Average deposits rise 24 percent from third quarter of 2009
Total assets up 19 percent to $21.8 billion
Credit quality continues to improve
LOS ANGELES, Oct. 21, 2010 (GLOBE NEWSWIRE) -- City National Corporation (NYSE:CYN), the parent company of wholly owned City National Bank, today reported third-quarter 2010 net income and net income available to common shareholders of $34.4 million, or $0.65 per share. In the third quarter of 2009, net income was $8.0 million, while net income available to common shareholders was $2.5 million, or $0.05 per share.
Third-quarter 2010 net income included two unusual items primarily related to one of the company's FDIC-assisted acquisitions and the repayment of debt. Excluding these items, third-quarter net income totaled $40.3 million, or $0.76 per share.1
Year to date, City National's net income totaled $91.4 million. Net income available to common shareholders was $85.7 million, or $1.62 per share. In the first nine months of 2009, the company earned net income of $22.3 million, while net income available to common shareholders amounted to $5.8 million, or $0.11 per share.
The company also announced today that its Board of Directors has again declared a 2010 quarterly common stock cash dividend of $0.10 per share. The quarterly dividend is payable on November 17, 2010 to stockholders of record on November 3, 2010.
THIRD-QUARTER 2010 HIGHLIGHTS
- Third-quarter revenue totaled $254.5 million, up 11 percent from the third quarter of 2009.
- Fully taxable-equivalent net interest income amounted to $191.1 million, up 16 percent from the same period last year and 3 percent from the second quarter of 2010. City National's net interest margin averaged 3.84 percent in the third quarter of 2010, down from 3.93 percent in the second quarter of 2010 due largely to strong growth in deposits, which were invested in securities available-for-sale and other liquid assets.
- Average deposit balances, including those acquired in three FDIC-assisted transactions, grew to a record $18.3 billion, up 24 percent from $14.8 billion in the third quarter of 2009 and 4 percent from $17.6 billion in the second quarter of this year. Average core deposits grew 27 percent from the third quarter of last year and 5 percent from the second quarter of 2010. Core deposits now amount to approximately 94 percent of total average balances.
- Average loans, excluding loans covered by City National's acquisition-related loss‑sharing agreements with the FDIC, were $11.4 billion, down 7 percent from the same period last year and 1 percent from the second quarter of 2010. The declines reflected weak loan demand due to current business and economic conditions, along with continued progress in reducing the number of problem loans.
- Third-quarter 2010 net income included a $13 million provision for credit losses on non-FDIC covered loans, 59 percent lower than it was in the second quarter of 2010. Net charge-offs declined 16 percent from the second quarter of 2010, while nonperforming assets, excluding FDIC-covered assets, declined 5 percent.
- Third-quarter 2010 earnings included two unusual items. Among them was a pretax purchase gain of $2.1 million, related to an FDIC-assisted acquisition. The company also recorded a pretax charge of $12.3 million for the early retirement of debt. After tax, these items amounted to a net charge of $5.9 million, or $0.11 per share. Excluding them, third-quarter net income was $40.3 million, or $0.76 per share.1
- On September 13, City National completed the sale of $300 million of 10-year 5.25 percent senior notes and used most of the net proceeds on October 16 to redeem $250 million of 9.625 percent cumulative trust preferred securities.
"These third-quarter results reflect the underlying strength and continuing improvement of City National's business," said Chief Executive Officer Russell Goldsmith. "Deposits again reached new record levels. Asset quality improved for the fourth straight quarter as credit costs declined. The company's balance sheet continued to grow stronger with its successful senior debt offering, its trust preferred securities redemption and its growing capital base. The integration of 1st Pacific Bank added five offices in San Diego, as we continued to invest in City National's future growth with the selective addition of new colleagues, resources and capabilities for clients.
"It's worth adding that City National continues to energetically seek out quality lending relationships, as evidenced by the increases in our commercial and single-family residential loan portfolios, and that City National does not have the foreclosure problems and risks that are getting headline attention at some of the nation's largest banks."
ASSETS
Total assets at September 30, 2010 grew to a record $21.8 billion, up 19 percent from the third quarter of 2009. The increase reflects the company's three FDIC-assisted acquisitions and strong growth in securities due to high growth in deposits.
