City National Corp. will take an after-tax hit to fourth-quarter earnings of $2 million, or 4 cents a share, resulting from the settlement of a lender-liability lawsuit.

Despite the charge, the bank earned its highest income ever in 1996, $66.6 million, a 36% increase from 1995, it reported. The $4.5 billion asset bank said this week that it hoped that its insurance company would cover part of the litigation expenses.

"We fully intend to make our insurance company see the facts in this matter," said Frank Pekny, chief financial officer of City National. "If they still don't see it our way, then we have the ability to sue them, though we prefer not to do that."

Mr. Pekny said the lawsuit was filed by a customer who stopped paying on a loan from the bank. The bank subsequently foreclosed on the property and sold it, which prompted the litigation, he said. He declined to disclose further details about the case, citing a confidentiality agreement.

Excluding the charge, the bank's earnings are about what analysts expected.

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