  $ 0.33  $ 0.66
Common dividend payout ratio 29.26% 36.15% 32.33%
Return on average assets 0.89% 0.75% 0.82%
Return on average common equity 9.80% 8.14% 8.98%
Return on average tangible common equity 13.53% 11.36% 12.47%
Net interest margin (Fully taxable-equivalent) 3.21% 3.02% 3.12%
Full-time equivalent employees  3,638  3,587  
           
           
CITY NATIONAL CORPORATION          
CONSOLIDATED QUARTERLY STATEMENTS OF INCOME        
(unaudited)          
           
 2013
(Dollars in thousandsFourthThirdSecondFirstYear to
except per share data)QuarterQuarterQuarterQuarterDate
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
 SecondFirst
(In thousands)QuarterQuarter
Assets    
Cash and due from banks  $ 586,273  $ 425,427
Due from banks - interest-bearing 554,044 434,297
Federal funds sold and securities purchased under resale agreements 200,000 205,000
Securities available-for-sale 5,328,492 5,386,754
Securities held-to-maturity 3,418,353 3,202,997
Trading securities 86,097 61,608
Loans and leases:    
Commercial 8,837,544 8,557,041
Commercial real estate mortgages 3,464,918 3,280,868
Residential mortgages 4,814,435 4,682,055
Real estate construction 457,557 389,188
Home equity loans and lines of credit 716,816 691,338
Installment 183,518 150,895
Loans and leases, excluding covered loans 18,474,788 17,751,385
Allowance for loan and lease losses (311,276) (305,790)
Loans and leases, excluding covered loans, net 18,163,512 17,445,595
Covered loans, net (1) 596,667 654,855
Net loans and leases 18,760,179 18,100,450
Premises and equipment, net 205,168 199,401
Goodwill and other intangibles 680,302 681,756
Other real estate owned (2) 22,213 34,267
FDIC indemnification asset 68,038 84,851
Other assets 909,933 921,444
Total assets  $ 30,819,092  $ 29,738,252
     
Liabilities    
Deposits:    
Noninterest-bearing  $ 16,690,688  $ 15,664,029
Interest-bearing 9,960,837 10,067,737
Total deposits 26,651,525 25,731,766
Short-term borrowings 160,337 4,107
Long-term debt 627,768 733,537
Other liabilities 479,760 427,241
Total liabilities 27,919,390 26,896,651
     
Redeemable noncontrolling interest 46,549 45,641
     
Shareholders' equity    
Preferred stock 267,616 267,616
Common stock 54,957 54,899
Additional paid-in capital 556,284 549,989
Accumulated other comprehensive income (loss) 2,100 (4,363)
Retained earnings 1,994,646 1,950,356
Treasury shares (22,450) (22,537)
Total common shareholders' equity 2,585,537 2,528,344
Total shareholders' equity 2,853,153 2,795,960
Total liabilities and shareholders' equity  $ 30,819,092  $ 29,738,252
     
(1) Covered loans are net of $9.1 million and $18.4 million of allowance for loan losses as of June 30, 2014 and March 31, 2014, respectively.
(2) Other real estate owned includes $17.9 million and $24.9 million covered by FDIC loss share at June 30, 2014 and March 31, 2014, respectively.
         
         
CITY NATIONAL CORPORATION        
CONSOLIDATED PERIOD END BALANCE SHEETS        
(unaudited)        
         
 2013
 FourthThirdSecondFirst
(In thousands)QuarterQuarterQuarterQuarter
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)                
                 
 20142013
 SecondFirstYear ToFourthThirdSecondFirstYear To
(Dollars in thousands)QuarterQuarterDateQuarterQuarterQuarterQuarterDate
                 
Allowance for Loan and Lease Losses, Excluding Covered Loans                
                 
Balance at beginning of period  $ 305,790  $ 302,584  $ 302,584  $ 295,947  $ 289,914  $ 282,328  $ 277,888  $ 277,888
                 