REVENUE
Revenue for the third quarter of 2010 was $254.5 million, up 11 percent from the third quarter of 2009 but down 16 percent from the second quarter of this year. The decline from the second quarter was due principally to lower acquisition-related purchase gains.
NET INTEREST INCOME
Fully taxable-equivalent net interest income was $191.1 million in the third quarter of 2010, up 16 percent from the same period last year and 3 percent from the second quarter of this year.
Third-quarter average deposits reached a record $18.3 billion, up 24 percent from the third quarter of 2009 and 4 percent from the second quarter of this year. Average core deposits were $17.2 billion in the third quarter of 2010, up 27 percent from the same period of 2009 and 5 percent from the second quarter of 2010.
Third-quarter 2010 average noninterest-bearing deposits were up 13 percent from the same period of 2009 and 2 percent from the second quarter of 2010.
Treasury Services deposit balances, which consist primarily of title, escrow, community association and property management deposits, averaged $1.5 billion in the third quarter of this year, up 55 percent from the same period of 2009 and 8 percent from the second quarter of 2010 due to the addition of new clients and an increase in residential real estate refinance activity.
Third-quarter average loan balances, excluding FDIC-covered loans, were $11.4 billion, down 7 percent from the third quarter of 2009 and 1 percent from the second quarter of this year. The declines reflect relatively weak loan demand due to challenging business and economic conditions, along with the company's continued progress in reducing the number of problem loans. Average FDIC-covered loans totaled $2.0 billion for the third quarter of 2010, virtually unchanged from the second quarter of this year.
Average balances for commercial loans were down 9 percent from the same period last year and 1 percent from the second quarter of 2010. Average balances for commercial real estate and construction loans together were down 18 percent from the third quarter of 2009 and 5 percent from the second quarter of this year. Average balances for single-family residential mortgage loans, nearly all of which are made to City National's private banking clients, were up 2 percent from the year-ago period and 1 percent from the second quarter of 2010.
Average securities for the third quarter of 2010 totaled $5.0 billion, up 37 percent from the same period last year and 17 percent from the second quarter of 2010. The increases reflect the company's strong deposit growth and relatively weak loan demand due to economic conditions. The average duration of total available-for-sale securities at September 30, 2010 was 2.1 years, down from 2.6 years at the end of the third quarter of 2009 and 2.3 years at June 30, 2010.
City National's net interest margin in the third quarter of 2010 averaged 3.84 percent, compared with 3.94 percent in third quarter of 2009 and 3.93 percent in the second quarter of this year. The declines were due primarily to strong growth in deposits, which were invested in securities available–for-sale and other liquid assets.
Third-quarter net interest income included $9.2 million in net interest income from the acceleration of a discount recognized for covered loans that were repaid during the quarter. This compares with $4.3 million of additional net interest income in the second quarter of 2010.
At September 30, 2010, City National's prime lending rate was 3.25 percent, unchanged from both September 30, 2009 and June 30, 2010.
COVERED ASSETS
Loans and OREO assets acquired in City National's three FDIC-assisted acquisitions totaled $2.0 billion at the end of the third quarter of 2010.
In the third quarter, the company recorded a $4.9 million non-cash net charge related to covered loans. The charge reflected a provision for loan losses of $8.2 million for covered loans minus $3.3 million of other income from City National's loss-sharing agreements with the FDIC. The loss on covered loans is mainly the result of lower projected interest cash flows due to the company's revised default forecasts, though credit losses remain in line with previous expectations. City National will continue to update these cash-flow projections on a quarterly basis. Due to the uncertainty in the future performance of the covered loans, additional impairments may be recognized in the future.
OREO assets acquired by City National in three FDIC-assisted acquisitions and subject to loss-sharing agreements totaled $110.4 million at September 30, 2010, compared to $98.8 million at the end of the second quarter.
NONINTEREST INCOME
Noninterest income was $66.8 million in the third quarter of 2010, down 3 percent from one year ago. However, third-quarter 2010 noninterest income reflects two unusual items: One is the $2.1 million gain from one of City National's FDIC-assisted acquisitions. The other is a charge of $12.3 million for the early retirement of $175 million of debt.
Excluding these items, third-quarter noninterest income was up 12 percent from the same period last year.1
In the third quarter of 2010, noninterest income accounted for 26 percent of City National's total revenue.
