After buying four failed banks in less than two years, City National Corp. in Los Angeles is now eyeing acquisitions of healthier banks while it continues to pursue organic growth in its existing markets.
In a conference call with analysts Thursday, Chief Executive Russell Goldsmith said that failed-bank deals "are pretty much played out for us" and that existing banks squeezed by weak loan demand and increasing regulatory costs might be better targets at this point.
"We fully expect that there will be banks in that size range under $1 billion, $2 billion, maybe even higher, that will realize that they're better off merging with the right partner and getting the benefits of some scale that a bank like City National can provide," Goldsmith said in response to a question about City National's growth ambitions.
The $23.7 billion-asset City National has also added six new offices in the past year and Goldsmith said the bank intends to open "a handful" of offices this year in Northern California and other markets where it already has a presence. The bulk of the bank's offices are in California and Nevada, but in recent months it has also opened offices in New York, Nashville and Atlanta.
Before the conference call, City National announced that its fourth-quarter earnings rose 10% from the same period in 2010, to $43.9 million, due primarily to a 4% increase in total loans.
City National's net income for the full year was $172.4 million, up 37% from 2010. It marked the 19th consecutive profitable year for the company, which is best-known for serving clients in the entertainment industry.
City National had to increase its provision for loan losses in the fourth quarter to $5 million, from $3 million a year earlier, due to its acquisitions of failed banks in Las Vegas and San Diego. These deals also caused the company to record a nominal noncash impairment charge during the quarter in provisioning for the covered loans.
City National warned in a news release that additional impairments may be booked "due to the uncertainty in the future performance of the covered loans."
Still, analysts praised City National for reducing its foreclosed and nonperforming assets while raising its quarterly dividend 25%, to 25 cents a share. For the full year, City National's loan-loss provision was $12.5 million, down from $103 million in 2010.
"Overall, we view the quarter favorably given its higher profitability and solid capital levels, which supported the board's decision to increase the quarterly dividend," said Sandler O'Neill & Partner's managing director, Aaron James Deer in a research note Friday.
City National's shares were trading at $49.31 midday Friday, up 2% from Thursday's close.