Net (charge-offs)/recoveries:                
Commercial  (5,359)  (227)  (5,586)  9,515  4,375  2,855  2,173  18,918
Commercial real estate mortgages  27  95  122  23  (584)  1,034  3  476
Residential mortgages  190  (447)  (257)  32  40  37  (68)  41
Real estate construction  687  4,388  5,075  4,660  2,945  2,682  2,666  12,953
Home equity loans and lines of credit  (106)  143  37  129  (194)  375  (112)  198
Installment  926  218  1,144  349  200  522  146  1,217
Total net (charge-offs)/recoveries  (3,635)  4,170  535  14,708  6,782  7,505  4,808  33,803
                 
(Reversal of) provision for credit losses  (1,000)  --  (1,000)  --  --  --  --  --
                 
Transfers from (to) reserve for off-balance sheet credit commitments  10,121  (964)  9,157  (8,071)  (749)  81  (368)  (9,107)
                 
Balance at end of period  $ 311,276  $ 305,790  $ 311,276  $ 302,584  $ 295,947  $ 289,914  $ 282,328  $ 302,584
                 
Net (Charge-offs)/Recoveries to Average Total Loans and Leases, Excluding Covered Loans (annualized):          
                 
Commercial (0.25)% (0.01)% (0.13)% 0.48% 0.23% 0.16% 0.13% 0.26%
Commercial real estate mortgages 0.00% 0.01% 0.01% 0.00% (0.08)% 0.15% 0.00% 0.02%
Residential mortgages 0.02% (0.04)% (0.01)% 0.00% 0.00% 0.00% (0.01)% 0.00%
Real estate construction 0.66% 4.73% 2.58% 4.69% 3.32% 3.05% 3.25% 3.62%
Home equity loans and lines of credit (0.06)% 0.08% 0.01% 0.07% (0.11)% 0.21% (0.06)% 0.03%
Installment 2.21% 0.58% 1.44% 0.89% 0.54% 1.44% 0.42% 0.82%
Total loans and leases, excluding covered loans (0.08)% 0.10% 0.01% 0.35% 0.17% 0.20% 0.13% 0.21%
                 
Reserve for Off-Balance Sheet Credit Commitments                
                 
Balance at beginning of period  $ 34,908  $ 33,944  $ 33,944  $ 25,873  $ 25,124  $ 25,205  $ 24,837  $ 24,837
Transfers (to) from allowance  (10,121)  964  (9,157)  8,071  749 (81)  368  9,107
Balance at end of period  $ 24,787  $ 34,908  $ 24,787  $ 33,944  $ 25,873  $ 25,124  $ 25,205  $ 33,944
                 
Allowance for Losses on Covered Loans                
                 
Balance at beginning of period  $ 18,439  $ 15,922  $ 15,922  $ 25,882  $ 24,414  $ 42,354  $ 44,781  $ 44,781
(Reversal of) provision for losses  (1,461)  4,655  3,194  174  2,496 (11,927)  9,892  635
Net recoveries  --  --  --  9  --  --  --  9
Reduction in allowance due to loan removals  (7,875)  (2,138)  (10,013)  (10,143) (1,028) (6,013) (12,319) (29,503)
Balance at end of period  $ 9,103  $ 18,439  $ 9,103  $ 15,922  $ 25,882  $ 24,414  $ 42,354  $ 15,922
             
             
CITY NATIONAL CORPORATION            
NONPERFORMING ASSETS            
(unaudited)            
             
 20142013
 SecondFirstFourthThirdSecondFirst
(Dollars in thousands)QuarterQuarterQuarterQuarterQuarterQuarter
             
Nonperforming assets, excluding covered assets            
Nonaccrual loans, excluding covered loans            
Commercial  $ 27,486  $ 19,931  $ 14,298  $ 10,127  $ 11,679  $ 7,292
Commercial real estate mortgages  9,216  16,397  18,449  19,020  22,433  23,066
Residential mortgages  9,031  9,966  11,661  9,674  10,580  9,136
Real estate construction  12,834  18,760  19,067  25,471  25,718  39,608
Home equity loans and lines of credit  6,090  6,040  5,144  5,289  6,239  4,103
Installment  125  151  32  21  24  70
Total nonaccrual loans, excluding covered loans  64,782  71,245  68,651  69,602  76,673  83,275
             
Other real estate owned, excluding covered OREO  4,269  9,412  12,611  18,905  19,676  19,786
             
