City National Bank ( CYN)

Q3 2011 Earnings Call

October 20, 2011 5:00 p.m. EDT


Cary Walker – SVP, Manager of Corporation Communications

Russell Goldsmith – President and CEO

Chris Carey – CFO


Steven Alexopoulos – JPMorgan

John Pancari – Evercore Partners

Joe Morford – RBC Capital

Erika Penala – Bank of America-Merrill Lynch

Brian Klock – KBW

Aaron Deer – Sandler O'Neill & Partners

Jeff Davis – Guggenheim Partners



Good afternoon. I would like to welcome everyone to this discussion of City National Corporation's third quarter 2011 financial results.

My name is [Misty] and I will be your coordinator for today.

At this time, all participants are in listen-only mode. After the speakers' remarks, there will be a question-and-answer period for analysts and investors. If at any time during this call you require assistance, please press the star key followed by the 0, and a coordinator will assist you.

This call is being recorded and will be available shortly after it is completed on City National's website at

Now I'd like to turn the call over to Cary Walker, Senior Vice President and Manager of Corporation Communications for City National. Please proceed, sir.

Cary Walker

Good afternoon. Here to discuss City National's third quarter 2011 highlights are Russell Goldsmith, our President and Chief Executive Officer, and Chris Carey, our Chief Financial Officer.

This call will include comments and forward-looking statements based on current plans, expectations, commitments and financial industry trends that may affect the company's future operating results and financial position. These statements involve risks and uncertainties and future activities and results may differ materially from those expectations. The speakers on this call claim the protection of the Safe Harbor Provisions contained in the Securities Litigation Reform Act of 1995. For a more complete discussion of the risks and uncertainties that may cause actual results to differ materially from expected results, see the company's annual report on Form 10-K for the year ended December 31, 2010.

This afternoon, City National issued a news released outlining its third quarter 2011 financial results. To get a copy, please visit our website at After comments by management today, we'll open up this call to your questions.

Now I'll turn the call over to our CEO, Russell Goldsmith.

Russell Goldsmith

Thank you. Good afternoon and thank you all for joining our third quarter earnings update. If there are any Ranger or Cardinal fans who are listening instead of watching the game, a special thank you for tuning in to our call.

Today, City National announced its third quarter net income of $41.4 million, up 20% from a year ago. Year to date, our earnings totaled $129 million, up 41% from the first three quarters of last year. City National is well on its way to its 19th consecutive year of profitability.

The company's positive third quarter performance reflects six key factors in particular which I think are quite encouraging. First, for the second quarter in a row, loan production was strong with new loan originations of $685 million.

Second, and I think this is quite interesting, in this quarter we had more net loan growth than in any single quarter in the company's history. And we think this was due in part to substantially fewer loan pay-downs than we've seen in sometime because our new loan originations in the third quarter were just somewhat above a strong number in the second quarter.

Third, City National continued to add new clients. Fourth, core deposits again grew at a remarkable pace. Fifth, credit quality remains strong. And sixth, we managed expenses while still investing selectively in the company.

It's also worth noting that in the third quarter the company both increased its solid capital base and at the same time repaid $150 million of sub-debt and $25 million of REIT-preferred stock.

Between June 30 and the end of September, loan balances grew 4%, adding more than $500 million net to a loan portfolio that now exceeds $12 billion. Much of this growth, almost $750 million, came from C&I loans, and fully half of that came from new clients. Average commercial loan balances increased 15% from the third quarter of last year. Our corporate banking and franchise finance business in particular performed well.

The rest of our third quarter loan growth came primarily from commercial real estate lending for finished properties, not construction, as well as residential mortgage loans in our private bank.

Overall, the quality of our loan portfolio continued to perform well. Our modest loan provision in this quarter is actually the first loan provision we've recorded for the entire year-to-date, and it in part reflects a positive fact that the company is showing solid loan growth, as well as our continuing commitment to having substantial loan reserves.

Charge-offs and non-accruals did go up slightly, and Chris will talk a bit more about that in a few minutes. But the increases stem largely from two credits. These are things to be expected in a $12 billion portfolio, and for the most part, our underlying credit trends are good and our credit outlook remains positive.

As you can see in the numbers, deposits continue to grow at a truly remarkable pace. In the third quarter alone, City National added another nearly $1 billion in non-interest-bearing deposit balances. Over the past three years, the company has added more than $8 billion in core deposits, essentially non-interest-bearing deposits. That's a remarkable 77% increase in just three years. And in total, our core deposits are about 96% of our total deposit balances.

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