City National's CEO Discusses F2Q12 Results - Earnings Call Transcript

City National (CYN)

F2Q12 Earnings Call

July 19, 2012 5:00 p.m. ET

Executives

Cary Walker – Senior Vice President and Manager of Corporate Communications

Russell Goldsmith – Chairman and Chief Executive Officer

Christopher J. Carey – Executive Vice President and Chief Financial Officer

Analysts

Aaron Deer – Sandler O'Neill

Steven Alexopoulos – J.P. Morgan

Paul Miller - FBR

L. Erika Penala – Bank of America Merrill Lynch

Joe Morford – RBC Capital

Brian Klock – Keefe, Bruyette & Woods

John G. Pancari – Evercore Partners

Jennifer Demba – SunTrust

Jonathan Katz - Morgan Stanley

Presentation

Operator

Good afternoon. I would like to welcome everyone to this discussion of City National Corporation’s second quarter 2012 financial results. [Operator instructions.] This call is being recorded and will be available shortly after it is completed on City National’s website at cnb.com. Now, I will turn this call over to Cary Walker, senior vice president and manager of corporate communications for City National. Please proceed.

Cary Walker

Thank you. Good afternoon. Here to discuss City National’s second quarter 2012 results 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, events, and financial industry trends that may affect the company’s future operating results and financial position. Such statements involve risks and uncertainties, and future activities and results may differ materially from these expectations.

The speakers on this call claim the protection of the Safe Harbor provisions in the Securities Litigation Reform Act of 1995. For a 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, 2011.

This afternoon, City National issued a news release outlining its second quarter 2012 financial results. To obtain a copy, please visit our website at cnb.com. After comments by management today, we’ll open up this call to your questions.

And now I'll turn it over to our CEO, Russell Goldsmith.

Russell Goldsmith

Good afternoon. Thank you all for joining us again for this quarterly call. This afternoon, as you know, City National announced a strong and productive second quarter, with net income up 15% from the second quarter of last year to $54.8 million.

Period-end assets grew to nearly $25 billion, up 10% from the second quarter of last year and another new all-time high for us. Loans and deposits increased at double digit rates. Both are at new record levels for City National.

And that total does include the $300 million in loans we were also pleased to add with the acquisition of First American Equipment Finance, which we announced in the quarter, and closed on April 30. The other acquisition in the quarter we were pleased to announce was Rochdale Investment Management, which closed recently, on July 2.

In the second quarter, credit quality remained strong, expenses remained in check, and City National further bolstered its strong capital position with a successful offering of a $150 million subordinated debt offering, which replaced and expanded a piece of our capital structure that we’ve had for many years.

All in all, we’re pleased with City National’s performance halfway through the year, especially in light of today’s economic environment and the continuing extraordinarily low interest rates. Fortunately, City National is well-positioned for the remainder of 2012 and beyond. We are prudently growing a diversified array of assets, adding new clients and colleagues, and investing for the future.

In a few minutes, Chris Carey and I will be happy to take your questions, but first I want to discuss some other highlights from the second quarter. Let me start with loan growth. Following a very strong first quarter of loan originations - in fact our most productive ever - new loan originations in the second quarter actually exceeded the first quarter level, and set a new record of just under $900 million. And that’s without the First American portfolio. And that’s 40% ahead of last year’s pace.

That brings year to date originations to $1.6 billion, also an all-time high for City National. Total net loans - not just originations - are up 16% for the first half of the year, including the First American portfolio.

As you saw, City National recorded a very modest second quarter loan loss provision of just $1 million. That’s primarily a reflection of loan growth and also the fact that we had a net pickup of $2.7 million from loan recoveries. At quarter end, the company remained well-reserved, at 2% of the higher number of total loans.

Deposits also continued to grow, increasing to another new record of $21 billion, up 12% from the same period last year. Non-interest-bearing deposits actually decreased 33%. Our strong deposit base and growth reflects our growing client base, as well as our focused business strategy and value proposition as a premiere private and business bank.

Turning to our wealth management business, second quarter income from trust, investment, mutual fund, and brokerage fees totaled $39 million, up 2% from the first quarter of the year. In this quarter, as I mentioned, City National took a significant step to improve and grow our wealth management business for the future, with the addition of Rochdale Investment Management. That will bring our total client investment assets that our various wealth management companies manage or administer to more than $63 billion.

Rochdale, which is headquartered in Manhattan, manages almost $5 billion in assets for affluent and high net worth clients with their financial advisors in New York, California, and across the nation. Early next year, we will combine Rochdale with one of our key wealth management companies, City National Asset Management, to create a stronger and more diversified national wealth management company, City National Rochdale Investments, under the leadership of Rochdale’s excellent CEO, Garrett D’Alessandro.

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