Total nonperforming assets, excluding covered assets  $ 69,051  $ 80,657  $ 81,262  $ 88,507  $ 96,349  $ 103,061
             
Nonperforming covered assets            
Other real estate owned  $ 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  $ 1,801  $ 424  $ 453  $ 383  $ 643  $ 1,688
             
Covered loans 90 days or more past due on accrual status  $ 31,011  $ 38,548  $ 45,662  $ 63,071  $ 89,439  $ 102,268
             
             
Allowance for loan and lease losses as a percentage of:            
Nonaccrual loans 480.50% 429.21% 440.76% 425.20% 378.12% 339.03%
Total nonperforming assets, excluding covered assets 450.79% 379.12% 372.36% 334.38% 300.90% 273.94%
Total loans and leases, excluding covered loans 1.68% 1.72% 1.76% 1.79% 1.83% 1.86%
             
Nonaccrual loans as a percentage of total loans, excluding covered loans 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 0.37% 0.45% 0.47% 0.53% 0.61% 0.68%
Total assets 0.22% 0.27% 0.27% 0.30% 0.35% 0.38%
             
             
CITY NATIONAL CORPORATION            
AVERAGE BALANCES AND RATES            
(unaudited)            
             
 2014
 Second QuarterFirst QuarterYear to Date
 AverageAverageAverageAverageAverageAverage
(Dollars in millions)BalanceRateBalanceRateBalanceRate
Assets            
Interest-earning assets             
Loans and leases             
Commercial   $ 8,605 3.49%  $ 8,263 3.35%  $ 8,435 3.42%
Commercial real estate mortgages  3,355  3.57  3,255  3.65  3,305  3.61
Residential mortgages  4,716  3.51  4,596  3.56  4,656  3.53
Real estate construction  418  3.75  376  3.74  397  3.75
Home equity loans and lines of credit  697  3.69  695  3.62  696  3.66
Installment   168  4.34  154  4.48  161  4.41
Total loans and leases, excluding covered loans  17,959  3.54  17,339  3.50  17,650  3.52
Covered loans  644  19.30  696  12.56  670  15.80
 Total loans and leases   18,603  4.08  18,035  3.86  18,320  3.97
Due from banks - interest-bearing  577  0.26  665  0.27  621  0.27
Federal funds sold and securities purchased under resale agreements  356  1.67  279  1.99  317  1.81
Securities  8,668  2.17  8,585  2.09  8,627  2.13
Other interest-earning assets  72  6.47  77  6.38  75  6.42
Total interest-earning assets  28,276  3.39  27,641  3.22  27,960  3.31
Allowance for loan and lease losses (328)   (323)   (326)  
Cash and due from banks  188    248    218  
Other non-earning assets  1,843    1,860    1,852  
Total assets  $ 29,979    $ 29,426    $ 29,704  
             
Liabilities and Equity            
Interest-bearing deposits            
Interest checking accounts  $ 2,327 0.06%  $ 2,420 0.06%  $ 2,374 0.06%
Money market accounts  6,618  0.07  6,365  0.07  6,492  0.07
Savings deposits  462  0.06  454  0.06  458  0.06
Time deposits - under $100,000  170  0.20  174  0.22  172  0.21
Time deposits -- $100,000 and over  451  0.39  484  0.41  467  0.40
Total interest-bearing deposits  10,028  0.08  9,897  0.09  9,963  0.08
             
             
Federal funds purchased and securities sold under repurchase agreements  1  0.07  --  --   1  0.07
Other borrowings  737  6.07  739  6.12  738  6.10
Total interest-bearing liabilities  10,766  0.49  10,636  0.51  10,702  0.50
Noninterest-bearing deposits  15,884    15,475    15,680  
Other liabilities  499    535    517  
Total equity  2,830    2,780    2,805  
Total liabilities and equity  $ 29,979    $ 29,426    $ 29,704  
             
             
Net interest spread   2.90%   2.71%   2.81%
Net interest margin   3.21%   3.02%   3.12%
             
Average prime rate   3.25%   3.25%   3.25%
                     
                     
CITY NATIONAL CORPORATION                    
AVERAGE BALANCES AND RATES                    
(unaudited)                    
                     
