City National Corp.
) reported its fourth quarter 2012 earnings of 87 cents per
share, significantly below the Zacks Consensus Estimate of $1.00.
However, results compared favorably with the year-ago earnings of
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City National's disappointing results were primarily due to
higher expenses. However, increased top line partially offset the
negatives. Also, improvements in credit quality, growths in
average deposits and loans as well as stable capital ratios were
among the other positives.
For full-year 2012, the company reported earnings of $3.83 per
share compared with $3.21 in 2011. However, this was below the
Zacks Consensus Estimate of $3.96
Performance in Detail
City National's total revenue was $318.2 million, up 5% from the
prior-year quarter. It also surpassed the Zacks Consensus
Estimate of $298.0 million.
For the full year, revenues totaled $1.2 billion, up 7% from
2011. Revenues marginally surpassed the Zacks Consensus Estimate
of $1.1 billion.
Net interest income, on a fully-taxable equivalent basis, inched
up 1% year over year to $209.1 million. However, net interest
margin dipped 43 basis points from the year-ago quarter to 3.27%.
Non-interest income stood at $99.9 million, surging 16% from the
prior-year quarter. The expansion was attributable to increases
in brokerage and mutual fund fees, trust and investment fees,
gain on securities along with other income, partially offset by
lower gains on disposal of assets and FDIC loss sharing expense.
Non-interest expense was $222.0 million, 12% higher than $198.2
million in the previous-year quarter. The rise was a result of
higher depreciation and amortization expenses, mounted expenses
related to net occupancy of premises, higher legal and
professional fees expenses, elevated expenses related to the
amortization of intangibles and increased other expenses,
partially mitigated by a decline in other real estate owned
City National's credit quality continued to improve. Net
recoveries were reported at $2.0 million or 0.06% of total loans
and leases on an annualized basis compared with net charge-offs
of $5.5 million or 0.18% in the prior-year quarter.
As of Dec 31, 2012, nonperforming assets were $120.8 million, or
0.81% of the company's total loans and leases and OREO, compared
with $142.8 million or 1.16% as of Dec 31, 2011 and $130.5
million or 0.95% as of Sep 30, 2012.
Non-accrual loans, as of Dec 31, 2012, were $99.8 million
compared with $112.0 million as of Dec 31, 2011 and $103.5
million as of Sep 30, 2012.
Loans and Deposits
City National witnessed a surge in its loan portfolio in the
reported quarter. Loans and leases, excluding covered loans, were
$14.0 billion, up 15% from the prior-year quarter.
Average deposits climbed 14% to $23.4 billion from the prior-year
quarter. Moreover, core deposits jumped 15% year over year to
City National's Tier 1 common shareholders' equity ratio stood at
8.5% compared with 10.2% as of Dec 31, 2011 and 9.1% as of Sep
30, 2012. The decline from the prior-year quarter was
attributable to both asset growth and acquisitions of Rochdale
Investment Management and First American Equipment Finance.
Total risk-based capital and Tier 1 risk-based capital ratios as
of Dec 31, 2012 were 12.5% and 9.4%, respectively.
As of Dec 31, 2012, tier 1 leverage ratio was 6.60% versus 6.29%
in the previous quarter and 6.77% in the year-ago quarter.
Management expects net income to grow discreetly in 2013.
However, the company's net interest margin will be under pressure
due to low interest rates and a very flat yield curve.
Nonetheless, loans and deposit balances are expected 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 throughout 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 in the near future.
However, the prevailing low interest rate environment, sluggish
economic growth and stringent regulatory pressures are the major
areas of concern.
City National currently retains a Zacks Rank #3 (Hold). Other
western banks that are performing impressively include
Central Valley Community Bancorp
Western Alliance Bancorporation
). These banks retain a Zacks Rank #1 (Strong Buy). Another
Pacific Continental Corp.
) - carrying a Zacks Rank #2 (Buy) - is also worth