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City National Corporation (CYN)

Q1 FY08 Earnings Call

April 17, 2008, 5:00 PM ET


Cary Walker - Sr. VP and Manager of Corporate Communications

Russell Goldsmith - President and CEO

Christopher J. Carey - EVP and CFO


Andrea Jao - Lehman Brothers

David Rochester - Friedman, Billings, Ramsey & Co.

Joe Morford - RBC Capital Markets

Todd Hagerman - Credit Suisse

Brett Rabatin - FTN Midwest

Robert Rutschow - Deutsche Bank Securities

Terry Maltese - Sandler O'Neill Asset Management

Salvatore DiMartino - Bear Sterns

Adam Barkstrom - Sterne, Agee Capital

Brent Christ - Fox-Pitt Kelton



Now I would turn this call over to Cary Walker, Senior Vice President and Manager of Corporate Communications for City National. Please proceed.

Cary Walker - Senior Vice President and Manager of Corporate Communications

: Thank you, good afternoon. Here to discuss City National's first quarter highlight are Russell Goldsmith, our President and Chief Executive Officer and Chris Carey, our Chief Financial Officer. This call includes comments and forward-looking statements based on current plans, expectation, events and financial industry trends. It may affect the company's future operating results and financial position.

Those statements involve risks and uncertainties and future activities and results may differ materially from these expectations. The speakers on this claim the protection of the Safe Harbor Provisions contained in the Securities Litigation Reform Act of 1995. For a more complete discussion and risks and uncertainties that may cause actual results to differ materially from expected results, see the company's annual report on Form 10-K at year ended December 31, 2007. This afternoon City National issued a news release outlining its financial results for the first quarter of 2008. To obtain a copy please visit our website at After comments by management today, we'll open this call for your questions.

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

Russell Goldsmith - President and Chief Executive Officer

: Good afternoon. Thank you all for joining us again today. As you know a few minutes ago City National announced first quarter 2008 earnings $44 million or $0.91 a share. This is at the lower end of what we think we are first quarter earnings estimates that were out there, and they were driven download by a the sharp drop we saw on interest rates of the first quarter as well as additions to our credit reserves due primarily to the fore sale housing market.

Given the current state of the economy, we have lowered our full year earning per share guidance as well. Of course we are disappointed not be leading our originally stated objective of consistent quality earnings growth. And I have to revise our earnings guidance down a bit. But in this environment we're going to continue to deliver quality earnings, and I believe we will ultimately return to net income growth as the economy and interest rates improve.

Nonetheless, looking at the first quarter of 2008, it was quite profitable. Despite deteriorating national economic conditions that we are all well aware of, City National continued to add client relationships and post double-digit gains on loans and non-interest income. The company's performance in the first quarter underscores many of its important attributes. It is conservatively managed, well capitalized, profitable and growing. Its underlying businesses are good; its balance sheet remains strong; its deposit base is exceptional and its credit reserves are solid. The bottom line is that while not immune to the challenges of today's economic environment, City National is reasonably well positioned for this economy and can take some advantage of some of the attractive growth opportunities that will be there as conditions improve.

One reason for that is as I think all of you know City National has avoided most of the highly publicized problems, plaguing some in the financial services industry. City National didn't build its earnings stream by securitizing high risk mortgages or by buying them for brokers. We have no exposure to sub-prime lending or option arms, no CDOs, no SIVs and looking forward to the concerned that some have, City National has no concerns over auto loans, credit card debt, home-equity lending or even our money market funds.

City National remains a double A rated bank that puts us in the top of 1% of all U.S. banks, and we have a consistent long-term strategy. Our capital ratios remain strong. In the first quarter we purchased almost 200,000 shares of our stock and subject to market conditions in the second quarter we expect to continue to buyback a prudent number of shares. Our company has managed its capital in way that permits that while at the same time safeguarding liquidity and capital, preserving our growth opportunities and delivering long-term value to shareholders. Of course, every company in this environment has its own set of challenges and in a week economy with a particularly severe recession in the housing sector, the challenges City National is dealing with at this time continue to be principally liked to that sector of our client's businesses. Although the sharp drop in interest rates has also impacted our margin here in the quarter, and of course economy has reduced demand for borrowing. Altogether these things impact our ability to grow net income in 2008.

Average loans in the first quarter grew 11% from the first quarter of 2007 but just 2% from year end. That reflects both our continuing caution as a lender as well as the understandable and conservative wait and see approach taken by some of our clients. Here at City National, we have been in or vary a tune to the risk of recession. Of course that means we are very focused on credit quality as you would expect. First quarter non-performing assets were higher, but still quite modest given the environment and net loan charge-offs came to just 42 basis points of total loans. Over 80% of first quarter charge-offs and non-accruals came from our book of residential homebuilder loans. It's worth noting that this entire sector in our loan portfolio accounts for just about 5% of City National's total loans.

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