 2013
 Fourth QuarterThird QuarterSecond QuarterFirst QuarterYear to Date
 AverageAverageAverageAverageAverageAverageAverageAverageAverageAverage
(Dollars in millions)BalanceRateBalanceRateBalanceRateBalanceRateBalanceRate
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)                
                 
 20142013
 SecondFirstYear ToFourthThirdSecondFirstYear To
 QuarterQuarterDateQuarterQuarterQuarterQuarterDate
Per Common Share:                
Shares outstanding (in thousands):                
Average - Basic  54,957  54,689  54,824  54,438  54,274  54,105  53,731  54,139
Average - Diluted  55,632  55,429  55,541  55,141  54,820  54,477  54,068  54,640
Period-end  54,572  54,511    54,184  53,915  53,781  53,638  
Book value  $ 47.38  $ 46.38    $ 45.65  $ 44.85  $ 44.16  $ 44.50  
Closing price:                
High  $ 80.49  $ 81.07  $ 81.07  $ 79.33  $ 71.15  $ 63.66  $ 59.61  $ 79.33
Low  69.04  68.39  68.39  65.39  64.11  54.36  51.13  51.13
Period-end  75.76  78.72    79.22  66.66  63.37  58.91  
                 
                 
Capital Ratios (Dollars in millions):                
Risk-based capital                
Risk-weighted assets (1)  $ 21,924  $ 21,016    $ 20,766  $ 19,977  $ 19,256  $ 18,872  
Tier 1 common equity  $ 1,919  $ 1,867    $ 1,823  $ 1,761  $ 1,700  $ 1,643  
Percentage of risk-weighted assets (2) 8.75% 8.89%   8.78% 8.82% 8.83% 8.71%  
Tier 1 capital  $ 2,192  $ 2,140    $ 2,096  $ 1,936  $ 1,875  $ 1,818  
Percentage of risk-weighted assets 10.00% 10.18%   10.09% 9.69% 9.74% 9.64%  
Total capital  $ 2,809  $ 2,749    $ 2,699  $ 2,532  $ 2,461  $ 2,399  
Percentage of risk-weighted assets 12.81% 13.08%   13.00% 12.67% 12.78% 12.71%  
Tier 1 leverage ratio 7.43% 7.41%   7.17% 7.07% 7.00% 6.72%  
                 
Period-end equity to period-end assets 9.26% 9.40%   9.22% 8.91% 9.29% 9.32%  
Period-end common equity to period-end assets 8.39% 8.50%   8.32% 8.32% 8.67% 8.70%  
                 
Average equity to average assets 9.44% 9.45% 9.44% 9.01% 9.16% 9.40% 9.14% 9.17%
Average common equity to average assets 8.55% 8.54% 8.54% 8.24% 8.55% 8.78% 8.53% 8.52%
                 
Period-end tangible common equity to period-end tangible assets (2) 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) 6.32% 6.37%   6.22% 6.14% 6.30% 6.09%  
                 
Average tangible common equity to average tangible assets (2) 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) 6.42% 6.38% 6.40% 6.10% 6.30% 6.20% 5.93% 6.13%
                 
                 
Senior Debt Credit Ratings                
For The Period Ended June 30, 2014    Standard &          
 Moody'sFitchPoor'sDBRS        
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:
                   
 201420132013
 SecondFirstYear toFourthThirdSecondFirstFullYear to
(Dollars in thousands, except per share amounts)QuarterQuarterDateQuarterQuarterQuarterQuarterYearDate*
Basic EPS:                  
Net income attributable to City National Corporation  $ 66,701  $ 54,511  $ 121,212  $ 55,112  $ 63,633  $ 59,741  $ 51,523  $ 230,009  $ 111,264
Less: Dividends on preferred stock  4,094  4,094  8,188  2,406  2,407  2,406  2,406  9,625  4,812
Net income available to common shareholders  $ 62,607  $ 50,417  $ 113,024  $ 52,706  $ 61,226  $ 57,335  $ 49,117  $ 220,384  $ 106,452
Less: Earnings allocated to participating securities  626  543  1,173  585  688  656  637  2,555  1,287
Earnings allocated to common shareholders  $ 61,981  $ 49,874  $ 111,851  $ 52,121  $ 60,538  $ 56,679  $ 48,480  $ 217,829  $ 105,165
                   
