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City National Corporation (CYN)

Q4 2008 Earnings Call

January 22, 2008 5:00 pm ET


Cary Walker – Senior Vice President, Manager of Corporate Communications

Russell Goldsmith – President, Chief Executive Officer

Christopher Carey – Chief Financial Officer


Steve Alexopoulos - J.P. Morgan

Brian Klock - Keefe, Bruyette & Woods

Doug Christopher - Crowell Weeden

David Rochester - Friedman, Billings, Ramsey & Co.

Lana Chan - BMO Capital Markets



Good afternoon. I would like to welcome everyone to this discussion of City National Corporation's year end and fourth quarter 2008 financial results. My name is [Julianne] and I will be your coordinator for today. (Operator Instructions)

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

Cary Walker

Thank you. Good afternoon. Here to discuss City National's year end and fourth 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 position. 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 year ended December 31, 2007.

This afternoon City National issued a news release outlining its 2008 financial results. To obtain a copy, please visit our website at

After comments by management today, we'll open this call to your questions.

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

Russell Goldsmith

Good afternoon and thank you all for joining us again on this call.

Let me begin by saying that here at City National we are keenly aware of the extraordinary economic conditions that face the United States and the impact that they're having on the financial services industry and vice versa.

However, in some ways City National remains an exception to the kind of headline grabbing issues that are plaguing the financial services industry and getting so much attention. At the same time, however, City National and its clients are keenly aware that we are operating in a very real and enduring recession and are affected by it. We all recognize the economy and the financial markets are in uncharted waters. Everyone on this call knows, as do we, that 2008 was clearly a challenging year for the economy and for business, and we don't expect 2009 to get any easier anytime soon.

Today on the call I'd like to emphasize five things that I think are particularly important about City National's performance in 2008 and what it means for 2009.

First, City National recorded its 16th straight profitable year.

Second, City National strengthened its balance sheet meaningfully.

Third, City National grew its core deposits and loans and client base in 2008.

Fourth, City National demonstrated and is demonstrating its commitment to meaningful cost containment.

Fifth, City National continued in 2008 and will do so in 2009 - very selectively  continued to invest for the future and, as a result, when interest rates and credit costs return to more normal levels, as they ultimately will, City National will again grow its profitability very significantly.

Let me turn to the first point. As you saw in the release, City National just reported 2008 net income available to common shareholders of $102.5 million on revenue of just under $867 million. Fourth quarter net income available to common shareholders amounted to $6.5 million or $0.13 a share, however, if you exclude after-tax charges and a new dividend that we are paying on preferred stock related to the company's participation in the U.S. Treasury's Capital Purchase Program, fourth quarter net income on that basis was $24.5 million or $0.50 a share.

Even though City National's performance for the year and even the quarter is profitable and I believe will turn out to be reasonably good compared to what's going on in the financial services industry, no one here is satisfied with our performance for 2008.

Certainly, City National's profitability was affect significantly by a number of things that reflect the state of the U.S. economy  significantly higher credit costs, an unprecedented 400 basis point decline in short-term interest rates to the current very low levels, several securities impairment charges stemming from continuing turmoil in the financial markets, and increased costs that are rising again in 2009, increased costs related to industrywide FDIC insurance premium increases and, of course, the Treasury's Capital Purchase Program. All of these developments had a significant impact on '08 earnings and will affect '09 earnings.

Given the state of the economy, we believe a strong balance sheet is particularly important right now. Fortunately, City National, through it's 55-year history, has been committed to being well capitalized. This year - meaning 2008 - we added meaningfully to the capital strength of City National Corporation by agreeing to take part in the government's plan to buy preferred stock and warrants in some of the nation's leading financial institutions.

As a result of our performance and that investment, as we start 2009 City National is very well capitalized. At year end, its ratio of shareholder's equity to total assets was 12.4% compared to 10.4% at the same time a year ago. This increase reflects the $400 million investment that we received in November from the U.S. Treasury Department's Capital Purchase Program.

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