City National Corporation
) reported third-quarter 2013 earnings per share of $1.10,
beating the Zacks Consensus Estimate of $1.00. Moreover, earnings
were in line with the prior-year quarter figure.
Better-than-expected results were primarily attributable to a
rise in net-interest income. However, a decline in revenues due
to lower non-interest income and higher expenses was a negative.
Net income came in at $63.6 million, up 6% from $59.8 million in
the year-ago quarter.
Performance in Detail
City National's total revenue was $303 million, down 4% from the
Net interest income, on a fully taxable-equivalent basis, was
$220.0 million, up 2% from the prior-year quarter. Net interest
income for the said quarter included $25.8 million from
FDIC-covered loans that were repaid or charged off. This was
higher than $22.2 million recorded in the third quarter of 2012.
Additionally, net interest margin fell 49 basis points (bps) year
over year to 3.25%.
Non-interest income was $88.9 million, down 17% from the
prior-year quarter. The decline was due to higher FDIC
loss-sharing expense, partly offset by higher trust and
investment income. Non-interest income for the quarter included a
$5.6 million net gain on securities, compared with $0.8 million
net gain in the third quarter of 2012.
Non-interest expense was $209.4 million, up 1% from the
prior-year quarter figure. The rise was due to increase in
salaries and employee benefits expenses, marketing and
advertisement costs as well as information services expenses.
These negatives were partly offset by decline in both other real
estate owned expenses and other expenses.
City National's credit quality considerably improved in the
quarter. Net recoveries were reported at $6.8 million or 0.17% of
total loans and leases on an annualized basis, compared with
negative $2.2 million or negative 0.06% in the prior-year
As of Sep 30, 2013, the company's allowance for loan and lease
losses totaled $295.9 million or 1.79% of total loans and leases,
compared with $268.4 million or 1.96% as of Sep 30, 2012.
Nonperforming assets were $88.5 million or 0.53% of the company's
total loans and leases and other real estate owned (OREO),
compared with $130.5 million or 0.95% as of Sep 30, 2012.
Non-accrual loans were $69.6 million, compared with $103.5
million as of Sep 30, 2012.
Loans and Deposits
City National witnessed growth in its loan portfolio in the
reported quarter. Loans and leases, excluding covered loans, were
$16.0 billion, up 18% year over year.
Average deposits for the quarter climbed 11% year over year to
$23.4 billion. Moreover, core deposits rose 11% year over year to
City National's Tier 1 common shareholders' equity ratio was 8.8%
as of Sep 30, 2013, compared with 9.1% as of Sep 30, 2012. Under
Basel III rules, City National's estimated Tier 1 common equity
ratio was 8.6%.
Total risk-based capital and Tier 1 risk-based capital ratios as
of Sep 30, 2013, were 12.7% and 9.7%, respectively, compared with
12.4% and 9.1% as of Sep 30, 2012.
Tier 1 leverage ratio was 7.1% versus 6.3% in the year-ago
Management expects net income growth to be modest in the
remainder of 2013, owing to loan growth, increasing deposits and
good credit quality. However, the prevalent low short-term
interest rate environment will continue to weigh on the company's
net interest margin. This outlook reflects management's
expectations of moderate growth and stable monetary policies in
the fourth quarter.
Performance of Other Banks
Among other West banks,
) reported third-quarter 2013 adjusted earnings per share of 44
cents, beating the Zacks Consensus Estimate by a penny.
Better-than-expected results were driven by lower operating
expenses, partially offset by a decline in the top line.
) third-quarter 2013 earnings per share of 63 cents, was below
the Zacks Consensus Estimate and the prior-quarter figure by a
penny. Results suffered due to lower net interest income,
partially offset by a fall in operating expenses.
First Republic Bank
) reported third-quarter 2013 adjusted earnings of 64 cents per
share, missing the Zacks Consensus Estimate by a penny. Top-line
growth, aided by rise in net interest and non-interest income was
the positive for the quarter. However, rise in non-interest
expenses reflected undisciplined expense management.
We believe that City National remains well poised for loan and
deposit growth, given its well-diversified portfolio. We also
expect strong organic growth, especially from new clients, to
drive income in the near future.
However, the prevalent low interest rate environment, sluggish
economic growth and regulatory pressure are matters of
City National currently carries a Zacks Rank #3 (Hold).
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