Weighted average shares outstanding  54,957  54,689  54,824  54,438  54,274  54,105  53,731  54,139  53,919
                   
Basic earnings per common share  $ 1.13  $ 0.91  $ 2.04  $ 0.96  $ 1.12  $ 1.05  $ 0.90  $ 4.02  $ 1.95
                   
Diluted EPS:                  
Earnings allocated to shareholders (1)  $ 61,986  $ 49,879  $ 111,861  $ 52,126  $ 60,543  $ 56,682  $ 48,484  $ 217,848  $ 105,173
                   
Weighted average shares outstanding  54,957  54,689  54,824  54,438  54,274  54,105  53,731  54,139  53,919
Dilutive effect of equity awards  675  740  717  703  546  372  337  501  361
Weighted average diluted shares outstanding  55,632  55,429  55,541  55,141  54,820  54,477  54,068  54,640  54,280
                   
Diluted earnings per common share  $ 1.11  $ 0.90  $ 2.01  $ 0.95  $ 1.10  $ 1.04  $ 0.90  $ 3.99  $ 1.94
                   
* For the six months ended June 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:
         
   20142013
   SecondFirstSecond
(In thousands)  QuarterQuarterQuarter
Summary Totals        
Net impairment expense (Sum of A)    $ (4,080)  $ (2,019)  $ (1,463)
Other covered asset income (expense), net    1,295  (1,561)  (520)
Total expense, net   $ (2,785) $ (3,580) $ (1,983)
         
Interest income (1)        
Income on loans paid-off or fully charged-off    $ 18,682  $ 9,324  $ 15,880
         
(Reversal of) provision for losses on covered loans        
(Reversal of) provision for losses on covered loansA  (1,461)  4,655  (11,927)
         
Noninterest income related to covered assets        
         
FDIC loss sharing expense, net        
(Loss) gain on indemnification assetA  $ (4,392)  $ 3,599  $ (13,102)
Indemnification asset amortization    (3,320)  (3,164)  (4,746)
Net FDIC reimbursement for OREO and loan expenses    2,160  1,653  4,995
Removal of indemnification asset for loans paid-off or fully charged-off    (4,994)  (2,999)  (7,650)
Removal of indemnification asset for unfunded loan commitments and loans transferred to OREO  (773)  (676)  (1,163)
Removal of indemnification asset for OREO and net reimbursement to FDIC for OREO sales  (1,827)  (311)  (428)
Loan recoveries shared with FDIC    (9,866)  (4,222)  (4,095)
Increase in FDIC clawback liabilityA  (1,149)  (963)  (288)
Total FDIC loss sharing expense, net    (24,161)  (7,083)  (26,477)
         
Gain on disposal of assets        
Net gain on sale of OREO    2,613  389  616
         
Other income        
Net gain on transfers of covered loans to OREO    867  863  1,445
Amortization of fair value on acquired unfunded loan commitments    218  215  283
OREO income    289  435  456
Other    543  (156)  (318)
Total other income    1,917  1,357  1,866
         
Total noninterest income related to covered assets    $ (19,631)  $ (5,337)  $ (23,995)
         
Noninterest expense related to covered assets (2)        
         
Other real estate owned        
Valuation write-downs    $ 934  $ 155  $ 2,184
Holding costs and foreclosure expense    1,366  1,158  1,894
Total other real estate owned    2,300  1,313  4,078
         
Legal and professional fees    992  1,580  1,701
         
Other operating expense        
Other covered asset expenses    5  19  16
         
Total noninterest expense related to covered assets (3)    $ 3,297  $ 2,912  $ 5,795
         
Total expense, net   $ (2,785) $ (3,580) $ (1,983)
         
(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 second quarter of 2011 to the second quarter of 2014:
                             
