In 2001, City National again delivered double-digit growth in net income, which increased 11 percent to $146 million for the year. That brought our five-year compounded annual growth rate to 17 percent. Earnings per share were $2.96, a 9 percent increase over the prior year, for a five-year compounded growth rate of 15 percent. For the eighth straight year, the Board of Directors increased our dividend, declaring an annual rate of $0.78 per share, effective January 2002.

By year end, the corporation had achieved several milestones: Total assets surpassed $10 billion for the first time, total deposits exceeded $8 billion and total loans topped $7 billion.

Net interest income rose 7 percent to an all-time high of $434 million last year, even as interest rates fell dramatically. Average relationship loans increased 13 percent to $6.6 billion. Although a slowing economy moderated loan demand in certain sectors, our organization was able to attract significant new quality clients and generate quality growth in our portfolio and revenue.

Noninterest income, an important component of our ability to deliver recurring revenue and quality growth, rose 21 percent from $109 million to $132 million, thanks in part to the strength of our asset management and brokerage businesses. City National Investments ended 2001 with $18.8 billion in assets under management or administration. Assets under management grew 15 percent to $7.7 billion.

Meanwhile, average deposits grew to $7.1 billion--a 12 percent gain. Average core deposits increased 13 percent to $5.6 billion, and average demand deposits rose 15 percent year over year to $3 billion. By December 31, 2001, demand deposits accounted for 42 percent of our average total--well above the industry average and nearly twice the level of peer banks. Our remarkably strong deposit base enables City National to sustain a net interest margin that is among the highest in the industry. In 2001, our margin remained strong. While the Federal Reserve Board's rate reductions totaled 475 basis points, our average net interest margin for the year narrowed only 18 basis points to 5.26 percent.

Equally important, the company grew while building a stronger capital position. We reported total risk-based capital and Tier 1 risk-based capital ratios for the year of 14.08 percent and 9.32 percent, respectively, well above the 10 percent and 6 percent ratio requirements for "well-capitalized" institutions. Our Tier 1 leverage ratio of 7.26 percent easily exceeded the 4 percent regulatory minimum required of "well-capitalized" institutions. During 2001, City National Bank further strengthened its Tier 2 capital position with the issuance of $150 million of 10-year subordinated notes at 6.75 percent. We also issued $3.4 million of preferred stock of a REIT subsidiary of the bank. This preferred stock qualifies as Tier 1 capital.

Net Income ($ millions) Net income grew 11 percent last year; our five-year compounded annual growth rate was 17 percent.