DBRS: City National Reports Record 2Q14 Net Income, Loans, and Deposits

Summary:
• The Company reported record net income attributable to City National of $66.7 million, reflecting broad-based growth across many products and services.
• Average loan and deposit growth remains strong increasing 4% and 2%, respectively, to record levels sequentially.
• DBRS rates City National Corporation Issuer & Senior Debt at ‘A’ with a Stable trend.

DBRS, Inc. (DBRS) views City National Corporation’s (City National or the Company) 2Q14 results as strong with record net income. Moreover, the Company reported broad-based loan growth, continued deposit growth and significant improvements in Wealth Management relative to 2Q13, resulting in higher revenues. While expenses were higher than expected, City National still generated positive operating leverage. Positively, management reiterated its outlook for 3% FY14 expense growth, absent acquisitions.

Once again, the Company was able to deliver broad-based loan growth, as well as higher levels of deposits, both of which reached record levels. Indeed, loan and lease balances increased across each asset class with particular success within the Company’s specialty lending niches including corporate banking, mortgage warehouse lending, entertainment and equipment leasing. Meanwhile, deposits reached $26.7 billion, of which 98% are considered core in nature.

Excluding the impact of covered loans and securities gains, revenues increased a strong 8% sequentially with both higher net interest income (NII) and noninterest income. NII was bolstered by the aforementioned strong loan growth, as well as net interest margin expansion. The Company does expect loan growth to moderate in 2H14 from the very high levels seen in 1H14. Meanwhile, each noninterest income line item also increased. DBRS notes that Wealth Management remains an important contributor to earnings. Indeed, City National reported $47.1 billion of assets under management and another $18.7 billion of assets under administration at quarter-end. Of note, brokerage and mutual fund fees did include $3.8 million of performance fees related to the merger of two mutual funds.

Asset quality is strong and continues to improve with lower levels of classified assets (down by over a third sequentially) and lower nonperforming assets. While the Company did have modest net charge-offs this quarter, it still has net recoveries for the year. As a result of the asset quality improvement, earnings benefited from a modest negative provision. City National does expect to commence loan loss provisioning in 2H14 reflecting loan growth, not credit deterioration.

DBRS rates City National Corporation Issuer & Senior Debt at ‘A’ with a Stable trend.

Note:
All figures are in U.S. dollars unless otherwise noted.