   2014201320122011
   SecondFirstFourthThirdSecondFirstFourthThirdSecondFirstFourthThirdSecond
(In thousands)  QuarterQuarterQuarterQuarterQuarterQuarterQuarterQuarterQuarterQuarterQuarterQuarterQuarter
Summary Totals                            
Net impairment (expense) income (Sum of A)    $ (4,080)  $ (2,019)  $ (185)  $ (483)  $ (1,463)  $ (71)  $ 3,517  $ 2,639  $ 3,932  $ 2,756  $ (52)  $ (5,884)  $ (532)
Other covered asset income (expense), net    1,295  (1,561)  (124)  3,190  (520)  (144)  (720)  (837)  3,388  (1,893)  394  (589)  (1,095)
Total (expense) income, net   $ (2,785) $ (3,580) $ (309) $ 2,707  $ (1,983) $ (215) $ 2,797  $ 1,802  $ 7,320  $ 863  $ 342  $ (6,473) $ (1,627)
                             
Interest income                            
Income on loans paid-off or fully charged-off    $ 18,682  $ 9,324  $ 13,691  $ 25,849  $ 15,880  $ 15,625  $ 17,536  $ 22,164  $ 27,402  $ 15,699  $ 18,902  $ 18,343  $ 11,105
                             
(Reversal of) provision for losses on covered loans                            
(Reversal of) provision for losses on covered loansA  (1,461)  4,655  174  2,496  (11,927)  9,892  6,498  18,089  13,293  7,466  17,667  5,147  1,716
                             
Noninterest income related to covered assets                            
                             
FDIC loss sharing (expense) income, net                            
(Loss) gain on indemnification assetA  $ (4,392)  $ 3,599  $ 677  $ 2,239  $ (13,102)  $ 10,616  $ 10,070  $ 21,426  $ 17,722  $ 10,839  $ 17,675  $ (384)  $ 1,687
Indemnification asset amortization    (3,320)  (3,164)  (3,142)  (4,417)  (4,746)  (4,899)  (4,818)  (4,258)  (4,133)  (4,025)  (3,775)  (4,043)  (4,126)
Net FDIC reimbursement for OREO and loan expenses    2,160  1,653  2,289  4,582  4,995  5,193  8,020  7,612  6,724  10,441  13,858  10,496  17,852
Removal of indemnification asset for loans paid-off or fully charged-off    (4,994)  (2,999)  (6,813)  (9,746)  (7,650)  (6,073)  (5,896)  (9,731)  (10,654)  (6,516)  (5,955)  (10,228)  (6,306)
Removal of indemnification asset for unfunded loan commitments and loans transferred to OREO  (773)  (676)  (1,017)  (1,550)  (1,163)  (2,569)  (1,500)  (2,834)  (4,773)  (2,113)  (4,714)  (3,703)  (8,855)
Removal of indemnification asset for OREO and net reimbursement to FDIC for OREO sales  (1,827)  (311)  (680)  (2,451)  (428)  (844)  (2,042)  (1,219)  (1,189)  (2,656)  (1,543)  (2,823)  (7,219)
Loan recoveries shared with FDIC    (9,866)  (4,222)  (3,579)  (9,423)  (4,095)  (4,981)  (6,303)  (8,631)  (9,226)  (4,487)  (7,853)  (3,153)  (3,197)
Increase in FDIC clawback liabilityA  (1,149)  (963)  (688)  (226)  (288)  (795)  (55)  (698)  (497)  (617)  (60)  (353)  (503)
Other    --   --   --   --   --   --   --   --   --   --   --   --   (17)
Total FDIC loss sharing (expense) income, net    (24,161)  (7,083)  (12,953)  (20,992)  (26,477)  (4,352)  (2,524)  1,667  (6,026)  866  7,633  (14,191)  (10,684)
                             
Gain on disposal of assets                            
Net gain on sale of OREO    2,613  389  850  3,064  616  974  2,593  1,524  1,486  2,137  1,927  3,625  9,092
                             
Other income                            
Net gain on transfers of covered loans to OREO    867  863  1,427  1,936  1,445  3,506  1,926  4,907  6,864  2,483  6,824  3,887  12,817
Amortization of fair value on acquired unfunded loan commitments    218  215  69  48  283  394  408  192  413  559  558  1,088  766
OREO income    289  435  517  731  456  826  977  428  615  905  406  379  637
Other    543  (156)  (276)  711  (318)  (334)  (636)  (632)  (864)  (1,018)  (745)  (503)  (690)
Total other income    1,917  1,357  1,737  3,426  1,866  4,392  2,675  4,895  7,028  2,929  7,043  4,851  13,530
                             