Wealth Management
City National's assets under management totaled $35.7 billion as of September 30, 2010, up 2 percent from the same period of 2009 and 4 percent from the second quarter of this year. These changes were caused in part by fluctuations in equity market values.
Trust and investment fees were up 1 percent from the third quarter of 2009, but down 4 percent from the second quarter of this year. Money market mutual fund and brokerage fees were up 7 percent from the year-ago period and 19 percent from the second quarter of 2010, due largely to higher balances and increased trading activity.
Other Noninterest Income
Income from cash management and deposit transaction fees was $11.6 million in the third quarter, down 12 percent from the third quarter of 2009 and 3 percent from the second quarter of this year. The decreases were due to higher deposit balances used to offset service charge fees.
Fee income from foreign exchange services and letters of credit was unchanged from the third quarter of 2009, but down 6 percent from the second quarter of this year largely reflecting lower seasonal demand for these services.
Other income was $2.7 million in the third quarter of 2010, down 57 percent from the year-ago period and 76 percent from the second quarter of this year. The decreases were due primarily to the $12.3 million charge for early debt retirement.
NONINTEREST EXPENSE
Third-quarter 2010 noninterest expense amounted to $184.7 million, up 28 percent from the third quarter of 2009. Contributing to this increase were the company's three FDIC-assisted acquisitions. Third-quarter expense growth reflected higher compensation costs, FDIC assessments, legal and professional fees, and expenses related to covered assets, including other real estate owned properties. Many of the qualified covered asset-related expenses are reimbursed by the FDIC and reflected in noninterest income.
Noninterest expense was down 1 percent from the second quarter of this year, reflecting lower costs for OREO, legal and professional services, advertising and marketing.
CREDIT QUALITY
The following credit quality information excludes loans subject to loss-sharing agreements involving City National's FDIC-assisted transactions:
Net loan charge-offs in the third quarter of 2010 totaled $28.2 million, or 0.98 percent of total loans and leases on an annualized basis, down from $33.5 million, or 1.16 percent, in the second quarter of this year. Net charge-offs were $76.9 million, or 2.47 percent of total loans and leases, in the third quarter of 2009.
At September 30, 2010, nonperforming assets amounted to $297.6 million, or 2.59 percent of the company's total loans and leases and OREO, down from $314.6 million, or 2.73 percent, at June 30, 2010, and $452.2 million, or 3.70 percent, at September 30, 2009. Nonaccrual loans at September 30, 2010 were $239.1 million, down from $260.1 million at June 30, 2010 and $408.3 million at September 30, 2009.
City National's third-quarter provision for credit losses totaled $13 million, down from $32 million in the second quarter of 2010 and $85 million in the third quarter of 2009.
At September 30, 2010, City National's allowance for loan and lease losses totaled $274.2 million, or 2.40 percent of total loans and leases. That compares with $290.5 million, or 2.53 percent, at the end of the second quarter of 2010 and $265.0 million, or 2.18 percent, at September 30, 2009. The company also maintains an additional $20.4 million in reserves for off-balance-sheet credit commitments.
City National's provision reflects management's continuing assessment of the loan portfolio's credit quality and economic conditions. This assessment takes into account a broad range of economic factors, including net loan charge-offs, nonaccrual loans, specific reserves, risk-rating migration and changes in the portfolio size and composition.
Commercial Loans
Commercial loans accounted for $17.9 million of City National's net charge-offs, down from $21.3 million in the second quarter of this year, and $28.9 million in the year-earlier period. The majority of commercial loan net charge-offs in the third quarter of 2010 were tied to companies in real estate-related industries.
Commercial loans on nonaccrual totaled $28.9 million, down from $46.5 million at June 30, 2010, and $90.7 million at September 30, 2009.
Construction Loans
City National's $575 million commercial real estate construction portfolio includes secured loans to developers of residential and nonresidential properties. The company has reduced this portfolio by 42 percent since September 30, 2009, and construction loans now account for just 5 percent of the company's total loans.
In the third quarter of 2010 – for the first time since the second quarter of 2007 – the company recorded no construction loan net charge-offs. This compares to net charge‑offs of $10.9 million in the second quarter of 2010 and $42.7 million in the third quarter of 2009. At September 30, 2010, construction loans on nonaccrual totaled $135.8 million, down from $138.9 million at June 30, 2010, and $233.8 million at September 30, 2009.
