DBRS: City National Delivers Robust Growth, Record Net Income in 3Q14

Summary:
• City National Corporation reported record net income of $68.7 million, up 3% sequentially, benefitting primarily from a reversal of provision for loan and leases.
• Wealth Management revenues, average loans and leases (excluding covered loans), and average total deposits all increased at least 10% from 3Q13 levels.
• 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) 3Q14 results as strong highlighted by continued robust growth and pristine asset quality that contributed to record net income. Moreover, almost half of all new originations in the quarter came from new customers, and pipelines remain very solid. The Company’s balance sheet that is underpinned by robust liquidity, pristine asset quality, and sound capital remain supportive of the rating.

Despite broad-based loan growth, net interest income (FTE) declined modestly sequentially, primarily reflecting lower income on FDIC-covered loans, which negatively impacted the net interest margin. Meanwhile, noninterest income was relatively stable, excluding the impact of the FDIC loss-sharing expense. Wealth Management continues to be a growing contributor to revenues and assets under management reached a record $49 billion. Overall, 3Q14 noninterest income comprised 33% of total revenues.

City National’s strong performance this year has impacted expenses by increasing incentive compensation. Expenses also included approximately $1.4 million from the sale of the Company’s retirement services recordkeeping business. Overall, noninterest expenses increased 1% during the quarter and 6% YTD. Looking forward, City National expects expenses to remain stable sequentially, which would equate to FY14 expense growth of over 4%.

Record average core deposits increased 4% during the quarter, including 6% noninterest-bearing deposit growth. This low cost, stable deposit base provides substantial liquidity and one of the lowest cost of funds in the industry.

The Company benefited from $10.6 million in net recoveries during the quarter. Meanwhile, nonperforming asset and classified loan balances both declined from already low levels. As a result of the improvements, City National had an $8 million loan provision reversal. Even with the reversal, the overall allowance for loan and lease losses increased, and still represents a very sound 1.62% of total loans and leases.

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.