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City National Corporation (CYN)

Q3 2012 Earnings Conference Call

October 18, 2012, 05:00 p.m.ET


Cary Walker -- SVP and Manager of Corporate Communications

Russell Goldsmith -- President and CEO

Chris Carey -- CFO


Steven Alexopoulos – JPMorgan

Aaron Deer -- Sandler O'Neill

Jennifer Demba -- SunTrust Robinson

Joe Morford -- RBC

John Pancari -- Evercore Partners

Brett Rabatin -- Sterne, Agee

Brian Zabora -- Stifel Nicolaus

Casey Haire -- Jefferies



Good afternoon. I would like to welcome everyone to this discussion of City National Corporation's third quarter 2012 financial results. My name is Hope and I will be your coordinator for today. At this time, all participants are in a listen-only mode. After the speaker's remarks, there will be a question-and-answer period for analysts and investors. (Operator Instructions). This call is being recorded and will be available shortly after it is completed on City National's website at

I will now 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 third quarter 2012 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. These 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, 2011.

This afternoon, City National issued a news release outlining its third quarter 2012 financial results. To obtain a copy, please visit our website at After comments made by management today, we'll open up this call to your questions.

Now I'll turn it over to our CEO, Russell Goldsmith.

Russell Goldsmith

Good afternoon. Thank you all for joining us today. This afternoon, City National was pleased to announce third quarter net income of $59.8 million, a very strong 44% increase from the third quarter of 2011 that came to $1.10 per share. Even though today's low interest rates present a challenge for City National and all banks, we're quite pleased with the growth and results here in City National, both for this quarter and year-to-date.

For the nine months so far in 2012, net income is $160.8 million which is a 25% increase from the same period last year. This third quarter was particularity good across the board. Loans, deposits and revenue all grew with double digit rates and reached record highs. For the very first time, City National's assets topped $26 billion. Credit quality remains solid and the Company continued both to invest in new products and services in people and acquisitions, while at the same time holding expenses in check.

Our third quarter earnings, of course, included a couple of variable items and we'll discuss them later in the call. But as you can see, City National's business is strong and well positioned for continued long-term growth. We continue to add clients to grow assets, to enhance our capabilities and to expand in our very attractive geographical footprint. All-in-all, despite the low interest rates and a still tepid economy, we're pleased that City National is nearing its 20th consecutive year of profitability and the fact that the Company has managed to be profitable in every quarter during those nearly 20 years. Clearly that stability has contributed to City National's enhanced reputation and market share.

I'll go into some of the highlights of the quarter and then turn things over to Chris Carey for more debt and color. Let's start with loan growth. I'm pleased to report that loan balances increased for the sixth straight quarter and for the third quarter in a row, we posted record loan production. Loan originations came to $920 million, bringing our year-to-date total to $2.6 billion. About half of the year-to-date growth came from new clients which we're particularly pleased about. Once again, we made good gains in C&I lending which accounted for well over half of our third quarter loan production.

The new teams that we've added in the past year in franchise finance and asset-based lending contributed to that growth as did our latest acquisition, our second quarter acquisition of First American Equipment Finance which also performed well and contributed nicely to that year-over-year growth. Commercial real estate loans also grew in the quarter and residential lending went up slightly, notwithstanding that we saw a record refinancing activity in the quarter.

Overall line utilization remains as relatively low levels. Loan commitments were up about $200 million to $13.6 billion, but outstandings were at $7.9 billion, an increase, but still leaving a lot of room for further draw-downs as the economy picks up. New loan production, however, was offset by about $700 million in normal loan amortization and early payoffs.

As is happening throughout the United States, we continue to see many entrepreneurs and investors sitting on the sidelines, conserving their cash, staying cautious in light of the economic and political uncertainties that are out there today. But at some point, utilization rates will rise to more normal levels as the economy and confidence improve and we expect our clients will be borrowing to expand and grow their businesses more robustly when that happens. And when it does, City National will benefit.

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