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City National earnings fall by more than half

October 22, 2009 |  5:33 pm

Business lender and private banker City National Corp. said this afternoon that its third-quarter net income declined by more than half as a result of losses on real estate lending.

The Los Angeles bank said its worst problems were shifting from home-builder loans to nonresidential-construction loans, reflecting the troubled economy's shifting.

In its earnings release, City National said it earned $8 million during the July-September period, down from $16.6 million in the same period a year earlier but up slightly from $6.8 million in the second quarter.

After paying $5.5 million to the U.S. Treasury as a preferred dividend on the $400 million in government capital it received last November, City National earned 5 cents a share available to common shareholders. That was down 85% from 34 cents a share in the third quarter of 2008.

Analysts’ expectations for the earnings had ranged widely, averaging 8 cents a share. The results were announced after the markets closed. Earlier, City National shares rose $1.64, or 4.1%, to $41.54 on a day of big gains for financial shares in general.

Russgoldsmith City National Chief Executive Russell Goldsmith has been saying since May, when the bank raised $100 million in capital by selling new shares to investors, that he wants to repay the government and shed the bank’s association with the federal bailout program. The bank raised an additional $180 million through a debt offering in the third quarter.

Asked today about repaying the funds from the government’s Troubled Asset Relief Program, Goldsmith answered only vaguely in an afternoon call with analysts.

"The process is continuing to evolve," Goldsmith said. "We look forward to repaying TARP in the future."

The CEO reminded the analysts that City National's capital is stronger than that of many rivals and that it avoided the worst mistakes of the bubble years, such as subprime-mortgage-linked investments and loans for major hotels and office buildings.

That eventually will help restore the bank's "fundamental earnings power" as the economy stabilizes,  he said. 

As for the present, "We managed to remain modestly profitable ... amid the worst economic recession in 75 years," Goldsmith said.

City National said its assets had risen to a record $18 billion and its deposits stood at an all-time high of $14.8 billion, up 24% from a year earlier -- a vote of confidence, as Goldsmith put it, from both new clients and existing customers who beefed up their deposits.

The bank set aside $85 million to cover credit losses during the quarter and wrote off $76.9 million in loans as uncollectible, raising its total allowance for loan losses slightly to $265 million.

City National said that as of Sept. 30, it had classified $452 million in assets as nonperforming, a category including loans on which payments aren't being made and foreclosed real estate. That represented 3.7% of its total loans and foreclosed property, compared with just 1.25% in the nonperforming category a year earlier.

In normal economic times, healthy banks are expected to keep their ratio of nonperformers under 1%.

-- E. Scott Reckard

Photo: City National CEO Russell Goldsmith. Credit: Lawrence K. Ho / Los Angeles Times