The company's portfolio of loans to residential developers totaled $115 million at September 30, 2010 – 1 percent of City National's total loan portfolio. Loans to residential developers accounted for 33 percent of all construction loans on nonaccrual at September 30, 2010.
The remainder of City National's construction portfolio consists of loans to developers of nonresidential projects. Nonresidential construction loans amounted to $460 million at September 30, 2010, down from $496 million at June 30, 2010, and $759 million at the same time last year. Nonresidential construction loans on nonaccrual were $90 million, virtually unchanged from the second quarter of this year and down from $137 million in the third quarter of 2009.
Commercial Real Estate Mortgage Loans
Third-quarter net charge-offs in the company's $2.0 billion commercial real estate mortgage portfolio were $9.0 million, up from $0.4 million in the second quarter of 2010, and $3.4 million in the third quarter of 2009.
Commercial real estate mortgage loans on nonaccrual totaled $50.4 million, down from $57.2 million at June 30, 2010, and $60.8 million at September 30, 2009.
Residential Mortgage Loans and Equity Lines of Credit
City National's $3.6 billion residential mortgage portfolio and $757 million home-equity portfolio continued to perform well. Together, they accounted for $1.4 million in net charge-offs, a slight increase from $0.9 million at June 30, 2010, and $1.1 million at September 30, 2009. Residential mortgage loans and lines of credit on nonaccrual were $21.8 million in the third quarter of 2010, compared to $15.4 million in the second quarter of this year and $15.5 million in the third quarter of 2009.
During the first nine months of 2010, City National completed only five foreclosures in its $4.3 billion portfolio of residential mortgages and equity lines.
INCOME TAXES
City National's third-quarter 2010 effective tax rate was 27.7 percent, compared to a tax benefit in the year-ago period. The higher tax rate for the third quarter of this year is attributable to higher pretax income.
2010 YEAR-TO-DATE HIGHLIGHTS
- Revenue for the first nine months of this year was $811.5 million, compared with $642.2 million for the first three quarters of 2009.
- Fully taxable-equivalent net interest income amounted to $555.2 million, up 18 percent from $472.1 million in the first nine months of 2009. The company's net interest margin averaged 3.91 percent in the first nine months of 2010, down from 3.97 percent during the same period of the prior year.
- Average deposits for the first nine months of this year amounted to $17.6 billion, up 27 percent from the same period of 2009. Core deposit balances totaled $16.4 billion in the first three quarters of 2010, up 31 percent from the first nine months of 2009.
- Average loans, excluding FDIC-covered loans, totaled $11.6 billion, down 6 percent from the first nine months of 2009.
- Noninterest income totaled $266.3 million, up 48 percent from the first nine months of 2009.
- Year to date, excluding FDIC-covered loans, City National's provision for credit losses on loans and leases totaled $100 million. The company made provisions of $205 million during the first nine months of 2009.
- Noninterest expense for the first nine months of 2010 was up 30 percent from the same period of 2009, due primarily to the company's three FDIC-assisted acquisitions.
CAPITAL LEVELS
City National remains well-capitalized and continues to add capital, ending the third quarter of 2010 with a Tier 1 common shareholders' equity ratio of 10.0 percent, compared to 9.2 percent at September 30, 2009, and 9.7 percent at June 30, 2010.1
Total risk-based capital and Tier 1 risk-based capital ratios at September 30, 2010 were 14.7 percent and 12.0 percent, respectively. City National's Tier 1 leverage ratio at September 30, 2010 was 7.8 percent. All of City National's capital ratios are above minimum regulatory standards for "well-capitalized" institutions.
Total risk-based capital, Tier 1 risk-based capital and the Tier 1 leverage ratios at June 30, 2010 were 14.7 percent, 11.7 percent and 8.0 percent, respectively.
Due to strong growth in assets, the period-end ratio of shareholders' equity to total assets at September 30, 2010 was 9.1 percent, compared to 12.1 percent at September 30, 2009, and 9.1 percent at June 30, 2010.
