City National Corporation reported third-quarter 2013 earnings per share of $1.10, beating the Zacks Consensus Estimate of $1.00. Moreover, earnings were in line with the prior-year quarter figure.
Better-than-expected results were primarily attributable to a rise in net-interest income. However, a decline in revenues due to lower non-interest income and higher expenses was a negative.
Net income came in at $63.6 million, up 6% from $59.8 million in the year-ago quarter.
Performance in Detail
City National’s total revenue was $303 million, down 4% from the prior-year quarter.
Net interest income, on a fully taxable-equivalent basis, was $220.0 million, up 2% from the prior-year quarter. Net interest income for the said quarter included $25.8 million from FDIC-covered loans that were repaid or charged off. This was higher than $22.2 million recorded in the third quarter of 2012. Additionally, net interest margin fell 49 basis points (bps) year over year to 3.25%.
Non-interest income was $88.9 million, down 17% from the prior-year quarter. The decline was due to higher FDIC loss-sharing expense, partly offset by higher trust and investment income. Non-interest income for the quarter included a $5.6 million net gain on securities, compared with $0.8 million net gain in the third quarter of 2012.
Non-interest expense was $209.4 million, up 1% from the prior-year quarter figure. The rise was due to increase in salaries and employee benefits expenses, marketing and advertisement costs as well as information services expenses. These negatives were partly offset by decline in both other real estate owned expenses and other expenses.
City National’s credit quality considerably improved in the quarter. Net recoveries were reported at $6.8 million or 0.17% of total loans and leases on an annualized basis, compared with negative $2.2 million or negative 0.06% in the prior-year quarter.
As of Sep 30, 2013, the company’s allowance for loan and lease losses totaled $295.9 million or 1.79% of total loans and leases, compared with $268.4 million or 1.96% as of Sep 30, 2012.
Nonperforming assets were $88.5 million or 0.53% of the company's total loans and leases and other real estate owned (OREO), compared with $130.5 million or 0.95% as of Sep 30, 2012.
Non-accrual loans were $69.6 million, compared with $103.5 million as of Sep 30, 2012.
Loans and Deposits
City National witnessed growth in its loan portfolio in the reported quarter. Loans and leases, excluding covered loans, were $16.0 billion, up 18% year over year.
Average deposits for the quarter climbed 11% year over year to $23.4 billion. Moreover, core deposits rose 11% year over year to $23.7 billion.
City National’s Tier 1 common shareholders' equity ratio was 8.8% as of Sep 30, 2013, compared with 9.1% as of Sep 30, 2012. Under Basel III rules, City National’s estimated Tier 1 common equity ratio was 8.6%.
Total risk-based capital and Tier 1 risk-based capital ratios as of Sep 30, 2013, were 12.7% and 9.7%, respectively, compared with 12.4% and 9.1% as of Sep 30, 2012.
Tier 1 leverage ratio was 7.1% versus 6.3% in the year-ago quarter.
Management expects net income growth to be modest in the remainder of 2013, owing to loan growth, increasing deposits and good credit quality. However, the prevalent low short-term interest rate environment will continue to weigh on the company’s net interest margin. This outlook reflects management’s expectations of moderate growth and stable monetary policies in the fourth quarter.
Performance of Other Banks
Among other West banks, Zions Bancorp. (ZION - Analyst Report) reported third-quarter 2013 adjusted earnings per share of 44 cents, beating the Zacks Consensus Estimate by a penny. Better-than-expected results were driven by lower operating expenses, partially offset by a decline in the top line.
Westamerica Bancorp’s (WABC - Analyst Report) third-quarter 2013 earnings per share of 63 cents, was below the Zacks Consensus Estimate and the prior-quarter figure by a penny. Results suffered due to lower net interest income, partially offset by a fall in operating expenses.
Similarly, First Republic Bank (FRC - Analyst Report) reported third-quarter 2013 adjusted earnings of 64 cents per share, missing the Zacks Consensus Estimate by a penny. Top-line growth, aided by rise in net interest and non-interest income was the positive for the quarter. However, rise in non-interest expenses reflected undisciplined expense management.
We believe that City National remains well poised for loan and deposit growth, given its well-diversified portfolio. We also expect strong organic growth, especially from new clients, to drive income in the near future.
However, the prevalent low interest rate environment, sluggish economic growth and regulatory pressure are matters of concern.
City National currently carries a Zacks Rank #3 (Hold).