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City National Corporation (CYN)

Q2 FY08 Earnings Call

July 24, 2008, 5:00 PM ET


Cary Walker - Sr. VP and Manager of Corporate Public Relations

Russell Goldsmith - Chairman, President and CEO

Christopher J. Carey - EVP and CFO


Brett Rabatin - FTN Midwest Securities Corp.

David Rochester - FBR Capital Markets

Rajiv Patel - Sinova Capital

Andrea Jao - Lehman Brothers

Edward Timmons - Sterne, Agee & Leach, Inc.

Joe Morford - RBC Capital Markets

Brian Klock - KBW

Terry Maltese - Sandler O’Neill Asset Management



Good afternoon. I would like to welcome everyone to this discussion of City National Corporation's financial results for the second quarter of 2008. My name is Stephanie, and I will be your coordinator for today. At this time, all participants are in a listen-only mode. [Operator Instructions]. This call is being recorded and will be available shortly after it is completed on City National's website at

Now, I will turn the conference 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 Public Relations

Thank you. Good afternoon. Here to discuss City National's second quarter highlights 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 conditions.

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 contained in the Securities Litigation Reform Act of 1995. For a more 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 full year ended December 31, 2007.

This afternoon City National issued a news release outlining its financial results for the second quarter of 2008. To obtain a copy, please visit our website at After comments by management today, we'll open this call up to your questions.

And now I will turn the call over to our CEO, Russell Goldsmith.

Russell Goldsmith - Chairman, President and Chief Executive Officer

Good afternoon, and thank you for joining us again this quarter. A few minutes ago, we announced second quarter 2008 earnings for City National of $35.5 million or $0.73 a share. Through the first half of '08, City National has now earned just under $80 million or $1.64 per share on revenue of $459.6 million. City National is on track for its 15th consecutive profitable year and actually this is our 61st consecutive quarter of profitability.

In the second quarter, our businesses performed well, generally speaking. Loans grew at double digit rates and so did non-interest income, as City National continued to add new wealth management and cash management clients as well. Core deposits also increased noticeably from the first quarter.

Our company remains well capitalized as evidenced by today's dividend declaration and our continuing stock buyback program. I think it's important to emphasize once again that City National has avoided virtually all of the more publicized problems in the banking sector like subprime mortgages and subprime CDOs, problems that are plaguing other institutions, but not City National.

We have no option ARMs, no brokered mortgages. And for all practical purposes, we have no auto loans or consumer credit card debt to affect us in anyway. In spite of today's challenging economic environment, City National remains strong, consistently profitable, and well reserved.

As you noticed, second quarter earnings were below 2007 because we've recorded $35 million provision for credit losses as compared with no provision in the second quarter of 2007. This provision for the second quarter of '08 takes into account two positive factors actually, City National's loan growth and a $17 million build in our strong credit reserves taking it up to 1.5% of total loans, one of the stronger levels in banking.

Of course, this level of provision also reflects the higher costs created by additional and significant housing market deterioration in the second quarter that has clearly taken a toll on our home-builder clients. In light of current economic conditions, which are likely to persist through this year and into 2009, we have lowered our full-year earnings per share guidance, logically [ph] because we are determined to maintain solid credit reserves and have to anticipate further credit deterioration in light of the economy.

With that reserve prudently in place, City National is both well positioned to weather this economic opportunity... economic downturn, and at the same time can remain profitable while taking advantage of some attractive growth opportunities. In our opinion, there is a shift underway that favors strong banks like City National that have a strong deposit and capital base and are open for business with the ability to meet their client's reasonable financial needs.

As the market for leverage and securitization recedes or dries up entirely in many cases and investors demand more appropriate pricing for the risks they take on and as it's very obvious these days, some of the most aggressive lenders disappear from the landscape, we believe over the long term that more solid well managed companies with credit needs and deposits will turn more often to banks like City National, and do so on more attractive terms.

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