On September 13, City National completed the sale of $300 million of 10-year 5.25 percent senior notes. The company used most of the net proceeds from this offering to redeem $250 million of 9.625 percent cumulative trust preferred securities on October 16, 2010. Excluding the trust preferred securities, which currently qualify as Tier 1 capital, City National's pro-forma Tier 1 risk-based capital ratio was 10.1 percent at September 30, 2010.1
2010 OUTLOOK
Management continues to expect increased profitability in 2010 over 2009.
CONFERENCE CALL
City National Corporation will host a conference call this afternoon to discuss third-quarter 2010 financial results. The call will begin at 2:00 p.m. PDT. Analysts and investors may dial in and participate in the question/answer session. To access the call, please dial (866) 393-6804 and enter Conference ID 11680865. A listen-only live broadcast of the call also will be available on the investor relations page of the company's Website at cnb.com. There, it will be archived and available for 12 months.
ABOUT CITY NATIONAL
City National Corporation's wholly owned subsidiary, City National Bank, provides banking, investment and trust services through 79 offices, including 17 full-service regional centers, in Southern California, the San Francisco Bay Area, Nevada and New York City. The corporation and its seven consolidated investment affiliates manage or administer $56.9 billion in client investment assets, including nearly $36 billion under direct management.
For more information about City National, visit the company's Website at cnb.com.
The City National Corporation logo is available at
SAFE-HARBOR LANGUAGE
This news release contains forward-looking statements for which the company claims the protection of the safe harbor contained in the Private Securities and Litigation Reform Act of 1995. These forward-looking statements are subject to risks and uncertainties.
A number of factors, many of which are beyond the Company's ability to control or predict, could cause future results to differ materially from those contemplated by such forward-looking statements. These factors include (1) local, regional and international business, economic and political conditions, (2) volatility in financial markets, including capital and credit markets, (3) significant changes in banking laws or regulations, including without limitation, the enactment of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 and the new rules and regulations to be promulgated by supervisory and oversight agencies implementing the new legislation, (4) increases and required prepayments in Federal Deposit Insurance Corporation ("FDIC") premiums and special federal assessments on financial institutions due to market developments and regulatory changes, (5) changes in the level of nonperforming assets, charge-offs, other real estate owned and provision expense, (6) incorrect assumptions in the value of the loans acquired in FDIC-assisted acquisitions resulting in greater than anticipated losses in the acquired loan portfolios exceeding the losses covered by the loss-sharing agreements with the FDIC, (7) changes in inflation, interest rates, and market liquidity which may impact interest margins and impact funding sources, (8) adequacy of the Company's enterprise risk management framework, (9) the Company's ability to increase market share and control expenses, (10) the Company's ability to attract new employees and retain and motivate existing employees, (11) increased competition in the Company's markets, (12) changes in the financial performance and/or condition of the Company's borrowers, including changes in levels of unemployment, changes in customers' suppliers, and other counterparties' performance and creditworthiness, (13) a substantial and permanent loss of either client accounts and/or assets under management at the Company's investment advisory affiliates or its wealth management division, (14) changes in consumer spending, borrowing and savings habits, (15) soundness of other financial institutions which could adversely affect the Company, (16) protracted labor disputes in the Company's markets, (17) earthquake, fire or other natural disasters affecting the condition of real estate collateral, (18) the effect of acquisitions and integration of acquired businesses and de novo branching efforts, (19) the impact of changes in regulatory, judicial or legislative tax treatment of business transactions, (20) changes in accounting policies or procedures as may be required by the Financial Accounting Standards Board or regulatory agencies, and (21) the success of the Company at managing the risks involved in the foregoing.
Forward-looking statements speak only as of the date they are made, and the company does not undertake to update forward-looking statements to reflect circumstances or events that occur after the date the statements are made, or to update earnings guidance, including the factors that influence earnings. For a more complete discussion of these risks and uncertainties, see the company's Annual Report on Form 10-K for the year ended December 31, 2009 and particularly Part I, Item 1A, titled "Risk Factors."
1For notes on non-GAAP measures, see pages 13 and 14 of the Selected Financial Information.
CONTACT: City National Corporation Financial/Investors Christopher J. Carey 310.888.6777 Chris.Carey@cnb.com Media Cary Walker 213.673.7615 Cary.Walker@cnb.com Conference Call: Today 2:00 p.m. PDT (866) 393-6804 Conference ID: 11680865