Total noninterest income related to covered assets    $ (19,631)  $ (5,337)  $ (10,366)  $ (14,502)  $ (23,995)  $ 1,014  $ 2,744  $ 8,086  $ 2,488  $ 5,932  $ 16,603  $ (5,715)  $ 11,938
                             
Noninterest expense related to covered assets                             
                             
Other real estate owned                            
Valuation write-downs    $ 934  $ 155  $ 241  $ 1,556  $ 2,184  $ 3,035  $ 4,115  $ 4,267  $ 4,250  $ 7,808  $ 9,984  $ 7,526  $ 15,628
Holding costs and foreclosure expense    1,366  1,158  1,463  3,607  1,894  1,893  3,878  3,522  2,796  3,207  4,890  3,449  4,564
Total other real estate owned    2,300  1,313  1,704  5,163  4,078  4,928  7,993  7,789  7,046  11,015  14,874  10,975  20,192
                             
Legal and professional fees    992  1,580  1,749  969  1,701  2,020  2,977  2,541  2,200  2,278  2,609  2,961  2,832
                             
Other operating expense                            
Other covered asset expenses    5  19  7  12  16  14  15  29  31  9  13  18  (70)
                             
Total noninterest expense related to covered assets    $ 3,297  $ 2,912  $ 3,460  $ 6,144  $ 5,795  $ 6,962  $ 10,985  $ 10,359  $ 9,277  $ 13,302  $ 17,496  $ 13,954  $ 22,954
                             
Total (expense) income, net   $ (2,785) $ (3,580) $ (309) $ 2,707  $ (1,983) $ (215) $ 2,797  $ 1,802  $ 7,320  $ 863  $ 342  $ (6,473) $ (1,627)
                   
                   
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: 
                   
 201420132013
 SecondFirstYear toFourthThirdSecondFirstFullYear to
(Dollars in thousands)QuarterQuarterDateQuarterQuarterQuarterQuarterYearDate*
Net income available to common shareholders  $ 62,607  $ 50,417  $ 113,024  $ 52,706  $ 61,226  $ 57,335  $ 49,117  $ 220,384  $ 106,452
Add: Amortization of intangibles, net of tax  846  865  1,711  1,002  1,124  1,123  1,124  4,373  2,247
Tangible net income available to common shareholders (A)  $ 63,453  $ 51,282  $ 114,735  $ 53,708  $ 62,350  $ 58,458  $ 50,241  $ 224,757  $ 108,699
                   
Average common equity  $ 2,562,555  $ 2,512,775  $ 2,537,803  $ 2,465,056  $ 2,400,624  $ 2,412,148  $ 2,363,507  $ 2,410,585  $ 2,387,962
Less: Goodwill and other intangibles  (681,092)  (682,676)  (681,880)  (684,289)  (686,091)  (687,997)  (689,932)  (687,059)  (688,959)
Average tangible common equity (B)  $ 1,881,463  $ 1,830,099  $ 1,855,923  $ 1,780,767  $ 1,714,533  $ 1,724,151  $ 1,673,575  $ 1,723,526  $ 1,699,003
                   
Return on average tangible common equity (A)/(B) 13.53% 11.36% 12.47% 11.97% 14.43% 13.60% 12.17% 13.04% 12.90%
                   
* For the six months ended June 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. 
                   
 20142013      
 SecondFirstFourthThirdSecondFirst      
(Dollars in thousands)QuarterQuarterQuarterQuarterQuarterQuarter      
Tier 1 capital  $ 2,191,711  $ 2,140,136  $ 2,095,576  $ 1,936,191  $ 1,874,999  $ 1,818,367      
Less: Preferred stock  (267,616)  (267,616)  (267,616)  (169,920)  (169,920)  (169,920)      
Less: Trust preferred securities  (5,155)  (5,155)  (5,155)  (5,155)  (5,155)  (5,155)      
Tier 1 common equity (A)  $ 1,918,940  $ 1,867,365  $ 1,822,805  $ 1,761,116  $ 1,699,924  $ 1,643,292      
                   
