City National Corp.
) reported first-quarter 2013 earnings of 90 cents per share,
marginally lagging the Zacks Consensus Estimate of 92 cents.
However, earnings compared favorably with the prior-quarter
earnings of 86 cents.
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City National's lower-than-expected results were primarily
attributable to rising expenses on the back of Rochdale
Investment Management and First American acquisitions. However,
increased revenues and a strong balance sheet were the positives
in the quarter.
Net income came in at $51.5 million, up 11% from $46.3 million in
the year-ago quarter.
Performance in Detail
City National's total revenue was $309.3 million, up 7% from the
prior-year quarter. Moreover, total revenue surpassed the Zacks
Consensus Estimate of $300.0 million.
Net interest income, on a fully taxable-equivalent basis,
remained almost unchanged compared with the year-ago quarter at
$206.3 million. First-quarter net interest income included $15.6
million from the FDIC-covered loans that were repaid or charged
off during the quarter compared with $15.7 million in the
year-ago quarter. However, net interest margin dropped 53 basis
points from the last-year quarter to 3.21%.
Non-interest income stood at $93.5 million, surging 24% from the
prior-year quarter. The rise was attributable to the acquisitions
of Rochdale Investment Management and First American in 2012, and
higher cash management income.
Non-interest expense was $211.3 million, 5% higher than $200.7
million in the prior-year quarter. The rise was a result of
higher salaries and employee benefits expenses and FDIC
assessments, partially mitigated by lower other real estate owned
(OREO) expenses, legal and professional fees and other expenses.
Excluding the costs associated with Rochdale Investment
Management and First American acquisitions, non-interest expense
fell 2% from the prior-year quarter.
City National's credit quality continued to improve. Net
recoveries were reported at $4.8 million or 0.13% of total loans
and leases on an annualized basis compared with $4.5 million or
0.15% in the prior-year quarter.
As of Mar 31, 2013, the company's allowance for loan and lease
losses totaled $282.3 million, or 1.86% of total loans and leases
compared with $266.1 million, or 2.09% as of Mar 31, 2012.
Non-performing assets were $103.1 million or 0.68% of the
company's total loans and leases and OREO compared with $141.9
million or 1.11% as of Mar 31, 2012.
Non-accrual loans were $83.3 million compared with $112.8 million
as of Mar 31, 2012.
Loans and Deposits
City National witnessed a surge in its loan portfolio in the
reported quarter. Loans and leases, excluding covered loans, were
$14.8 billion, up 19% year over year.
Average deposits for the quarter climbed 11% year over year to
$22.4 billion. Moreover, core deposits jumped 12% year over year
to $21.8 billion.
City National's Tier 1 common shareholders' equity ratio stood at
8.7% compared with 10.2% as of Mar 31, 2012. The decline from the
prior-year quarter was attributable to both asset growth and
acquisitions of Rochdale Investment Management and First American
Total risk-based capital and Tier 1 risk-based capital ratios as
of Mar 31, 2013 were 12.72% and 9.64%, respectively, compared
with 12.71% and 10.20% as of Mar 31, 2012.
Tier 1 leverage ratio was 6.72% versus 6.98% in the year-ago
Management expects net income to grow moderately in 2013.
However, the company's net interest margin will be under pressure
due to low interest rates and a very flat yield curve. Loan and
deposit balances are anticipated to increase, and credit quality
will likely remain healthy, but the rising loan balances may
require a somewhat higher loan-loss provision. This outlook
reflects management's expectations for the continuation of
moderate economic growth through 2013.
We believe that City National remains well positioned for loan
and deposit growth given its well diversified portfolio. We also
expect strong organic growth, especially from new clients, to
drive income growth in the near future.
However, the prevailing low interest rate environment, sluggish
economic growth and stringent regulatory pressures are major
areas of concern.
City National currently retains a Zacks Rank #3 (Hold). Other
banking stocks in the West that are performing better than City
BofI Holding, Inc.
BBCN Bancorp, Inc.
), each carrying a Zacks Rank #2 (Buy).