Risk-weighted assets (B)  $21,923,746  $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) 8.75% 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 June 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 $1.9 billion and estimated risk-weighted assets were $22.8 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 total assets less identifiable intangible assets, goodwill and 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: 
                 
 20142013
 SecondFirstYear toFourthThirdSecondFirstYear to
(Dollars in thousands)QuarterQuarterDateQuarterQuarterQuarterQuarterDate
Period End:                
Total common shareholders' equity  $ 2,585,537  $ 2,528,344    $ 2,473,370  $ 2,417,968  $ 2,374,848  $ 2,386,969  
Less: Goodwill and other intangibles  (680,302)  (681,756)    (683,243)  (684,965)  (686,897)  (688,829)  
Tangible common equity (A)  $ 1,905,235  $ 1,846,588    $ 1,790,127  $ 1,733,003  $ 1,687,951  $ 1,698,140  
Less: Net unrealized (gain)/loss on AFS securities  (2,100)  4,363    15,641  10,355  (6,585)  (74,201)  
Tangible common equity excluding net unrealized gain/loss on AFS securities (B)  $ 1,903,135  $ 1,850,951    $ 1,805,768  $ 1,743,358  $ 1,681,366  $ 1,623,939  
                 
Total assets  $ 30,819,092  $ 29,738,252    $ 29,717,951  $ 29,059,404  $ 27,379,502  $ 27,433,754  
Less: Goodwill and other intangibles  (680,302)  (681,756)    (683,243)  (684,965)  (686,897)  (688,829)  
Tangible assets (C)  $ 30,138,790  $ 29,056,496    $ 29,034,708  $ 28,374,439  $ 26,692,605  $ 26,744,925  
Less: Net unrealized (gain)/loss on AFS securities  (2,100)  4,363    15,641  10,355  (6,585)  (74,201)  
Tangible assets excluding net unrealized gain/loss on AFS securities (D)  $ 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)  6.32% 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) 6.32% 6.37%   6.22% 6.14% 6.30% 6.09%  
                 
Average Balance:                
Total common shareholders' equity  $ 2,562,555  $ 2,512,775  $ 2,537,803  $ 2,465,056  $ 2,400,624  $ 2,412,148  $ 2,363,507  $ 2,410,585
Less: Goodwill and other intangibles  (681,092)  (682,676)  (681,880)  (684,289)  (686,091)  (687,997)  (689,932)  (687,059)
Tangible common equity (E)  $ 1,881,463  $ 1,830,099  $ 1,855,923  $ 1,780,767  $ 1,714,533  $ 1,724,151  $ 1,673,575  $ 1,723,526
Less: Net unrealized loss/(gain) on AFS securities  303  3,016  1,652  1,223  10,835  (68,768)  (76,916)  (33,071)
Tangible common equity excluding net unrealized gain/loss on AFS securities (F)  $ 1,881,766  $ 1,833,115  $ 1,857,575  $ 1,781,990  $ 1,725,368  $ 1,655,383  $ 1,596,659  $ 1,690,455
                 
Total assets  $ 29,978,947  $ 29,426,360  $ 29,704,180  $ 29,902,443  $ 28,061,134  $ 27,469,581  $ 27,709,159  $ 28,290,973
Less: Goodwill and other intangibles  (681,092)  (682,676)  (681,880)  (684,289)  (686,091)  (687,997)  (689,932)  (687,059)
Tangible assets (G)  $ 29,297,855  $ 28,743,684  $ 29,022,300  $ 29,218,154  $ 27,375,043  $ 26,781,584  $ 27,019,227  $ 27,603,914
Less: Net unrealized loss/(gain) on AFS securities  303  3,016  1,652  1,223  10,835  (68,768)  (76,916)  (33,071)
Tangible assets excluding net unrealized gain/loss on AFS securities (H)  $ 29,298,158  $ 28,746,700  $ 29,023,952  $ 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) 6.42% 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) 6.42% 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.comLinda Mueller, 213.673.7619 Linda.Mueller@cnb.com Conference Call: Today 2:00 p.m. PDT (877) 359-9508 Conference ID: 59741272



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